Natural Products Business School: What this economy means for your H2 business plansNatural Products Business School: What this economy means for your H2 business plans
Nutrition Capital Network offers a forecast for the rest of 2022, while natural products brand leaders share advice for how to protect your brand in this session of New Hope Network's Natural Products Business School.
September 26, 2022
Branded food and beverage equity financing fell 72% or $227 million in the first two quarters of 2022 compared to the $824 million in first two quarters of 2021, according to Nutrition Capital Network's mid-year report.
And while the average size of financing across all health and wellness industry segments has more than doubled since 2016, the average deal decreased 25.3% during the first half of this year, to $38.9 million from $52.1 million.
Can we expect more of the same? And, what can companies do to deliver financial results and stay true to their mission through the second half of 2022? Here's a recap of the Natural Products Business School session, "What This Economy Means for Your H2 Business Plans," which was included in "How to Have the Best Expo East Ever!" on Sept. 7.
NCN 2021 Q1 & Q2 recap and forecast
How long will the financial cloud last? "Experts consulted for our mid-year NCN report are predicting 12-24 months of downturn, with Q1 of 2023 a pivotal quarter for assessing just how deep this cycle of pain might run," said NCN Business Development Manager Will Grubb.
Grubb relayed investment firm William Hood's forecast as well: The low- to middle-market may prove to be the most resilient. There's a liquidity crunch coming in the venture capital markets as investors shy away from more speculative opportunities and the large corporates are hamstrung by depressed stock prices and higher costs of capital. The brightest spot is the middle market right now.
The other bright spots are biotech and ag tech. Those sectors continue a three-year tear with "an annualized 380 financings expected in 2022 on +38% annual transaction growth," said Grubb. "We see investors betting on increasingly sophisticated technologies like fermentation, cellular ag, 3d printing and other AI-driven applications."
Deal pricing will tighten up, but scaled brands with clear paths to profitability will still find success, especially with private-equity firms, Grubb said. His tips for companies? Localize and optimize supply chains. "The food less traveled is more resilient," he said. And, quantify impact early. Consulting firm McKinsey & Company reports that certified B Corps and ESG-minded brands focused on climate command a premium of at least 10% from investors. CircleUp's Helio platform has tracked a three-times sales bump that comes from measuring and validating a company's social impact.
Advice from the trenches
Mind your margin
"From an investor's standpoint if you look at now, versus two years ago, versus three years ago, margin really matters," says Ben Mand, CEO of Harmless Harvest. "What is the overall profitability of your organization? There was a time when it was about growth, and at times, maybe growth at all cost, but now they really look for not only a good healthy profile from a growth standpoint but investors are really paying attention to your overall margin."
More targeted pricing on certain sizes, getting smarter on trade and exploring different promotional strategies can help, he said. With supply chain challenges, you might want to reconsider your number of SKUs. "In complexity comes added cost," he said.
Heather Terry agreed. "Cut low-performing SKUs," said the co-founder and CEO of GoodSam Foods. "Focus on your hero SKUs." The GoodSam team has had to innovate around shipping, she says.
"You have to look at the chess board a little differently," get the whole team together and get really creative to find ways to save on cost. "Every point you win back in profitability is another dollar back in your pocket that you don't have to go and raise in a volatile climate."
Make it last
"Whatever funds people have right now need to last longer," said Daniel Scharff, CEO of Machu Picchu Energy and the founder of Startup CPG, a national community for emerging brands. "One of the things this economy forces small brands to do is prioritize, urgently, and maybe even before you're ready," he said. On the bright side, Scharff has seen an opportunity for small brands to catch the attention of retail buyers who are unhappy about the price increases big companies have passed along. "If you're smaller, you may a little more agility on the pricing," he said.
Pay attention to culture and engagement
With entrepreneurs facing so many headwinds, "keeping your best people is more important than ever," said Cynthia Billops, vice president of operations, membership and belonging at One Step Closer. "It costs to replace someone. If your business is going to be successful, your people have to be engaged." One of the most cost-effective things an entrepreneur can do is make a small investment in training, workplace agency and advocacy.
"It will hold folks longer and you'll see those benefits and payoffs down the line," she said.
To see the entire presentation, visit Natural Products Business School: How to Have the Best Expo East Ever! This session, What This Economy Means for Your H2 Business Plans, starts at 1:24:46 (the fourth section).
To learn more about this program and others, head over to NPEV. Not yet registered? Register for free here. For more information about becoming an All-Access Member of Natural Products Expo Virtual Community and to obtain access to premium on demand and live content, industry benefits, buyer meetings and more throughout 2022, please click here.
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