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CEOs in CPG Understand How Tough Small Acquisitions Can Be

Look no further than the bombshell earnings disappointment from Kraft Heinz for confirmation of how important it is for CEOs to get “big-to-small” strategies right.


Look no further than the earnings disappointment from Kraft Heinz for confirmation of how important it is for CEOs to get “big-to-small” strategies right.Look no further than last Thursday’s bombshell earnings disappointment from Kraft Heinz for confirmation of how important it is for CEOs to get “big-to-small” strategies right. CEO Bernardo Hees had to write down the value of two of the company’s huge, iconic brands – Kraft and Oscar Mayer – by a total of more than $15 billion after concluding that, in the words of his CFO, the brands had “no clear path to competitive advantage” any longer.

Wrenched by change, the CPG industry is one of the biggest illustrations of the dangers of upstart companies to legacy giants, but the importance of getting ahead of disruption is also clear in automobiles, telecommunications, entertainment, consumer electronics —and on and on.

Before giant CPG companies attempted to stay ahead of the game by spawning incubators and accelerators and making equity investments in industry small fry, they tried the outright acquisition. And over the last 20 years, this strategic approach to overhauling brand and product portfolios has proven crucial in determining which titans of this once-stable industry are going to survive.

Based on how they’ve done in this regard, for instance, General Mills is looking way better than Campbell Soup and even Procter & Gamble.

Under CEO John Harmening, General Mills has parlayed its $821-million 2014 acquisition of Annie’s Homegrown, a onetime startup that became a leader in organic dry goods, into one of the most significant big-to-small success stories. Harmening said last year that Annie’s had become “our biggest brand” — quite a leap for a company whose legacy brands include Cheerios and Betty Crocker.

The reasons for the great success of the General Mills-Annie’s tie-up include the fact that “we had a lot of synergy in categories,” John Foraker, who was CEO of Annie’s when it was acquired, told Chief Executive. The two companies separately also had fostered what Foraker called “high-integrity cultures” so there was an “alignment of values.”

And just as important, Forakerk said, “There was agreement about how to integrate us. That’s usually the key difference between success and failure. We remained relatively independent, still headquartered in Berkeley,” California, while General Mills is headquartered in Minneapolis.

“Our core team stayed on after the acquisition and helped protect the core values of Annie’s and what was different about it and what lines we would never cross in terms of innovation and public policy,” Foraker said.

On the other hand, Procter & Gamble bought New Chapter, a vitamin startup, in 2012. New Chapter was one of America’s biggest sellers of vitamins and supplements, and Co-Founders Paul and Barbi Schulick hoped that the deep-pocketed CPG giant would fund research that would grow the small-but-profitable, 30-year-old company.

Plus P&G pledged to the Schulicks that, while fully integrating the smaller company, it would nurture the culture the founders had built over the years, which included an on-site meditation room. The couple were going to stay at the company, training managers and running R&D. “They recognized we had something very unique going on,” Paul Schulick told Chief Executive.

But the business marriage began fizzling. New Chapter fell out of the top 10 companies in its industry, according to Spins LLC, the data-tracking firm. The new parent smothered New Chapter in bureaucracy and nixed plans to develop new breakthrough products, Schulick said.

P&G began focusing less on inventing new products, always a strength of New Chapter, and more on investing in already-popular produces, he said. Morale dropped and key people left, according to Schulick. New Chapter spiraled from profits of $7 million a year to status as a failing unit of P&G.

People were surprised that founders of an entrepreneurial venture lasted as long as we did,” Schulick said. “But large companies have an obligation to their shareholders to deliver profit and their targets, and there would be years where we’d lose money. That doesn’t fit as much into Corporate America’s structure. Profit was a stronger” force for P&G, while “I felt more attracted to continuing my new-to-the-world innovations.”

So the Schulicks decided to quit New Chapter last year and start a new natural skin-care company in Vermont called ForTheBiome.

And of course Campbell Soup under former CEO Denise Morrison became the unfortunate poster child for how to botch the big-to-small acquisition.

After taking the helm in 2011, CEO Denise Morrison wasted little time in attempting not just to broaden Campbell from its base in soup, Pepperidge Farm savory snacks and V8 juices but in fact to transform a relatively sleepy and traditional CPG giant into a powerhouse of fresh foods and new, better-for-you brands.

So in quick order Campbell snapped up Bolthouse Farms, which produced premium juices and fresh vegetables such as carrots; Plum Organics, a leader in baby and toddler food; and Garden Fresh. Campbell even bought a majority share in Habit, an online-nutrition company started up by Plum founder Neil Grimmer.

But Garden Fresh quickly came to exemplify the problems with Morrison’s approach. She failed to integrate the new fresh-food properties into Campbell and at the same time couldn’t retain the momentum they’d each built on their own. Sales have fallen significantly below the $110-million level for Garden Fresh when it was acquired.

“A lot of times they scale up and it works,” Jack Aronson, founder of Garden Fresh, a salsa-making brand that he sold to Campbell Soup in 2015 for $231 million and now wants to repurchase in its greatly diminished state, told Chief Executive. “But more often than not they don’t follow through with the reasons they bought the business, which might be a great culture or a great following in social media. And if they don’t keep and build on that, they’ve wasted a whole lot of money.”

Neither was Morrison able to revitalize sagging soup sales. So she was sacked last summer after a three-year slump and replaced by board member Keith McLoughlin on an interim basis. Even as a temp, McLoughlin wasted little time in unwinding Morrison’s approach, putting Bolthouse and Garden Fresh on the block separately and vowing to put Campbell’s entire focus back on its core businesses of soups and snacks.


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