More Legacy Companies Are Acquiring Purpose-Driven Startups: Here’s How To Do It Right

Around 70 percent of U.S. consumers say they’d rather buy from environmentally-friendly and socially-conscious companies, according to market research published in January. As people continue to gravitate toward sustainable brands, the legacy companies that once dominated the consumer goods segment are in a race to shake up their product portfolios and compete with purpose-driven startups.

Along with launching new products, many companies are looking to meet consumer demand by acquiring smaller, sustainable and health-focused brands. CDP recently analyzed 16 of the largest publicly-listed consumer goods companies—and it found that 75 percent of them have acquired a niche, environmental brand over the past five years. This type of activity has more than quadrupled over that time, with recent examples including Nestlé’s acquisition of Sweet Earth and PepsiCo’s purchase of Bare Foods.

When it comes to mergers and acquisitions, loyal customers of purpose-driven brands often imagine the worst: A corporate behemoth comes along, gobbles up its smaller competitors, and transforms them into clones of its already-established brands. But when done right, these partnerships can be a boon for niche brands, as well as their parent companies and society at large. 

In short: Multinational corporations have access to capital, not to mention a vast network of packaging and transportation infrastructure, as well as more placement on store shelves. When given access to these resources while maintaining their missions, social impact companies can bring their visions to scale—and introduce their products to more customers. 

On the flip side, by acquiring niche brands, large parent companies not only add new products to their portfolios, but also have an opportunity to learn about social impact and sustainability from upstarts with purpose at their core. 

Case study: Happy Family Organics thrives under parent company Danone

Danone acquired Happy Family Organics, which specializes in organic baby food, for an undisclosed sum back in 2013. This story of a niche brand joining a major multinational is one of mutual learning, and it offers a case study of M&A done right. 

Case in point: Happy Family was the first certified B Corp to join the French multinational. Within five years, Danone’s North American arm became the largest B Corp in the world.  “We feel proud, because we view ourselves as inspiration for that,” said Anne Laraway, CEO of Happy Family. “We are gaining a lot from the benefit of having Danone as our parent company, but we're also inspiring them in a few ways that are really meaningful and I think this is one of them.” 

In this case, the learning goes both ways. “They've also inspired us,” Laraway said.  

For example, last year Danone committed to adopt circular packaging, pledging to ensure all product packaging is reusable, recyclable or compostable by 2025. Happy Family was founded with sustainability at its center—with a driving purpose to “change the trajectory of children’s health through nutrition” by prioritizing traceable, organic ingredients. But recyclability in packaging is something of an Achilles’ heel for the upstart brand. 

One of the company’s key innovations is a lightweight plastic pouch that replaces glass baby food jars. The pouch reduces environmental impact at the front end—it uses less material and is much lighter, reducing manufacturing- and shipping-related emissions. (Not to mention it’s easier for busy parents to toss in a diaper bag.) But at the back end, the pouch is not recyclable, representing a key sustainability challenge for the company. 

“We've always had sustainability initiatives built into who we are as a company. But having that commitment by our parent has really allowed us to put a stake in the ground [around packaging] and make a public commitment ourselves,” Laraway told us. Happy Family signed on to Danone’s circularity commitment earlier this year. 

“There's a lot of work to be done from an infrastructure perspective, finding end-of-life solutions for our packaging,” Laraway said. “But we have a lot of energy as a company going behind it. Ultimately, if you have the health of children as your guiding light, you have to leave them with a planet that's healthy.”

Collaboration between brands drives sustainability forward 

Soil is a natural carbon sink with the potential to fight climate change, but degradation associated with large-scale farming has released 50 to 80 percent of the carbon once stored in soil, Nexus Media reports. Returning to our proverbial roots through time-honored farming practices like cover crops, crop rotations, and livestock grazing can help reverse that trend and ramp up carbon sequestration in the soil, a model referred to as regenerative agriculture. 

With agricultural supply chains that stretch around the world, food companies can play a key role in driving regenerative agriculture forward. Both Danone and Happy Family are looking into this—and their work could have lasting impacts that stretch far beyond their own four walls. 

“We have been organic since day one and we know organic has a number of benefits for human health and the planet, but we also see some opportunities to go even further,” said Katie Clark, director of sustainability for Happy Family. “We're trying to explore the ways that we as an organic brand can help the farmers in our supply chain feel supported and be more successful.” 

In 2018, Happy Family launched a regenerative agriculture pilot program with two supplier farmers in Michigan and Argentina, with promising early results. The company is looking to expand the pilot to farms in Chile this year and eventually to more farmers in its supply chain. Likewise, Danone North America launched a soil health initiative in 2018 and is paving the way for regenerative agriculture in the dairy sector by leading seven food-industry players in the Farming for Generations alliance. 

We’ve already seen the impact that parent-brand collaboration can have on regenerative ag: Earlier this year, General Mills announced plans to convert 34,000 acres in South Dakota from conventional to certified organic farmland, creating one of the largest contiguous organic farms in the U.S. that will grow wheat for its Annie’s Homegrown brand. Through projects like this, General Mills is committed to advance regenerative agriculture practices on 1 million acres of farmland by 2030. 

Can M&A win the day? 

Of course, not all parent-brand integrations are seamless—the market is littered with casualties of M&A gone wrong. But when niche brands are able to maintain their driving purpose and culture—while illuminating areas of learning between parent and brand—both companies can be better off for it. "It's definitely a give and take," Laraway said of Happy Family's integration with Danone. "And I feel really lucky, because I know that's not how it always is. Ultimately, we feel very aligned and like we found a good partner." 

Image credits: Happy Family Organics via Facebook