As plant-based, keto, and dairy-free continue to be the top buzz words in the food industry throughout 2019, entrepreneurs who are reinventing nostalgic sweet snacks with a healthy and clean twist are also increasingly attracting private capital.
In a reality where consumers are reducing sugar and low carb in their diets for hea benefits, many believe sweet treats are becoming less and less appealing.
Swiss food giant Nestlé divested its U.S. confectionery unit last year to Italian chocolate guru Ferrero to focus on pet care, bottled water and infant nutrition categories. Other large confectioners including Mondelēz and Mars have also invested in healthy snacks over the years to counter a potential decline in their candy businesses.
But the trend has not stopped some investors and food ventures from tapping into the confectionery space by investing or creating brands that mimic consumers’ favorite childhood items.
One example is Colorado-based Sunrise Strategic Partners’ previous investments in companies including Little Secrets that has a KitKat-like product made with fair-trade chocolate and Coolhaus that rivals larger ice-cream brands, Häagen-Dazs and Ben & Jerry’s, with its organic and handmade frozen products.
The PE firm is expected to continue to invest in confectionery as EVP and managing director Steve Young believes much of the category has yet to be reinvented.
“There are so many legacy brands in the grocery stores that are still carrying distributions, and there are many up-and-coming brands like Little Secrets that we’ll be on the lookout for,” he said.
Little Secrets’ success came with no surprise to Sunrise’s management team. The company, which claims its products to have a “better chocolate-candy ratio” than M&M’s, has found its presence in all major U.S. natural channels including Whole Foods and The Fresh Market in just a few years since its inception.
“The chocolate category hasn’t really had a facelift, redefining the formats we grew up eating,” CEO and founder Chris Mears told me. “Our overarching strategy has been how we take a classic format and put a better twist on it – we don’t have any artificial ingredients and corn syrup; it’s a completely clean product.”
In January 2020, Little Secrets will further take on Mars by launching a chocolate cookie bar that resembles Twix. The product, which has been in the development pipeline for about two years, will come in dark and milk chocolate varieties.
“No one has done a better version of Twix,” Mears said. “It sounds like a great idea on paper, but the operational challenges such as finding the right equipment to produce the crispy chocolate wafer product are immense.”
In addition to having premium and innovative product lines, Little Secrets also attributes its rapid growth to channel strategy and carefully elected executives. Mears noted how the natural stores are an advantageous spot to drive sales for his products and effectively help them avoid competitions with larger chocolate manufacturers at the checkout aisle.
“I made a classical entrepreneurial mistake before by putting my products everywhere,” he said. “Safeway, for example, has mostly big chocolate [brands] own the impulse consumption space; but in natural, we can get our products at the front register – that has helped us drive so much incremental volume growth.”
Sunrise also helped Little Secrets last year to hire Jeremy Vandervoet, the former director of marketing at Nestlé USA confections and snacking division, to be its president and COO. “It’s been great: Having someone with [Vandervoet’s] management experience and knowledge about the confectionery category is terrific to the marketing side of our business,” Mears told me.
Sunrise is among several investment and venture firms that have recently upped their confectionery game.
VC company Boulder Food Group (BFG), which raised $100 million in its second funding this past February, led a $2.5 million Series B funding in Good Day Chocolate in September; New York-based equity firm Alliance Consumer Growth (ACG) also led a minority found of funding this August in snacking marshmallow brand SmashMallow, originally incubated through Jonathan Sebastiani’s Sonoma Brands.
Despite high growth in these newly emerged confectionery brands, investors seem reluctant to sell them to large CPG companies for the time being.
“Capital is readily available to entrepreneurs who have really good ideas,” Young said.
“We know there will be a multitude of exit options within our portfolio in the months and years ahead, but we don’t think about who might ultimately acquire them, but focusing on building great brands.”