Annie’s, the lovable organic brand famous for its yummy mac and cheese, has been admired by healthy food advocates for staying largely independent amid a wave of consolidation in the organic industry in the last decade, with companies like Coca-Cola, Pepsi, Colgate, and Kellogg’s gobbling up major players.
So much for that. General Mills announced today a deal to acquire the public company for $46 per share in cash. In a way, the move is not surprising. It’s difficult for smaller companies to compete against larger brands as organic food becomes more popular, as Co.Exist wrote in a profile of Annie’s in June:
There are signs of strain, however. Annie’s purchased 35 million pounds of organic ingredients in 2013, a 36% increase from just two years earlier. Organic wheat is Annie’s most important ingredient, and high prices in the last year have impacted its bottom line. The problem reflects issues of supply and demand: More companies want to buy organic wheat than there are farmers to grow enough.
Foraker calls the mismatch a temporary “dislocation,” since even as more conventional farmer decide to go organic, it still takes three years to convert the land. But the trend could be worrisome. While a company like Kraft has so much control over the convenience food market that it can afford to take a short-term loss to sell organic pasta, as Kathryn De Master, a farming systems researcher at the University of California-Berkeley notes, high prices are much harder on the margins for smaller businesses.
Investors have questioned the company’s efforts to remain a standalone company:
The other audience Annie’s, now a public company, must convince is investors. Foraker is often asked to defend Annie’s choice to remain a standalone company that is “independently focused on our mission and values,” as he told one analyst on a quarterly earnings call in May.
From General Mills perspective, it makes sense to own a prominent organic brand. As Annie’s CEO John Foraker told Co.Exist there will be “tectonic” shifts in the market for organic foods as health- and ethically- conscious millennials run more and more U.S. households.
He told us: “They buy products differently…they are more interested in healthy eating, and tend to be more interested in connecting with and supporting brands that have a social mission. Now, with social media and the requirement that you are transparent with consumers, it’s very well-suited to Annie’s and where the world is going.”
General Mills clearly plans to tap into that growth potential, and it has the resources to do it.