Brand New company will feed innovation to food companies
decade, but large companies might not know how to leverage the
opportunities. Brand New Brands CEO Will Rosenzweig speaks to
Jess Halliday about how his new company plans to bridge the
gap between emerging ingredient technology and the big market
players.
Whilst line extensions and global rollouts are part of the day-to-day operations of large food companies, few have the expertise or patience to start a small brand in an emerging category and nurture it until it reaches a size where it sits comfortably with the rest of their brands.
"Big companies are wise to the fact that nascent companies exist and to get them they will have to buy them," said Rosenzweig, who anticipates that functional foods will develop in much the same way as the organic industry in recent years, with small, growing companies consumed by big ones.
Together with former General Nutritional Centers CEO Greg Horn and Pete Matteson of food products developer Matteson and Co, Rosenzweig founded Brand New Brands to develop, test and launch new functional food products based on the latest nutrition research and ingredient technology.
Over a two to five year period he plans to build them up into established brands that show the potential to generate annual sales of $50 to $100 million, making them attractive strategic acquisitions for the big companies.
"We are figuring out how to bring innovations onto the scene where they will grow from an authentic core," said Rosenzweig, who likens Brand New Brands to a boutique movie studio.
"Our group wants to get the best brand, story and cast into the public's eyes. The best movie studios do independent work but operate in partnership with the big players. Staying small gives them the power to be innovative."
Brand New Brands has formed partnerships with the Disney's and Warner Brothers of the food world, having attracted $15 million in venture capital from Burrill & Company, Great Spirit Ventures, Unilever Ventures and Prolog Ventures.
Rosenzweig cites three main advantages to partnering with big names in the health and wellness sector: access to ingredient technology; leveraging their clout to expand distribution more quickly; and the possibility that they could be a strategic buyer in the long term.
The investors' side of the bargain also presents advantages: Brand New Brands' business model allows them to spread their investment across a portfolio of products, reducing the risk of backing just one brand which may or may not perform.
Rosenzwieg realizes that such arrangements are rare in the food industry.
"There is a lack of early stage venture capital for food companies. Traditionally they are started in people's kitchens, but this is not possible with sophisticated food science," he said.
By contrast, he says the products developed by Brand New Brands will have "real functionality" - that is, at a level acceptable to experts and containing RDAs of certain health-enhancing vitamins or ingredients.
"A lot of functional foods we see at the moment have anecdotal functionality. They are not really delivering any real amount of efficacy. Functionality is just used as a hook."
One of the main challenges the company faces is presenting the products in a way that people understand. To do this it will take a back to basics approach, equating a product's functionality eating X amount of some naturally healthy food like broccoli or oily fish.
The plan is that functional foods will be seen as convenient, safe and cheap ways for consumers to meet the newly published Dietary Guidelines for Americans, even if they have an aversion to some of the recommended natural foods.
The first product is expected to launch in September 2005, and while it is still too early for Rosenzweig to reveal details, he said that there would be "absolutely no compromise on taste" - although this is easier said than done.
"As you start to formulate complicated products together it becomes hard to make them taste great and commercially viable."
He will also be keeping a close eye on existing consumer behavior.
"We are going to go for logical extrapolation of products," he said. "We look at connecting with the underlying identity of products and then taking people to the next step by helping them understand that it is a great product that is also good for you."
Price, however, is another challenge the company will face as it leaves the starting blocks. Although many will carry a premium because they are the first of a kind, Rosenzweig said the company has a commitment to making the products available to the undernourished that need them most, instead of just "the worried well" - a demographic that can afford to spend money on products to maintain their health.
Test markets will couple parts of the US with a high concentration of people who are likely to understand the products, such as the area dubbed the LOHAS Triangle (Lifestyle of Health and Sustainability) between the Bay area, the Pacific Northwest and Boulder, Colorado, with more nationally indicative areas.
According to market analyst Mintel, the functional food market reached an estimated $10.4 billion in sales in 2004 and is forecast to rise 23 percent at current prices, and 9 percent at constant prices, between 2004 and 2009 to reach $12.8 billion.
In its report published in October 2004, Mintel cites demand for functional food products as an offshoot of the long-term trend towards healthier diets and lifestyles as a reason for this growth.
Although it says there is still much consumer skepticism about whether functional products work, and the quantities that must be eaten to gain a benefit, it seems the food industry as a whole is anticipating great things from innovators in their midst such as Brand New Brands.
"The most significant unknown factor is product innovation, which could deliver a new product capable of transforming the still relatively small category," said Mintel.
