In the eyes of casual onlookers cherry-picking sales data, the CPG industry appears to be in a state of nirvana amidst the current economic turmoil. While record-setting revenues are indeed a reality, CPG companies are achieving those results by operating through massive internal and external shocks that continue to test even the most well-defined business strategies. Many of these companies are still dealing with internal chaos, as global supply chains are fragile and optimizing production output is challenging with health and safety constraints. At the same time, consumer behaviors are quickly adapting to the ever-changing external environment. All things considered, it might seem logical for CPG companies to “stop and smell the roses” that are growing amongst the current wreckage, but periods of great change bring equally immense opportunities.

Right now, there’s a fleeting window of opportunity for CPG companies to radically redesign their product portfolios. To take full advantage, they must look beyond simple SKU rationalization processes that eliminate slower-selling or less profitable product offerings. Innovative internal product development that responds to today’s emerging consumer trends should also be supported, but that strategy can be slow and risky when seeking an extreme reimagination of the portfolio. The quickest way for CPG companies to redesign their product portfolios and take advantage of the opportunities that arose in 2020 is through mergers and acquisitions.

While predicting the future is said to be a fool’s game, this article explores several CPG brands that could see their names attached to M&A press releases in 2021.

Kodiak Cakes

Breakfast saw a resurgence in 2020, as hurried early morning routines centered around work and school commutes became less popular. In fact, 44 percent of Americans report eating breakfast at home daily now, compared to 33 percent pre-pandemic. One of the biggest beneficiaries of this shift in consumer behavior has been Kodiak Cakes, a quarter-century old company best known for its whole-grain, protein-packed pancake and waffle mixes. In a recent episode of the podcast “How I Built This,” CEO Joel Clark said it took the company 16 years to hit a million dollars in revenue. As of December 2020, Kodiak Cakes was approaching $200 million in annual revenue as one of the best-selling pancake mixes in America. It’s the top-selling pancake mix brand at Target, outperforming incumbents Aunt Jemima and Bisquick, as reported by Joel in a 2018 interview with CNBC Make It. In the last several years, Kodiak Cakes has diversified its portfolio of breakfast products by adding frozen toaster waffles and pancakes, microwavable Power Cups, and oatmeal packets. The company has even expanded beyond breakfast with the addition of its baking mixes, granola bars and graham crackers. With competitor Birch Benders recently being acquired by Sovos Brands, it would be sensible to believe that Kodiak Cakes could be the next brand to be eaten up next by a larger company.

Athletic Brewing Company

There has historically been a stigma surrounding the taste and consumption of non-alcoholic beer, but that has started to dissipate as younger consumers popularize the sober curious movement. Additionally, the selection in the non-alcoholic beer category is no longer just O’Doul’s and Busch NA. Many different brewers have started leaning into the non-alcoholic trend, and interest is rising across distributors and retailers. Though it remains outsized compared to retail sales for the total beer category, the $181 million non-alcoholic beer category is growing 38 percent year-over-year, and market share is expected to triple by 2024. Those market conditions will undoubtedly lure every major Big Beer brand to the nascent non-alcoholic trend, and they’ll likely throw big money towards endorsements in hopes of further speeding up its growth. Millennials and drinking-aged Gen Z consumers are privy to this game plan and will likely continue supporting smaller craft brands that are more authentic to the movement and provide a higher-quality product. The key brand that stands to benefit from this is non-alcoholic craft beer company Athletic Brewing Company. Launched in 2018, Athletic Brewing’s sales grew more than 1,000 percent in a year. In 2020, the company raised $17.5 billion in a Series B funding round, bringing its total raised to more than $20 million to date. Big Beer will likely acquire Athletic Brewing before it raises another round of funding that could lead to even bigger competition.

The Simply Good Foods Company

The Simply Good Foods Company may not be a household name in the CPG industry, but its portfolio is on pace to cross $1 billion in sales in 2021. The publicly-traded company is the owner of two active nutrition CPG brands: Atkins Nutritionals and Quest Nutrition. Atkins Nutritionals offers packaged foods designed around the nutrition principles of the popular Atkins Diet, selling in categories such as nutritional bars, ready-to-drink shakes, confections and frozen food. Quest Nutrition sells in those same categories to different customer segments, but its portfolio also includes a line of salty snacks. As large CPG companies look to follow the growing shift from conventional to functional value propositions in packaged foods, it would be rational for them to look at an M&A target like The Simply Good Foods Company. On the other hand, The Simply Good Foods Company has held strong that it is building the “better for you” CPG portfolio of the future. The company’s strengthening balance sheet and historical M&A activity could actually point to it being a buyer and not a seller in 2021. If this happens, I’d expect it to target a sizable plant-based active nutrition brand such as Vega, which Danone is currently trying to sell.

Daily Harvest

Daily Harvest is positioned within several growing consumer trends that could be attractive for M&A transactions. First, it provides pre-portioned, superfood-based, nutrient-rich meals and snacks, which could be interesting for CPG companies looking to grow their capabilities in personalized nutrition or influence in the food as medicine movement. Second, Daily Harvest focuses on plant-based foods, which could be valuable for CPG companies reinventing their primarily animal-based portfolios in hopes of appealing to more flexitarians. Third, it provides convenient one-step recipes, which will regain importance as consumer mobility strengthens post-pandemic. Finally, the company employs a direct-to-consumer subscription-based model, and those capabilities have grown in importance within the CPG industry in recent years. With Daily Harvest being valued at close to $500 million and having loads of celebrity investors on its capitalization table, the company might jump on the M&A train by going public through a Special Purpose Acquisition Company, or SPAC.

Conclusion

Truth is, making a list of predictions regarding CPG mergers and acquisitions seems foolish. 2020 was no doubt a transformational year for CPG companies, but that adjective could just as easily be used to describe every year in recent history. The variables within the industry will unquestionably change in 2021, thus diminishing the strength of the above theses. Then again, what if the opposite happens? I guess the idea of being able to add “soothsayer” to my LinkedIn profile is just too enchanting of a prospect to pass up.