Earlier this week, specialty food maker Annie’s Homegrown announced they’re selling to General Mills for $820 million. The reception has been less than favorable on social media, and it appears as though Annie’s Homegrown is now a classic case study on how to destroy your brand overnight (according to some people).
Why did this happen? How did they so quickly alienate their loyal fans? Annie’s produces organic food with no artificial flavors or preservatives, and they sold to the GMO Giant General Mills. The customers buying Annie’s to this point believed in their “Why,” as detailed on their website –
“Our mission is to cultivate a healthier, happier world by spreading goodness through nourishing foods, honest words and conduct that is considerate and forever kind to the planet. We have focused on building a successful and growing business in pursuit of our mission. Our corporate motto is Eat Responsibly—Act Responsibly. We offer great-tasting, high-quality natural and organic foods, while striving to act in a socially responsible and environmentally sustainable manner. We are committed to growing our business and profitability, while staying true to our mission and core values.”
Does General Mills have this same mission and these same core values? No. Those customers who would seek out Annie’s – even if it means driving across town to a different store – don’t have as much of a reason to buy their product anymore, if you believe the comments online.
Why did Annie’s sell to General Mills?
Should it come as a surprise that Annie’s sold to a larger company? No. Why is that? In 2002, as detailed in this article in Forbes magazine, Solera Capital, a private equity firm, invested $23 million to buy a majority stake in the company.
Now let’s stop and ask ourselves a question – why does one company lend another money? Whether that takes the form of a loan, ownership, or both, the lender wants their money back plus a premium. With a bank or lending institution, this occurs through interest payments. In the case of a private equity firm, however, this only happens when someone buys your share of the company for more than you paid for it.
Solera Capital took the company public in March of 2012. The stock performed incredibly well, and the founder of Solera became a rock star of the investment world. So, the company went from being owned by the founders & employees, to owned by Solera, to owned by tens of thousands of shareholders. Yet, the brand maintained it’s well-refined image.
However, since a company’s board of directors is tasked with maximizing owner (i.e. shareholder) value, when an offer from General Mills paid a 37% premium over the stock price, the board felt compelled to take it.
Annie’s Homegrown investors need to get paid back
When a company takes money in exchange for part ownership, we should always be aware that the money lender will have an exit strategy. The strategy in this case paid big in the form of the IPO, and now that the brand will be gobbled up by General Mills, Annie’s Homegrown will cease to exist as a separate entity.
Did Annie’s do the right thing? If you were a customer of theirs before, will you continue to be now?
Photo courtesy of http://yeswecoupon.com.