Across the food and beverage industry, ingredient companies that provide premium, natural, and clean-label products are experiencing substantial growth. This is being driven by chefs, retailers, and consumers that continue to demand higher-quality, fresher, and better-for-you items.

In this article, senior professionals in our Consumer Group discuss the tailwinds for food ingredient companies that serve customers across the foodservice and consumer packaged goods channels. They also share the traits that drew strategic and financial buyers to three recent Harris Williams clients.

Growing Desire for Premium

Several trends are driving value-creation opportunities in the ingredient sector, including foodservice channel growth, a challenging labor environment, and an increasing consumer preference for natural and premium products.

The foodservice industry continues to recover and has more room for growth before reaching pre-pandemic traffic and volume levels. “The foodservice industry's continued recovery remains a powerful tailwind for food and beverage companies serving this channel,” says Tim Alexander, a managing director in our Consumer Group.

There’s also strong demand for products that simplify front- and back-of-house restaurant operations, especially in a difficult and high-cost labor environment. According to Brant Cash, a Consumer Group managing director, many restaurants are reporting being understaffed. "Using pre-cooked, pre-cut, or ready-to-use ingredients can save operators significant labor hours and improve consistency,” he adds. “This is helping drive interest in food and beverage companies that can offer high-quality, time-saving ingredients.”

In addition, consumers are continuing to demand clean-label, natural ingredients, healthier food, and premium products. “Consumers want to see ingredients on the label that are familiar and easy to identify,” notes Ryan Freeman, a Consumer Group managing director. “This increasing desire for all-natural food and drink products highlights the significant tailwinds for natural ingredient companies.”

Runway for Growth in Foodservice Ingredients

Investors interested in ingredient businesses should look closely at their multi-channel growth potential. With strong differentiators in place, The Perfect Purée of Napa Valley, J&K Ingredients, and Denali Ingredients are great examples of companies poised to expand in the foodservice channel and more broadly to create diverse, multi-channel ingredient platforms.

Cash notes that foodservice suppliers are often oriented toward serving either chain or independent restaurants. These different audiences require varied approaches to sales and distribution. “The Perfect Purée differentiated itself by working with both national accounts or single-restaurant operators and serving them through a unique, national distribution network. The company’s products also added value to its customers because they can be used across a variety of menu items, including alcoholic and non-alcoholic beverage, culinary, pastry, and confectionery,” he says.

“Leveraging a core competency in a new channel is a significant opportunity in the ingredient sector,” adds Warczak. “Opening up new markets and channels either organically or though M&A can create more revenue growth opportunity for leaders in the space.”

Premiumization Endures

Trends favoring healthier eating, a need for higher restaurant efficiency, and rising foodservice volumes position the premium ingredient segment for continued growth. Leading companies continuously innovate to create new, high-quality, and natural ingredients that align to consumers changing eating preferences.

Expansion opportunities abound for these companies, across the foodservice channel and more broadly, and many will look to M&A as a key lever to enable new avenues for growth. To discuss the value-creation potential within the ingredient sector, please contact our senior professionals.