Niche brands are being snapped up by the big corporates – to the benefit of both buyer and brand

Health-conscious consumers are now the driving force behind growth in the food and drink industry as functional foods, which have nutritional and disease-preventing qualities, become hot property.

Demand for functional foods grew by 4% in 2010, making it a £4bn global market. Consumer interests have shifted from symptom relief to proactive healthcare, sparking spectacular increases in demand for probiotic yoghurts, vitamin supplements and superfoods.

As the key source of growth in the food and drink market, it is no surprise that niche functional food brands are attracting the attention of the large corporates. In fact, the race to snap up these businesses has already begun. Since the start of the year, General Mills has taken a 51% stake in yoghurt manufacturer Yoplait; SHS Group, the company behind WKD and Shloer, has acquired bottled water blend business Bottlegreen for £25m; and online retailer The Hut Group snapped up supplements retailer for £58m.

The deal that kicked off the trend was Coca-Cola's acquisition of 20% of Innocent Smoothies in 2009. The takeover surprised many, but is a perfect example of a large brand looking to diversify its product range to focus on growth opportunities and align itself with a well-targeted product with nutritional benefits.

Buyers are now hunting for the next high-growth opportunity but these transactions don't just benefit the acquirer. An acquisition by a large corporate can provide a niche brand with greater financial muscle and new routes to market, including lucrative distribution networks.

The trend of investment in functional foods and consolidation within the food and drink industry is likely to continue as companies look to capitalise on changing tastes. To attract quality buyers, entrepreneurs must demonstrate the scalability of the business, supply chain security, a solid customer base and the growth prospects of the market sector. Critically, accessing the right advice and remaining vigilant to investment opportunities will help innovative entrepreneurs realise the true value of their businesses.n

Neil Worsley is a partner at Ford Campbell