Wednesday, November 12, 2003

When Nestle swallowed PowerBar Nestle's 2000 acquisition of PowerBar is an excellent illustration of the principle of small and successful innovator being, perforce, taken over by a big company. The Berkeley-based PowerBar company was founded in 1986 by a former Canadian Olympic marathoner and his nutritionist wife, the kind of high-energy business neophytes that Inc. magazine likes to write about. By 1999, it had reached sales of over $135 million, taking a very specialized product type, the nutrition bar, and making it into a market phenomenon. In fact, at recent entrepreneurs conference, Maxwell, the founder, told the following story , (from Inc., Sept 22): "he'd wanted $250,000 to launch the company and found he couldn't get it because the venture capitalists thought that it wasn't enough to start a packaged-food business. "They said, 'If you asked for $2.5 million or $25 million, we could take you seriously,'" he related. So he made do with what he had." The company was a classic case of a gutsy entrepreneur with a great idea building a new category and a new business at the same time. The most obvious parallel is Gatorade, bought by Quaker in 1983, a product intended for athletes that spread to a far wider audience. According to an article on the online site TheStreet.com ("Nestle to Buy PowerBar," 2/23/00), PowerBar was aiming ever higher. "From a strategic standpoint, we've had some aggressive goals such as growing by 30% a year," Brian Maxwell… said in an interview. "We've been growing very rapidly recently. We saw there were opportunities out there to grow into a $1 billion-$2 billion business, but we needed the resources of a global partner." Like many smaller businesses, the struggle for gaining shelf space, distribution, slotting fees and dealing face-to-face with large chains was about to get the company swamped. There was no way such a small company could grow so fast, and other companies, noticing PowerBar's success were starting to aggressively release new products. A white knight was urgently needed. And that's where Nestle, already serving the same stores PowerBar wanted to reach, both domestically and globally, stepped in, according to Maxwell. "As an independent company, distribution and getting on the shelf is a challenge. We have limited distribution in convenience stores but outsell in dollar volume products that are distributed twice as much as we are," Maxwell added. "Nestle will get us into those distribution channels." As theStreet.com article points out. But the more established food companies are all seeking ways to enter the "health food" market, an area that enjoys higher growth of 30% a year. Witness Kraft Food's recent purchases of PowerBar rival Balance Bar [2002]." How is Nestle doing? It's all in how you define the categories. One way is to look at cereal bars in general, where Kellogg's, General Mills, and Pepsico (Quaker) are the big leaders, In the nutrition bar arena, the big competitors are Kraft and Unilever (SlimFast). Other contenders are Atkins Nutritionals' Advantage Bars and ClifBar's Luna. I've found various claims for marklet share, but 40% seems the most common one, in the nutritional bar category in the US. 9:19:45 PM

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