Food and beverage ingredients: premium, natural, and clean label in high demand

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 Harris Williams’s Consumer Group [1] – Tim Alexander, Brant Cash, Ryan Freeman and Andy Warczak – discuss the tailwinds for food ingredient companies that serve customers across the food-service and consumer packaged goods channels. They also share the traits that drew strategic and financial buyers to three recent Harris Williams clients.

A growing desire for natural and premium products

Several trends are driving value-creation opportunities in the ingredient sector, including foodservice channel growth, a challenging labour 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 the Harris Williams 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 labour 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 labour hours and improve consistency,” he says. “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,” says Andy Warczak, director at Harris Williams’ Consumer Group. “Opening up new markets and channels either organically or though M&A [mergers & acquisitions can create more revenue growth opportunity for leaders in the space.”

Premiumization endures

Trends favouring 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, speak to senior professionals at Harris Williams.

Focus on clean label, freshness, and consistency

Three recent Harris Williams clients – The Perfect Purée of Napa Valley, J&K Ingredients, and Denali Ingredients – share multiple traits that are highly sought-after among food and beverage investors.

J&K Ingredients is a prime example of the clean-label trend driving growth. J&K focuses on natural food preservation solutions and supplying ingredient systems that remove chemical ingredients from food labels for baked goods and other food and beverage categories. Its clean-label solutions enhance food quality and safety, extend shelf lives, and reduce waste, which deliver tangible benefits to customers, retailers, and consumers. “J&K’s focus on clean-label ingredients was a key factor in its recent sale to SK Capital,” notes Warczak.
Similar to J&K Ingredients, The Perfect Purée is also a leader in clean-label, natural ingredients, providing frozen fruit purées, concentrates, zests, and blends. The company’s products, which are frozen to maintain the freshness, flavour, and colour of their real fruit ingredients, are highly appealing to both foodservice customers and consumer packaged goods companies wanting to offer clean-label, natural, and premium products to their customers.

Product quality and consistency

Each company also provides a consistently high-quality product. For instance, The Perfect Purée’s products stand out for their consistent flavour and vibrant colour, regardless of the fruit varietal, country of origin, or time of the year. Providing such consistency is highly complex as the company sources fruits from various growing regions and in different seasons that produce variation in sweetness and colour. “The Perfect Purée has rigorous sourcing requirements and extensively tests incoming fruit to adjust formulations and ensure each finished product has a consistent finished flavour profile and appearance,” says Cash. “Chefs and mixologists highly value that level of consistency and quality control.”

Warczak explains that time- and labour-saving premium products like purées are a win-win for a restaurant: “They simplify in-house operations while improving quality and taste year-round. Plus, using a fresh fruit purée is a way to offer a more premium cocktail or food item at a higher price.”

Brand-building strength

Having a well-known and respected brand is another key trait shared by winners in the space. The Perfect Purée, for example, partners with culinary schools to introduce the value proposition behind their products early in a chef’s career. The company also engages chefs and mixologists as brand ambassadors to showcase its products and drive demand among end users. Complementing these efforts is The Perfect Purée’s extensive sampling programme, which allows chefs to experience the products’ premium quality and has become an integral part of growing the brand. Over time, these brand-building efforts have led to The Perfect Purée becoming the go-to premium purée brand amongst chefs, pastry chefs, and mixologists.

Like The Perfect Purée, a comprehensive flavour innovation sampling programme has also helped drive the growth of Denali Ingredients, an ingredients manufacturer serving ice cream, frozen novelty, and foodservice customers. “Denali Ingredients’ long-standing partnerships with marquee customers and responsive, innovative R&D team are differentiating in the sector,” says Cash. He adds that the company is committed to offering samples of its latest flavours multiple times each year, providing unique flavour innovation kits that open the imaginations of new and existing customers to ideate new products and help the company win in the marketplace.