Cookies & Clothing: How Consumer Brands are Shaping Investing

By: Manasvi Koul | Published: 09/19/2024

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4 minutes

What do cookies, protein shakes and high-end luxury consumer brand items all have in common?

Other than being fun and unique products to “Add To Cart” during an online or in-person shopping jaunt, they also represent a small component of the $8.3 trillion¹ of annual personal consumer expenditure in retail trade and restaurants that presents a massive opportunity for consumer-focused private equity investors. At 30% of US GDP² and 45% of personal consumption expenditure³, this slice of the economy covers food & beverage, consumer brands, restaurant and retailer activity within the United States.

Take for instance, the “consumer brand investing success story”⁴ that is Tate’s Bake Shop, a well-known gourmet cookie brand that is widely available at Publix and Costco. As part of their methodical research surrounding evolving consumer tastes, Riverside honed in on the shifting consumer preference for all-natural and gourmet dessert options⁵. Riverside gave Tate’s the resources they needed to expand and enhanced Tate’s distribution, production, and manufacturing efficiency.⁴

Riverside fostered Tate’s strong relationships with retailers – enabling Tate’s to understand changing customer needs and preferences – and develop unique products like snack-sized “Tiny Tate’s” and on-trend flavors like Ginger Zinger and Coconut Crisps. Riverside also enabled Tate’s to be able to meet this demand through cultivating strong relationships with Tate’s distributors. Tate’s was sold to Mondelez International (an international food conglomerate) for $500MM,⁴ a great outcome for Riverside’s investors and for Kathleen King who first opened the roadside cookie stand.⁶

Within this opportunity set, private equity investors conduct significant research surrounding changing consumer preferences and deploy capital in companies which are poised to capitalize on one or many of these consumer trends at various sizes and stages. Private equity investors take a “treasure-hunt” approach, sometimes honing in on a small upstart at the intersection of multiple compelling themes or finding a highly recognizable brand with deep customer affinity and empowering them to grow in new sectors through expansion capital and strategic oversight. At each stage of a consumer-focused company, private equity aims to bring operational improvements, industry insights, and best-in-class partnerships to the table.

In addition to demand for all-natural and gourmet dessert options, consumer preferences highlight an increased focus on wellness. Only What You Need (OWYN), a plant-based protein beverage, was founded by two former professional athletes in 2017.⁸ Catering to a health and wellness focused demographic, OWYN’s ready-to-drink protein shake excludes sugars, syrups, and saturated fats,⁹ as well as the top eightallergens.⁹ Initially launched via e-commerce, OWYN received patient capital and strategic guidance from Purchase Capital in 2022.¹⁰ OWYN continues to experience double-digit revenue growth and is expected to have $120MM of net sales in 2024.¹⁰ OWYN now outsells legacy brands like Muscle Milk and is carried in Kroger, Target, Publix and Whole Foods nationwide. It was recently acquired by Simply Good Foods, a developer, marketer and seller of branded nutritional foods, for $280MM in cash.¹¹

The wellness trend has also expanded to beauty, where it accounted for an extra $46B or 30% of market value to the overarching US beauty sector, which presently stands at $148B.¹² Beauty is a small component of the overarching consumer brand sector, which includes clothing, footwear, pets and more. Clothing and footwear alone represented $1.4T of economic activity within 2023.⁷ Within the consumer brand sector, luxury brands have outperformed market indices, while non-luxury brands have lagged – which has increased caution amongst investors for the non-luxury category.¹³ This rings true within beauty as well, with North American luxury beauty sales growing 15% in 2023.¹²

All of these metrics highlight how highly recognized brands with deep affinity amongst their customer base have been able to pass along cost and price increases to consumers, without suffering a dip in demand, relative to less differentiated counterparts. Unlike their commoditized counterparts, unique consumer brands capitalizing on key consumer themes and trends require a well-developed network of relationships to source, as well as deep understanding of the sector to implement operational improvements and long-standing partnerships.

Despite a slowdown in consumer M&A activity in recent quarters due to softened consumer sentiment from rising rates, KPMG projects that 2024 consumer-focused M&A is set for an upswing. Private equity investor confidence in the consumer sector has increased, driven by the first of many forecasted rate cuts from the European Central Bank and other global central banks, larger deals and rising IPO activity.¹²

At approximately $18.6 trillion¹⁴ and representing nearly 68% of the U.S. GDP, consumption is the primary driver of the U.S. economy and presents a massive opportunity for attractive growth investments. Real* personal consumption expenditure experienced an average 3% year-on-year growth rate over the last decade.¹⁵ Investors would do well to consider dedicated consumer allocations within a diversified portfolio, as missing out on a large and steadily growing slice of the economy might prove costly over the coming years.

*Real personal consumption expenditure is adjusted for inflation

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