Lateral Capital Management, LLC

Acme Latin Foods

Acme Latin Foods (ALF) is one of the dozens of Early Stage food companies we have looked at and passed on. The products here were very good, and the market for a competitor to Goya still seems wide open. We did not invest.

  • Assessment: Food & Beverage companies are typically distribution businesses masquerading as product companies. With no patent protection and few sustainable competitive advantages in flavor or nutrition, companies like Acme Latin are totally dependent on having enough money to “get national,” and then stay in distribution long enough for the consumer to make the product a regular part of their purchase behavior. Most big Food and Beverage companies over $100MM in sales were launched before WWII.
  • Outcome:Despite early enthusiasm from several large grocery chains, Acme was unable to raise enough money to get to the point of offering a marketing program which would sustain distribution once they had it. The company failed, as have a dozen others where we have been approached for advice or investment. The push to start new Food & Beverage companies is driven principally by the allure of selling to the global F&B players. These companies have broadly lost their internal ability to innovate and/or would rather buy than build.The problem is that there are only about 30 of these big players globally, with thousands of Early Stage companies trying to get their attention. Without “being bought,” there appear to be three stopping points along the sales curve for F&B startups. They get stuck at $2MM, $7MM and $22MM in sales. With net margins of (at best) 10%, and dozens of new competitors every day, even the largest of these sales levels is hard to make consistently profitable
  • Learning:We try to stay away from distribution-driven businesses with no sustainable IP; including most Food and Beverage companies.