The idea of “buying local or shop local has been around for a few years now … and I don’t see tapering off any time soon,” especially as the quantity, quality and variety of what consumers can buy locally is expanding and with it a deeper perceived personal connection with a brand, the entrepreneur or the product category, Tyler Savage, a partner in Nixon Peabody’s M&A and Corporate Transactions practice, told FoodNavigator-USA.
While this is great for many local or regional companies starting out and looking for a loyal consumer base, it is placing some pressure on national and international brands that are losing market share – forcing them to look for new ways to enter regional markets, Savage said.
The trend also could hamstring regional brands as they try to grow and turn to partnerships with larger companies to secure more resources in deals that some consumers may see as “selling out,” or that could cost them their “local” label, he added.
To carefully balance the needs of regional and national or international companies without estranging previously loyal consumers who like to shop local, businesses looking to partner with each other are experimenting with various legal structures that preserve the appeal of “local,” said Isaac Figueras, an associate with Peabody Nixon’s M&A and Corporate Transactions practice.
“Depending on what the market looks like and the product is, you will see some acquisition strategies where a large company is buying the entire regional or local company, but using a risk-adverse model where the purchase price is dependent on the performance after acquisition,” as a way to incentivize the seller to maintain that local feel, he said.
“You will also see venture capital arms established where large companies have a venture capital piece and stages minority investments in various smaller companies,” but lets them continue to operate independently so consumers still perceive them as local, he said.
Sellers also are negotiating ways to preserve the personality of their brands post-acquisition by structuring investments with requirements that buyers maintain the local focus of the brand after the deal closes, he said.
Managing potential for backlash
No matter how the partnership is structured legally, there is a risk that some consumers will see the deal as the regional brand selling out and no longer perceive it as “local,” warns Savage. This could hurt long term sales unless both companies act quickly to reassure consumers, he said.
“When an acquisition happens, consumers realize it almost immediately,” and will begin voicing concerns across social media about how their beloved product or brand might change now that it has “sold out,” Figueras said.
As such, he recommends both players be prepared immediately to explain their plans, including “what they plan to do with the company, and proving that they aren’t diluting the local or regional brand just because a national company is there now post-acquisition. They need to show the same innovation and quality will be there and sometimes even the same business team and management team of the company that was sold.”
Savage agreed, emphasizing, “there is a real focus on retaining the look and feel of the target company much more so than in the past because that is what consumers are looking for. They don’t want to see the product they are used to buying for the past five years drastically change now that a big international company purchased it.”
With this in mind, he added, “it becomes part of the strategy to look for not only the product that fits into part of the larger enterprise, but also the team behind it and that will maintain the look and feel of the quote-unquote local product they are buying.”
Local companies team up with each other
While there are ways to minimize negative consumer responses to mergers and acquisitions, “you can’t please everyone,” Savage said. As such, he said some local companies are looking for ways to grow that don’t involve getting into bed with a national or international company.
Going forward, he predicts, “you may see more local companies, before they dive in with a national or international company, sharing resources and joining associations” as a way to manage costs while they scale.
“Small local companies are starting to team up together, and you will see more of that as well, and I think you will see that get refined and they will get more educated on what the impact will be if they are copiloting with a larger national or international player and what that could do to their product,” he said.