Food Transparency 2017

WINTER 2017
HeadwatersMB.com
THE RISE OF A NEW FOOD INDUSTRY MANDATE:
Trust, Truth and Transparency

THE RISE OF A NEW FOOD INDUSTRY MANDATE: TRUST, TRUTH AND TRANSPARENCY | 1
Many concerns are weighing heavily on the minds and hearts of
consumers today, and among them are the availability of healthy
foods and the impact food has on their health and wellbeing. In this
environment, one concern has surged in importance – the demand for
greater transparency from food companies.
Today’s food industry is in the midst of an extraordinary revolution that is as disruptive as it is dynamic.
As outlooks and lifestyles veer further away from questionable diets and unrealistic weight-loss fads,
consumers have become increasingly aware of the importance of transparency and the food choices they
and their families are making.
Consumer priorities now range from clean eating and labeling to farming, processing and sourcing
practices, as well as the humane treatment of animals. Additional influences that are awakening new
consumer values include the mounting distrust of legacy Big Food companies and the importance of
serving as citizens of the planet. The cumulative effect is a measurable and unmistakable impact on the
demand for healthy food products, and changing consumer shopping behaviors and purchase decisions:
• Nearly all consumers (94 percent) believe it is important that the brands and manufacturers they
purchase products from are transparent about what is in their food and how it is made.1
• Only 12 percent of consumers rank brands as
their most trusted source of food-ingredient
information. Yet, nearly 70 percent believe
the brand or manufacturer is responsible
for providing consumers with ingredient
information.2
• Sixty-five percent of consumers purchased
goods or services from socially responsible
brands in the past 12 months. Additionally, 32
percent are planning to spend more with socially
responsible brands in 2016, including 41 percent
of 18- to 24-year-olds and 38 percent of 25- to
34-year-olds.3
Food companies large and small that recognize and
support consumers’ priorities can win their long-
term loyalty and capitalize on the competitive advantages of consumer-focused business strategies and
leadership. They also have a genuine opportunity to become part of the massive consumer shift that is
dramatically transforming the food industry and ultimately, brand performance and marketplace position.
“Today’s food industry is in the midst
of an extraordinary revolution that is as
disruptive as it is dynamic. As outlooks
and lifestyles veer further away from
questionable diets and unrealistic weight-
loss fads, consumers have become
increasingly aware of the importance of
transparency and the food choices they
and their families are making.”
– BILL HARRISON, MANAGING DIRECTOR,
HEAD OF CONSUMER INVESTMENT BANKING,
HEADWATERS MB

2 | THE RISE OF A NEW FOOD INDUSTRY MANDATE: TRUST, TRUTH AND TRANSPARENCY
Road to Transparency
As these priorities have become more strongly embraced
by mainstream consumers, the demand for and sales of
healthy products have climbed to record levels.
In a recent Acosta survey, The Why? Behind the Dine,
US diners affirmed the importance of feeling good
about the food they are eating.
These widespread consumer attitudes and behaviors
have transformed a once niche advocacy group into
a powerful marketplace force that demands food
companies offer not only healthy products but also
product and process transparency. Also, while in many
cases Millennial voices are resonating strongest when
proclaiming their food-related positions and opinions,
% US DINERS – EATING HEALTHY ATTITUDES
Thinking about the last year, please indicate how much you agree with each of the following statements.
(% Agree Strongly/Agree)
Source: The Why? Behind the Dine (2nd edition), Acosta
It’s important for me to feel good about
the food I’m putting into my body
I actively seek out nutritious
foods that are good for me
I usually look for healthy options
when ordering at restaurants
I’m very health conscious
I’m eating smaller portions than
I was last year
I eat healthy meals, even though they
may be more expensive
I’d like to eat healthier, but I can’t afford it
65%
49%
47%
45%
43%
37%
31%
“Forty percent of consumers believe
the food system is headed in the right
direction, up from 30 percent in 2012.
Those who believe the food system is
on the wrong track has dropped by 11
percent in the last two years.”
– A CLEAR VIEW OF TRANSPARENCY AND HOW IT
BUILDS CONSUMER TRUST (2015), THE CENTER FOR
FOOD INTEGRITY (CFI)
a number of industry studies indicates that consumer
concern regarding food consumption spans age
brackets, geographic regions and income levels.
Authenticity, sustainability and transparency have never been more important for
consumers and for the food brands they look to when making purchase decisions across
product categories.

A 2015 Deloitte survey, Capitalizing on the Shifting
Consumer Food Value Equation, analyzes both
Traditional and Evolving drivers of consumer behavior.
Traditional drivers include taste, price and convenience,
while Evolving drivers focus on health and wellness,
safety, social impact, and transparency.
The survey shows that approximately one-half of
consumers weigh Evolving drivers more heavily than
Traditional drivers. It also reveals that Evolving drivers,
when compared with Traditional drivers, equally
represent geographic regions (Midwest, Northeast,
South and West), ages (18 to 34, 35 to 49 and 50 to 80)
and annual income brackets (less than $25K, $25K to
$75K, more than $75K to $100K and more than $100K).
Notably, the survey found slightly higher Evolving-driver
levels among survey participants located in the West
and earning more than $100,000 per year.
The diverse consumer demographic uncovered by the
Deloitte survey is of paramount significance for food
companies. It demonstrates that consumers, regardless
of their geographic location, age and income, are now
prioritizing the Evolving drivers of health and wellness,
safety, and other factors that extend beyond taste, price
and convenience. What this means for food companies
is that in order for them to maintain market share and
grow, they will need to address these new consumer
priorities.
Among the ways food brands are responding to
health-driven consumers, and in the process moving
progressively closer to transparency and consumer
engagement, is by proactively informing consumers
of food ingredients. In some cases, brands are also
advising consumers on why specific products are good
for them nutritionally, and setting new standards for
quality in research, consumer advocacy and disclosure.
Additional approaches are company website sections
dedicated to nutrition and ingredient information.
“Forty-seven percent of US consumers
look at the ingredients list before
purchasing a packaged-food item in
2015, compared to 40 percent who
made a similar claim in 2014.”
– INTERNATIONAL FOOD INFORMATION COUNCIL
(IFIC)
EVOLVING DRIVERS ARE STILL HIGHLY RELEVANT ACROSS
INCOME GROUPS
Source: Capitalizing on the Shifting Consumer Food Value Equation, Deloitte
<$25k 51% 49%
$25k-$75k 51%49%
>$75k-$100k 51%49%
>$100k 54%46%
TRADITIONAL
DRIVERS
EVOLVING
DRIVERS
Health and wellness, safety,
social impact, and transparency
Taste, price and convenience

methods, consumer feedback, and other social and
environmental issues.
Digital “soap boxes” now serve as vocal and
influential platforms from which consumers
are broadcasting their own opinions as well as those
of public-health activists, watchdog groups, media
pundits, celebrity nutritionists, and self-appointed gurus
and evangelists. The outcomes are rewards for food
companies’ perceived “good behavior” and punishment
for perceived “bad behavior.”
According to a recent survey performed by The Center
for Food Integrity (CFI), A Clear View of Transparency
and How It Builds Consumer Trust, the responsibility
for demonstrating trust-building transparency in the
most important food-production areas rests first and
foremost on the shoulders of food manufacturers –
not farmers, grocery stores or restaurants. Areas of
greatest concern to survey participants are food’s
impact on health, food safety, the environment, labor
and human rights, animal wellbeing, and business ethics.
Food companies earn trust when they consistently,
authentically and proactively live up to their healthy-
products commitment in all aspects of their business,
and remain in lockstep with consumers’ evolving
priorities. In the process, they can positively influence
purchase decisions and become strategically positioned
to excel in the healthy-food sector.
However, with the rise of technology and social media,
and the empowerment they bestow on consumers,
particularly on Millennials, maintaining consumer
trust requires more than tried-and-true engagement
strategies. Here are three top reasons why:
There is greater consumer diligence when
investigating the extent to which food
companies live up to their healthy-product claims.
Consumers are also being more empowered in their
research each year by the Internet, social-media
networks and smart-phone apps that can range from
HarvestMark and ShopNoGMO to True Food and
GoPure.
Consumers’ investigative efforts are reaching
beyond food company backgrounds to
include product ingredients, labeling, sourcing
Platform of Trust
“Brands that meet customer
expectations for product information,
and deliver that information instantly,
develop a new dynamic of convenience,
trust and long-term value.”
– 2016 LABEL INSIGHT FOOD REVOLUTION STUDY
1.
2.
3.
Best practices for building consumer trust in an
environment seemingly overrun with skepticism and
doubt are founded on both the security consumers
experience from full ingredient disclosure and a kinship
with the company that is formed through shared values.
In fact, internal sustainability groups are winning as
much applause from food companies as they are from
consumers. These groups respond directly to consumer
diligence and help guide food companies as they
continually meet health and sustainability commitments.
Additionally, food companies are expanding their
compliance departments to ensure they are in sync
with regulatory demands and marketplace changes, and
offering more consumer-engagement opportunities to
demonstrate transparency.
Trust is food companies’ anchor for success, making its pursuit and retention a mission-
critical goal.

Good for Business, People and
the Environment
These brands are usually mission-driven in their
marketing and consumer messaging, which often
resonates with consumers. In the process, brands are
able to grow from the competitive opportunities and
financial rewards that the healthy-food sector has to
offer.
Though each food company is unique in its product
offerings, market-entry strategy and goals, they all
share a universal DNA – the ability to understand and
meet the complete range of consumer expectations,
from health and nutrition claims to animal and
environmental protection.
The following three companies stand as real-life
examples of how transparency, and the consumer trust
that follows, can be catalysts for growth, success and
corporate citizenry.
KIND, whose products are better-for-you fruit and nut-
snack bars, was founded in 2004 with eight bar varieties
and now offers more than 22 bars and six Healthy
Grains snackable clusters.
KIND has taken a number of steps that have led to
strong performance and market differentiation,
including using transparent packaging so that
consumers can see the contents of the product when
displayed on store shelves. The company also focuses
its branding and marketing efforts around the KIND
belief that “there’s more to business than just profit.”
For example, rather than rolling out a traditional
product-sampling strategy, KIND selected brand
ambassadors who distributed coupons to the public in
a wide range of US cities. Members of the public could
then redeem their coupons for KIND bars as a reward
for their random acts of kindness. The marketing
strategy was an unequivocal success. It not only
honored kindness, a principle on which the company
was founded and named, but also emboldened the
authenticity of the KIND brand.
Although KIND remains privately held, in 2012 it
reportedly generated $120 million in revenue, with
private equity investor VMG Partners selling its minority
position for approximately $200 million in 2014.
KIND
Each year, food brands launch better-for-you products that gain both significant consumer
traction and loyalty as well as brand awareness.

In 2009, Freedom Foods solidified its position as a leader
in its region in the GMO- and allergen-free segment by
constructing a 25,000-square foot production facility
in New South Wales, Australia that is completely free
of wheat, barley, triticale, peanuts, soy, dairy, eggs and
sesame seeds. Additionally, most of the company’s
product ingredients are carefully sourced from family
farmers in the Murrumbidgee River basin area.
Freedom Foods’ 2016 revenues reached $127 million
USD, 81 percent greater than the company’s total sales
of $70 million USD in 2015. The company’s impressive
growth and presence in Australia demonstrate that the
demand for better-for-you foods is increasing globally.
Today, over 80 countries around the world have organic
regulations and the US accounts for only five percent of
the world’s organic acreage.
Honest Tea was founded in 1998 with a mission to bring
to market a bottled-tea beverage that was less sweet
than its competitors and used organic ingredients,
all while adhering to fair trade practices of improved
trading conditions, sustainability, and social and
environmental standards.
By 2006, Honest Tea had revenue of $13.5 million and
was selling approximately 1.5 million cases of product
per year. In 2008, Coca-Cola purchased a 40 percent
stake in the company for $43 million. Coca-Cola
purchased the remainder of the company in 2011 for an
undisclosed amount. It is estimated that Honest Tea’s
2015 sales were $160 million.
Freedom Foods is an Australian food company that for
more than 30 years has been producing nutritious and
allergen-free food. Today, its better-for-you product line
includes cereals, bars, snacks, spreads and beverages.
Honest Tea
Freedom Foods

Truth behind the Talk
However, there are hot-button concerns that provide
fertile ground for discussion and debate, from the most
heated and divisive to the most rational and inclusive,
by the media and general public. These often spirited
exchanges can confuse consumers and, in some cases,
undermine their confidence in the sector.
The following is a discussion of four top consumer
concerns and the influence they are having on today’s
healthy-food sector.
“Natural” Claims
The healthy-food sector includes unregulated “natural”
products. However, “natural” has yet to be defined by
the US Food and Drug Administration (FDA) or any other
authoritative organization, leading to research-supported
consumer uncertainty and skepticism over product
claims. Consumer Reports’ National Research Center
discovered that 62 percent of consumers already buy
natural products and the group would also be willing to
pay more for these items if they understood and trusted
the natural claims. A clear majority of this group – 87
percent – agreed they would pay a higher price if the
natural label met their expectations.
“Non-GMO is the fastest-growing food-label claim, with 15.7 percent of new products
introduced in 2015 making “Non-GMO” or “GMO-free” claims – an increase from
10.7 percent in 2014 and 2.8 percent in 2012. Similar strong growth is seen in organic
products, with 13.5 percent of new products making organic claims in 2015, up from
10.7 percent in 2014.”
– MINTEL’S GLOBAL NEW PRODUCT DATABASE (GNPD)
In comparison, the US Department of Agriculture
(USDA) has created strict certification requirements
and a national, uniform qualification standard for
organic products, though organic products have
historically generated a less positive consumer
response than natural products. Despite general
skepticism, there has been tremendous growth in
the organic market, with sales of organic products
surpassing $40 billion annually. Additionally, a 2016
Organic Trade Association survey reveals that 47
percent of US families are “very familiar” with the USDA
organic logo, up from 27 percent in 2010.
Establishing and maintaining consumer trust is a never-ending priority, and requirement,
for brands that are leading in the healthy-food sector.

MANY NEW ATTRIBUTES ARE NOW PART OF CONSUMERS’
DEFINITION OF SAFETY
Source: Capitalizing on the Shifting Consumer Food Value Equation, Deloitte
Truth in Labeling
In the midst of a “We Want to Know What’s in Our
Food” movement, where consumers are demanding
more product information, labeling has become a
greater concern. Market Research Group’s recent
Packaged Facts Consumer Survey found that 39 percent
of consumers actively purchase grocery products with
“GMO-free” on the labels. However, during a time when
food companies are not required by law to list every
ingredient, some companies use misleading claims to
convince health- and socially conscious consumers to
purchase their “healthy” products.
Criteria not traditionally considered as part
of “safety” definition
Free of harmful
elements
Clear and accurate
labeling
Clear information
(ingredients/
sourcing)
Fewer ingredients,
processing,
no artificial
Nutritional
content
62%
51%
47%
42% 41%
For example, some brands are committing Economically
Motivated Adulteration (EMA), or Food Fraud, that
involves an undeclared substitution or addition of an
ingredient(s) for financial advantage. Other companies
are using more specific “free of” claims in product
packaging that often identify certain unwanted
ingredients while including other ingredients that
consumers want to avoid.

Mistrust
A measurable level of mistrust clouds the opinions of
consumers across demographics, which undermines
the credibility of food-product health and safety claims,
and results in consumer reluctance to purchase healthy
products. The roots of consumer mistrust can be
traced to a number of causes.
For example, although Genetically Modified
Organisms (GMOs) were generally viewed as safe
by food manufacturers, and not disclosed in food
products’ ingredient labeling when introduced in 1990,
controversy and consumer outrage began to occur in
2013 when safety concerns heightened. Also, a 2016
Stanford University study, a first-of-its-kind national
sample and published in Environmental Research,
unveiled a link between canned foods and exposure to
hormone-disrupting chemical Bisphenol A (BPA). The
highest BPA levels, in descending order, were found in
canned soups, canned pasta, and canned vegetables
and fruit, otherwise seemingly healthy choices.
“More than one-third of
consumers (37 percent)
would switch brands if
another brand shared
more detailed product
information.”
– 2016 LABEL INSIGHT FOOD REVOLUTION
STUDY
Marketplace Identity
The benefits of healthy products can become diluted,
or in some cases even lost, due to a large selection of
similarly labeled products, such as “natural,” “green”
and “organic,” among others. What follows is confusion
for consumers and a lack of product differentiation for
food companies.
Among the ways companies can bring clarity, identity
and transparency to their product offerings are through
unique ingredients, specific target marketing and
branding. Companies that are focused on sustainability
and community-improvement differentiate themselves
by increasing their authenticity and aligning values with
today’s consumers, who seek companies that offer
more than low-priced better-for-you foods.

Big Food Dilemma
Consumer mistrust of the food system is giving rise to
a number of new marketplace perceptions, trends and
behavior. Among the most prominent is consumers’
growing belief that their food health and safety
priorities would best be met not by the Big Food brands
that have been relied on, in many cases for generations,
but rather by smaller brands.
A large and growing number of consumers are branding
Big Food companies as less in tune with their voices and
overly profit-driven. According to the Natural Marketing
Institute, a commanding 72 percent of Americans
believe that most food and beverage manufacturers are
focused on profit rather than on health.
Conversely, smaller food companies are being lauded
for their strong devotion to consumer advocacy and
health, and for their commitment to shared values
and the public interest. A recent New Hope Network
survey indicates that 67 percent of consumers had a
“great deal” or “quite a lot” of trust in small companies,
while only 21 percent had the same degree of trust
in big businesses. One of the leading reasons for this
perception can be traced back to supply systems.
“In the last five years, the top 10 branded
food manufacturers lost 4.3 percent of
market share mainly to smaller and mid-
sized companies.”
– COMPANIES STEP UP EFFORTS TO REVEAL MORE
DETAILS ON FOOD YOU EAT, THE WALL STREET
JOURNAL, MARCH 13, 2016
Big Food companies are often laboring under
monolithic, outdated legacy supply systems that were
developed decades ago, while smaller companies’
systems are generally newer and more aligned with
consumers’ demand for transparency. The result is
nimble systems that can better accommodate the rising
market for better-for-you foods.
Acceleration in Acquisitions
While Big Food brands continue to dominate sales, a
recent Fortune Special Report: The War on Big Food
shows that some may be struggling, with the top 25 US
food and beverage companies having lost an equivalent
of $18 billion in market share since 2009. What has
followed is a strengthening migration to, and a host of
new opportunities for, small companies, and a flurry
of mergers and acquisitions by Big Food companies of
smaller brands that allows for market entry with more
convenience and less risk.
Dealogic reports that in 2015, food merger and
acquisition activity was responsible for more than
$116 billion worth of deals between US companies,
which stands as the largest dollar amount in at least
two decades. Also, by the middle of 2016, disclosed
food and beverage deals were valued at more than $43
billion, which although less than the $74 billion worth of
deals during the same period in 2015, nonetheless ranks
as the second-highest level overall since 2008.
There are a number of food-industry acquisitions that
have captured the attention and interest of large and
small companies alike, both within and outside the food
sector, as well as among investors and members of
the media.
Each year, food brands launch better-for-you products that gain both significant consumer
traction and loyalty as well as brand awareness.

GROWTH BY ACQUISITION
Danone’s Acquisition of WhiteWave Foods
In July 2016, Danone announced the acquisition of
WhiteWave Foods for $12.6 billion, or 26.6x EBITDA.
The acquisition represents a 24 percent premium over
WhiteWave’s 30-day average closing price of $45.43,
and the largest deal to date in the natural and organic
foods industry.
Danone believes the acquisition will create a unique
global leader strongly aligned with consumer demand
for healthier and more sustainable food and beverage
options. The acquisition also provides Danone with a
foothold in the fast-growing plant-based sector through
the WhiteWave Silk, Alpro and Vega brands.
The company estimates that the acquisition would likely
make Danone, with its Stonyfield, Horizon and Wallaby
brands, the largest buyer (by tons) of organic milk in
the US. Plant-based alternatives to milk and yogurt are
growing at an 11 percent Compound Annual Growth
Rate (CAGR) in the US, while organic dairy is growing at
eight percent.
Pinnacle Foods’ Acquisition of Boulder Brands
Pinnacle Foods announced in November 2015 that it
would acquire Boulder Brands, a US food company
based in Boulder, Colorado. Boulder Brands is known
for its better-for-you brands such as Smart Balance,
Udi’s, Glutino, Earth Balance, EVOL and Best Life.
Pinnacle paid $967 million for Boulder Brands, or 22.1x
EBITDA. Pinnacle’s health and wellness portfolio was
further expanded by the acquisition, and the company
plans to increase EBITDA by approximately 50 percent.
General Mills’ Acquisition of Annie’s
In September 2014, General Mills announced its
acquisition of Annie’s, a Berkeley, California-based
maker of natural and organic pastas, meals and snacks.
General Mills paid $821 million for Annie’s, or 38.6x
EBITDA. The acquisition is expected to expand General
Mills’ presence in the US branded organic and natural-
foods industry, with General Mills planning to use its
scale to further strengthen the Annie’s brand.

Transparency Mandate
Contact Us
To learn more about how the Headwaters MB team can help you grow from the food industry’s strengthening
transparency mandate, please contact:
Hormel’s Acquisition of Justin’s
In May 2016, Hormel announced its $286 million
acquisition of Justin’s, a maker of natural and organic
nut butter and nut butter snacks. Hormel was drawn to
the company’s authentic position in the better-for-you
snack category, strong management team and health-
conscious customer base.
Bill Harrison
Managing Director
Head of Consumer Investment Banking
(917) 596.5533
wharrison@headwatersmb.com
Leigh Hudson
Managing Director
Consumer Investment Banking
(415) 850.3729
lhudson@headwatersmb.com
Tyler Comann
Managing Director
(415) 272.2463
tcomann@headwatersmb.com
Shaun Kalnasy
Director
(404) 502.2946
skalnasy@headwatersmb.com
Coveted consumer audiences across demographics are
looking to food brands for products that meet their
ever-rising standards for transparency, better-for-you
ingredients and global citizenry. The result is a mandate
for food companies to factor those standards into their
formulations, production, marketing and management
decisions. Only then will they achieve the brand
recognition, repeat customers and pricing power to
achieve genuine competitive advantage and long-term
growth.
Hormel expects Justin’s to grow at low double-
digit rates from a starting point of approximately
$100 million in 2017 net sales. Justin’s complements
Hormel’s SKIPPY brand and Hormel plans to apply
its key resources, supply chain, finance and R&D
capabilities to further grow the Justin’s brand.
A new reality has dawned on store shelves across the US and it reflects a level of truth and
openness that has yet to be seen in the food sector.

Disclosure: This newsletter is a periodic compilation of certain economic and corporate information as well as completed and announced
merger and acquisition activity. Information contained in this newsletter should not be construed as a recommendation to sell or buy any
security. Any reference to or omission of any reference to any company in this newsletter should not be construed as a recommendation to
buy, sell or take any other action with respect to any security of any such company.
We are not soliciting any action with respect to any security or company based on this newsletter. The newsletter is published solely for the
general information of clients and friends of Headwaters MB, LLC. It does not take into account the particular investment objectives, financial
situation or needs of individual recipients.
Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This
newsletter is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be
relied upon as such.
Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary
materially. We are under no obligation to update the information contained in this newsletter. Opinions expressed are our present opinions
only and are subject to change without notice. Additional information is available upon request.
The companies mentioned in this newsletter may be clients of Headwaters MB, LLC. The decisions to include any company in this newsletter
is unrelated in all respects to any service that Headwaters MB, LLC may provide to such company.
This newsletter may not be copied or reproduced in any form or redistributed without the prior written consent of Headwaters MB, LLC. The
information contained herein should not be construed as legal advice.
Endnotes
1
2016 Label Insight Food Revolution Study
2
2016 Label Insight Food Revolution Study
3
Is GOOD Still Growing, 2015 Conscious Consumer Spending Index (Good Must Grow)
Headwaters MB is an independent, middle-market investment banking firm providing strategic merger and
acquisition, capital-raising, and special-situations advisory services. Named Investment Bank of the Year by major
industry organizations in 2014 and 2015, Headwaters MB is headquartered in Denver, CO, with six regional offices
across the United States and partnerships with 18 firms covering 30 countries. For more information, visit
HeadwatersMB.com.
About Headwaters MB

14 | LOHAS GOES MAINSTREAM
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