ORGANICS PUT FIRM IN TAKEOVER SPOTLIGHT
GreenSpace sales, stock take off amid appetite for healthier food
TORONTO Quinoa-laced baby food and probiotics-laden lamb-andrice dog chow have fuelled this Toronto company onto the shelves of retailers from Wal-Mart Stores Inc. to Starbucks Corp. and is sending its shares higher.
GreenSpace Brands Inc.’s stock has risen 43 per cent in the past year, compared with a six per cent gain on Canada’s benchmark index, as it acquires a stable of natural food and drink brands and wins deals for space in superstores, gas stations and cafés across the country.
The company’s sales more than tripled in a year as retailers scramble to meet consumers’ demand for healthier offerings.
Its success could make it a takeover target down the line.
“There are loads of opportunities just in groceries, and we’re really good at groceries,” said CEO Matthew von Teichman. “We’re not aiming for it. But it’d be disingenuous not to say that one of these big companies might come knocking when we have a little more scale.”
Amazon Inc.’s surprise acquisition of Whole Foods Market Inc. shows how pervasive natural and organic products are becoming with consumers, said von Teichman.
Sustainability-minded millennials and spendy baby boomers seeking healthier lifestyles are buying up organics in Canada, making this the fastest-growing farm food sector since 2006, with value tripling to $3 billion in that period, according to Laurentian Bank Securities Inc. analyst John Chu.
It’s also a highly fragmented market. Small suppliers lack the know-how to deal with big distributors and the capital to reserve shelf space, creating headaches for major retailers like Loblaw Cos. That’s where GreenSpace comes in.
“They’ve been able to take these mom-and-pop natural food products and plug them into their distribution channel,” said David Barr at Vancouver-based PenderFund Capital Management Ltd., who runs Canada’s best-performing small-cap fund that took a stake in GreenSpace last year.
“There’s tremendous value creation in that. It’s only one relationship for the Loblaw store to manage.”
GreenSpace traces its roots back to 1999 when it began as a supplier of premium meats from grass-fed animals raised without antibiotics and growth hormones. It developed distribution channels with major retailers in part by poaching executives from across the aisle — its chief operating officer hails from Loblaw, while the head of its Quebec sales team is a former large retail buyer.
Five of its eight brands are homegrown, including Holistic Choice Pet Food, the purveyor of Lamb & Rice for dogs.
Yet its most dramatic results have come since it began buying existing brands and plugging them into the network, starting with Love Child Organics, a maker of organic purée pouches and rice cakes, for about $6 million in October 2015.
Love Child, started by a teacher and her former London investment banker husband in the kitchen of their Whistler, B.C., home, drew attention when it won a record commitment from investors on the reality TV show Dragons’ Den in 2013. Its first customer was WalMart. Yet the business struggled to gain scale and was losing money. Within five months of acquiring it, GreenSpace made it profitable and within a year boosted the unit’s sales by 260 per cent.
“It’s a massive home run,” said von Teichman. He’s the biggest shareholder in GreenSpace with a 10.9-per-cent stake in the $79-million company, according to data compiled by Bloomberg.
Von Teichman’s targeting $100 million in sales within two years, nearly triple the figure for the year ended March 31.
While GreenSpace expects to grow through acquisitions, opportunities also exist with current partners — the company has over 1,000 products though no one store stocks more than 200 of them. He’s also exploring opportunities with local distributors in China, the Middle East and elsewhere in Asia.
That could be setting GreenSpace up to become a takeout target itself.
Since 2013, General Mills Inc., Coca-Cola Co., Campbell Soup Co., Hershey Co. and Hain Celestial Group Inc. have snapped up natural and organic food brands in transactions totalling over $1.8 billion, Raymond James Ltd. analysts, led by Kenric S. Tyghe, said in a February report.
“The hunter could become the hunted,” they wrote.
They’ve been able to take these mom-and-pop natural food products and plug them into their distribution channel