Amplify and the better-for-you business: it's not about the popcorn.
As a middle-aged guy I was a bit mystified by Amplify, which went public today with a market cap of almost $1.1 billion.
This is a popcorn company. They have a hugely popular brand called SkinnyPop, which apparently every millennial woman in America is familiar with.
But $1.1 billion? For a popcorn company? Not bad, considering the company bought SkinnyPop only a year ago for $320 million.
But then I looked a little more carefully at the product, and spent a few minutes with Amplify's CEO, Tom Ennis, on the NYSE floor today while waiting for the stock to begin trading. He was on our air as well.
And I started to get it.
It's not really about the popcorn. Of course, the popcorn matters, but it's really more about the branding and the relationship of the customer to the product.
It's a lot about the name of the product, and how you feel about it.
Sound touchy-feely? It sure is, but it works.
Simply put, it's about consumer branding. It's not about what you have, it's about how you deliver it.
It's about upselling the "natural" trend, or, as it is now known, the "better for you" market.
In the case of SkinnyPop, it's about a cute name and the claim they are taking out the stuff that is not good for you (GMO ingredients, allergens).
Ennis was VP of Marketing at Maggiano's, a Brinker restaurant chain, from 2005 to 2007, but got noticed when he became VP of Marketing and then CEO of Oberto Brands in 2007. There, he made his mark transitioning a beef jerky product to a BFY brand.
Beef jerky that's good for you, or at least, less bad? That's what I mean. Perception. Marketing. Less bad.
Like many modern companies, Amplify doesn't own any manufacturing facilities: they outsource 100% of the manufacturing to third parties.
Ennis isn't the only one working the BFY space. Blue Buffalo, for example, is already working the BFY pet food space. Hain Celestial has been in the organic and natural space for years and has been a strong performer.
And it's been working, so far. The U.S. salty snack segment is expected to grow 2 to 4 percent annually through 2019, according to Renaissance Capital, the IPO specialists who run the Renaissance Capital IPO ETF. But the BFY-segment grew 10% just in 2014.
That kind of growth gets noticed.
And that's the big problem: this is a highly competitive space that can easily be penetrated by larger competitors. SkinnyPop, for example, has 18 percent of the market share in the ready-to-eat (read: it comes in a bag) popcorn segment, but that is second to SmartFood, which has 20 percent share and is owned by...Frito-Lay. Gads.
Ennis isn't stopping with popcorn. He recently acquired Paqui, a tortilla chip brand, for $12 million in April. They expect to re-launch it nationally as a BFY in the beginning of next year.
Expect more of the same from other products, like pretzels.
Get it? Use the SkinnyPop infrastructure and marketing savvy to launch other products.
But that's another problem: it's not at all clear that their brand expansion strategy will succeed with other products. For the moment, they are almost completely reliant on SkinnyPop. Year-over-year growth decelerated to about 33 percent (preliminary) in the second quarter from 72 percent in the first quarter, according to Renaissance.
Still, you've got to admire how far they have come, given the giants they have to compete against. Anyone who thinks there is no room for innovation in the slow-growing food business should pay attention to the approach of a company like this one.