Verlinvest bets on alternative foods, eyes SE Asia brands with global ambitions

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Alternative foods, from plant-based protein patties to nut milk, are gaining favour among consumers. And it is a long-term trend that consumer-focused investors such as Verlinvest are betting on.

“Every day there are more consumers who become aware of the need to change their consumption habits, and move to more sustainable offerings,” says Raphael Thiolon, executive director at Verlinvest in Singapore.

Verlinvest is the Belgian investment company backed by the family that controls beer giant AB InBev. It remains the largest shareholder, together with China Resources, in Swedish oat drink maker Oatly that has just listed on Nasdaq. 

Shares in Oatly had quickly risen beyond its initial public offering price of $17 per share. At over $10 billion, the market capitalisation of the dairy-alternative producer has surpassed plant protein peer Beyond Meats. 

“We’ve seen that acceleration in the awareness around sustainability, and the willingness to eat healthier, eat more natural ingredients which are traceable,” Thiolon says. “That is definitely benefiting companies like Oatly, and a lot of others, who’ve been pioneers in trying to initiate action [towards sustainability].”

According to the Good Food Institute, plant-based protein companies attracted $2.1 billion in investment last year, or three times more than in the year before. Global investors on the case include Temasek Holdings, Mirae Asset Global Investments, Proterra Investment Partners, and Sequoia Capital, which have funded startups across Asia and the US.

In its prospectus, Oatly pointed to data from Consumer Insights that indicate a growing shift in consumer preferences towards plant-based milk. According to the market research group, about a third of consumers in the US have cut back or stopped consuming dairy products; about two-thirds of this group of consumers have turned to plant-based dairy products.

Further, plant-based milk, excluding soy drinks, accounted for just 9% of the total global dairy market in 2020, indicating a substantial opportunity for expansion.

The company recorded revenue of $421 million in 2020, or double the revenue in the previous year. It generated gross profits of $129 million, though losses for the year amounted to $60.4 million, owing to expansion plans. For the three months ended March 31, 2020, Oatly recorded a gross profit of $41.9 million, though losses for the quarter amounted to $32.4 million. 

Thiolon says plans for Oatly include further expansion into Asia. The region currently accounts for about 13% of sales; Europe, Middle East and Africa region account for 64%, while the Americans make up the rest.

Apart from Oatly, Verlinvest’s portfolio includes Indonesian coffee chain startup Kopi Kenangan; and Sula, epigamia, and Byju’s in India. India is currently Verlinvest’s largest market in Asia, in terms of allocation.

Earlier investments in Southeast Asia, which have since been divested, include e-commerce marketplace Lazada; F&B platforms Cuisine Asia and F&BAsia; and European International School in Vietnam.

Thiolon tells DealStreetAsia that Verlinvest is looking for further opportunities in Southeast Asia. 

Edited excerpts of the interview:

India is Verlinvest’s biggest market in Asia. What will make Southeast Asia more attractive to global investors such as yourself?

We’ve been investing in this region for a while. We invested in Lazada in 2013, and we had a very successful exit to Alibaba. But it’s true that when you look at our portfolio today, there have been more exits than investments. And it’s, I think, something that we want to correct. 

When you look at our size, as a growth equity investor in the consumer space, there’s also a question of maturity [of assets]. There weren’t that many homegrown brands in Southeast Asia of the size and scale where we can come in and invest. But we are seeing that change.

I think COVID is accelerating the growth of some of these new challengers. What’s very interesting as well, is that more and more companies, brands, based in Southeast Asia, have ambitions beyond. 

That is something which is very close to our heart because we are a global investor in all the main consumer markets. [We can] provide insights and support for entrepreneurs who want to expand into different countries.

We invest in mission-led brands. We are seeing a new generation of 20-something or 30-something [year-old] entrepreneurs out of Indonesia, Vietnam, and the Philippines, who really do want to make an impact and want to create big businesses, but also do good. And so definitely we want to have a chance to connect.

One of the observations about Southeast Asia is that the bulk of the businesses are SMEs or family-owned companies. How attractive are these businesses to investors such as yourself? How can private equity play a role in their transformation? 

If you look at our portfolio, there’s a good example of a company called Mutti in Italy, a century-old brand. We were the first and only non-family shareholder in the business, and we came to help them accelerate growth in Europe, outside of Italy, move some of their marketing online, and so on. We do it for the right brands, the right opportunity. There are a few family-owned, fairly large brands in Southeast Asia where I think we definitely think of the right partnership. 

What is the minimum size of cheques you cut? And would you be moving into more early-stage investments?

We are flexible by nature but we try to be disciplined as well. We are a growth equity investor, but we want to have the flexibility to come in fairly early when we see a great team, a great opportunity to back the company over a long period of time and have the chance to reinvest. 

I think one thing that we’ve done very successfully is starting with small cheques. And as we get to know, understand the business better, grow the investment. We need to see some proof of concept, some product-market fit, some early positive customer data. We will never come in pre-revenue. But cheque sizes – between $10 million and $200 million – fall within our range.

What are the opportunities in the consumer sector that are attractive to private equity investors such as yourself?  How has the pandemic changed the way you look at them, if at all? 

At Verlinvest our mandate has been to back very innovative consumer brands and challenger brands, [which are] often trying to fight the big MNCs. Typically, most of our brands would have been very digitally savvy from the start.

Outside of our portfolio, I think the big change is that food service channels have been really impacted. A lot of brands have to adapt, and those who saw that structural trend before, are better placed because the reality is COVID was an acceleration [of digitalisation], but didn’t really change the trend.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.