Why General Mills and Campbell Soup are investing in up-and-coming food brands
As consumer eating preferences are rapidly evolving and changing, CPG giants are looking for ways to innovate and enter new product categories. They're doing so by investing in emerging food brands that cater to the Whole Foods crowd.
General Mills is setting its sights on kale chips and meat substitutes by way of 301 INC, its venture fund that backs emerging food brands.
The fund includes Rhythm Superfoods, which makes kale chips and broccoli-based snacks; Beyond Meat, producer of plant-based meat substitutes; and Tio Gazpacho, which makes ready-to-drink bottled vegetable soup. Most recently, General Mills invested in Kite Hill, which produces cheese and yogurt made from nuts.
301 INC has helped General Mills stay ahead of the curve in the same way as its acquisition of natural food company Annie's Homegrown in 2014, noted John Haugen, vp and general manager of 301 INC.
"The team at Annie's gets a lot of credit for helping us get smarter across the new food landscape in the natural and organic categories," he said.
"It's difficult for big companies to replicate the agility, passion and energy of these startups. [301 INC] leverages the strength of the entrepreneurs and what they do extremely well, and pairs that with what we can do at General Mills to help them grow."
In February, Campbell Soup Company invested $125-million ina venture capital firm investing in the future of food. In a statement to investors, Campbell president and CEO Denise Morrison said, "We believe defining the future of real food requires new approaches and new business models."
Having a stake in these companies serves two purposes: It's an easier way for CPG companies to expand their business, as opposed to creating new products from scratch, and it's less risky than buying these companies outright, explained Lynn Dornblaser, director of innovation and insight at Mintel.
Big snapping up small
"Big companies are still acquiring little companies, but now, it's more about joint ventures or partnerships. That kind of involvement is becoming more popular now because it's less risky," she said.
"Some big companies won't create a new product unless they're confident it'll do $100-million in the first year. They need these startups to explore new trends. And, if they end up backing a trend that isn't sustainable long term, they can get out of it."
Venture funds also allow the large CPG firms to be more nimble, said Victor Friedberg, co-founder and managing director of S2G Ventures, a venture fund that invests in food and agriculture companies.
"These are large companies, and they're very slow-moving. These funds give them the ability to evolve faster, which ... for themselves, their customers and their shareholders, they need to do," he said.
"Meanwhile, the startups gain institutional knowledge from the big companies, whether it's getting more distributors or learning how to bring a brand to market."
Erik Thoresen, principal at Technomic, expects this trend to continue as plant-forward diets become increasingly popular. "For younger generations, especially Gen Z, their tastes are different than their parents, and it's imperative that [big brands] respond to this," he said.
"The writing's on the wall. It's not like the big legacy brands are going away, but we may see them shift in terms of focus. It could have a broader effect on what we eat five or 10 years from now."
The investments are an example of CPG marketers' greater willingness to experiment, in general, said Deacon Webster, chief creative officer at Walrus.
"When you've been doing the same thing for 90-plus years, it's not that easy to walk away from it, but from what I've seen, they are committed to change. It's brave, and it also gives you a sense of the pressure the category is facing," he said.