Changing tastes and stiffening competition have forced big food companies to look for new ways to grow. The newest strategy to
promote growth is investing in innovative startups. Among the companies capitalizing on this trend are General Mills ( GIS), Kellogg Co (K), Tyson Foods Inc. (TSN) and Campbell Soup Company (CPB).
And based on recent deals, this funding craze motivated by the
need to speed up innovation and develop new products doesn’t seem to be abating any time soon, reported the Wall Street Journal. (For more, see: Tyson Foods Facing
Class Action Suit.)
For example, this past January, Kellogg’s Eighteen 94 Capital fund led a $4.2 million investment in Kuli Kuli, which makes snacks
with moringa, a leafy green tree common in Asia, Latin America and Africa. And General Mills’ venture-capital fund, 301 Inc., made a second investment of $6 million in Rhythm Superfoods, maker of “zesty nacho”- flavored kale chips.
Gobbling Up the Startups Food giants are splurging on these
investments because the startups specialize in one best practice that the legacy companies could use a few lessons in mastering how to be entrepreneurial and innovative. Due to this lethargy toward
developing new products, many big food companies have either found themselves at an impasse or tossed aside by finicky consumers eager to sample the latest choice products churned out by the young upstarts.
But the titans are trying to rectify this mistake, hence, the investing in startups. Last year Campbell Soup Co. and Tyson Foods Inc. committed $125 million and $150 million, respectively, toward their in- house venture funds, said the Journal.
Venture funds made 66 food and beverage related deals in 2016, a 20% leap from the previous year. And about a fifth of these
transactions were backed by big food companies, according to Dow Jones Venturesource.
Stealing Trade Secrets?
However, not all food companies are attempting startups. Some are deliberately taking a time out to focus and re-strategize their next move. In the case of Nestlé SA, the
world’s largest packaged food company, it’s dropping its sales growth forecast for the next three years because it needs more time to play catch up with the changes in the industry.
Getting up to speed could take longer than expected for these food giants. Speaking to the Journal, Ryan Caldbeck, founder and chief executive of CircleUp, which connects private equity firms with food startups, said, “It’s hard for consumer companies to
step out of what they’ve been locked into for 60 or 80 years.”
According to CircleUp and cited by the Journal, “large consumer-goods companies lost $18 billion in market share to smaller competitors between 2011 and 2015.” The surge of interest in them notwithstanding, some emerging brands can’t help but feel skeptical.
“If I tell you all our trade secrets, what’s going to stop Kellogg from making their own moringa bar?” Kuli Kuli founder Lisa Curtis told the Journal, as she recalls asking
Simon Burton, the head of Kellogg’s venture capital fund.
Burton countered by adding that even though Kellogg does indeed need some help when it comes to marketing and recipe ideas for its older brands, it’s also “looking for a mutual benefit on top of the
return on investment.” Time will tell.