Investing in Big Food's future: How VC arms drive success for small and large brands
Several large food and beverage manufacturers use their funds and knowledge to aid newcomers — and help themselves align with current consumer trends.
At Natural Products Expo East in Baltimore last month, the head of General Mills’ venture capital arm made a promise to Food Dive: Their unit would be investing in a business he was meeting at the show.
“100% — absolutely,” said John Haugen, vice president and general manager of 301 INC.
Details such as which business, when the investment would take place and how much would be invested will all come into focus over time. In an interview with Food Dive, Haugen said that trade shows where natural and innovative startup companies put their products on display are opportunities to see what’s out there and build relationships. And these relationships, which traditionally start as product tastings and conversations about the challenges emerging companies face in the market, have developed over time into large investments and partnerships with General Mills.
301 INC is one of several VC arms that large food manufacturers like General Mills have developed during the last several years. These groups, which are often a subset of the larger manufacturing company, focus on helping young and trendy startups grow. Sometimes they lead to acquisitions. Other times, they form strong partnerships to help small brands develop and find success faster than they might have on their own. They also provide large CPG companies with a chance to associate with and learn from some of the most promising up-and-coming brands in food and beverage — companies that may very well be stealing their market share as consumers look to items seen as healthier, more natural, and with cleaner labels.
Haugen’s 301 INC, a gold-level sponsor of Expo East's showcase of up-and-coming brands, was just one of the many investors and emerging brand-focused groups that used the event as a chance to discover the next big thing in food and beverage. But unlike the cutthroat competition between manufacturers for shelf space in grocery store aisles, Haugen said the dynamic between the major CPGs’ investment arms seems a bit more subdued.
“There have been a number of other people who have stepped into the ring. And frankly, I hope they all do amazing work,” Haugen said. “People who are considering a strategic investment will do it if everyone is doing an amazing job.”
Partnerships and relationships
General Mills started its 301 INC arm about two years ago as a fresh twist on its business development branch. Its previous iteration internally developed new products using brands the manufacturer already owned and worked with. With 301 INC’s renewed focus, the unit would now look to help startups tap into General Mills’ wealth of knowledge about the space.
Since its inception, 301 INC has invested in eight brands — ranging from vegetable snacks and superfruit products to vegan dairy substitutes and items packed with probiotics. Haugen said there is no particular formula or segment that 301 INC is seeking in a partner. What he’s on the lookout for are products that are remarkable on their own, have brands that stand for something, and have strong management teams. Because of the emerging trends in health, wellness, sustainability and natural foods, many of the brands that 301 INC focuses on fit into that niche. Today’s consumers, he said, want hard-working calories.
While 301 INC has given more support to some brands than others — it led funding rounds for veggie snacks brand Rhythm Superfoods twice — the goal at the moment is to simply help small companies improve what they are already doing. To date, General Mills hasn’t acquired any of its 301 INC partners.
“We really want to be that indispensable partner for growth. … Brands all have needs, and we have great resources to help them grow.”
Vice president and general manager, 301 INC
“We really want to be that indispensable partner for growth,” Haugen said. “… Brands all have needs, and we have great resources to help them grow.”
While each brand's needs are different, Haugen said 301 INC offers support in several areas. It can provide product and technical support to improve quality and consistency. Smaller brands may not have achieved the quality control they need just yet — and it’s vital to do that at an early stage. Consumers who buy items from 301 INC-backed brands like Kite Hill or Farmhouse Culture when they are relative newcomers, he said, are those who are likely to become the brands’ biggest fans. They need to be happy with what they get every time. General Mills has a wealth of experts who can improve product taste, appearance and texture without necessarily impacting clean label and health attributes.
Another area where 301 INC provides assistance is in supply chain and distribution. General Mills has a wealth of knowledge in efficiently getting products to different stores nationwide. Haugen said this knowledge is vital, especially when a brand is rapidly scaling up and hoping for supply to reach demand points.
301 INC also helps with channel and branding development. It does a branding workshop, which works to improve packaging and marketing in order to improve consumer appeal. The team has also helped smaller brands expand to different segments. For example, Farmhouse Culture started as a sauerkraut company, he said. It now has probiotic drinks, fermented foods like kimchi, and probiotic chips under its banner.
Haugen stressed that he sees 301 INC’s involvement with each of the companies as a partnership. General Mills' VC arm is not interested in coming in and taking over for company managers — although Haugen has been serving as the temporary leader of Kite Hill after its previous CEO Matthew Sade stepped down in April.
“One of the things we often help with is, when they do have a talent gap, we help plug that gap on a short-term basis,” Haugen said. He told Food Dive that the search for a permanent head for Kite Hill was going well. He also said 301 INC will help smaller companies add certain leadership positions they might not have when they find they need them, like vice presidents of operations or sales.
While startups learn a lot from partnerships with 301 INC, Haugen said that he — and General Mills as a whole — learn just as much from them.
“Early stage entrepreneurs expect to fail,” Haugen said. “That’s a really radical thought that has been inspiring to me and my team. They are not bound by tradition or conventional ways to think about things. Instead, they open their minds and ask, ‘How do I expand this brand? ”
When Rhythm Superfoods CEO Scott Jensen was first approached by 301 INC for an investment and partnership, he told Food Dive he really had to think about it. After all, the vegetable snack chips company would be the first that the incubator arm worked with. One of his biggest questions on his mind was whether working with a big company like General Mills would fundamentally change what Rhythm Superfoods was all about.
Now, he said, he has no regrets.
“We’re at the top,” Jensen told Food Dive. “From 60,000 feet looking down, we’re really pleased.”
Jensen, whose products are now sold in 12,000 retailers nationwide as well as 10,000 Starbucks, said working with 301 INC — and all of the resources that General Mills provides — has given the company the best of the best in everything. Rhythm’s vice president of marketing works with the 301 INC marketing team on at least a weekly basis. The research and development team at 301 INC provided Rhythm with the support needed to improve its products, as well as increasing food safety measures and product yield.
“Early stage entrepreneurs expect to fail. That’s a really radical thought that has been inspiring to me and my team. They are not bound by tradition or conventional ways to think about things."
Vice president and general manager, 301 INC
The best parts about working with 301 INC, Jensen said, are the ways that they pay special attention to what Rhythm Superfoods needs at the moment.
“I can hire people to solve problems, but the people I have might not know if they can solve those problems,” Jensen said. “But the folks at General Mills can. They’ve already been vetted, and we have access to those at the leadership level.”
While Rhythm Superfoods has benefited from 301 INC’s expertise in production, marketing, supply chain, and research and development — not to mention the financial support from General Mills — Jensen said he feels his company has also benefited General Mills.
“We also helped them learn how to best help companies,” Jensen said. “It has become a common group of people here. … There’s no real competition for the companies that make up the whole of 301 INC’s group. We’re something like a little family here.”
Tio Gazpacho founder and CEO Austin Allan was just as complimentary about his company’s partnership with 301 INC. Allan told Food Dive he first became acquainted with the VC arm about two years ago at a show through a mutual contact.
“The clout of General Mills’ brands and knowing they had wonderful resources made it easy for us when they came in as the lead investor,” Allan told Food Dive.
“I can hire people to solve problems, but the people I have might not know if they can solve those problems. But the folks at General Mills can. They’ve already been vetted, and we have access to those at the leadership level.”
CEO, Rhythm Superfoods
Tio's ready-to-drink cold bottled soups — reminiscent of those Allan enjoyed during his time in Spain — got an overhaul from 301 INC. While the soups kept their delicious and fresh flavors, 301 INC helped them become more affordable. With new production efficiencies, the brand — which relaunched at the end of last year — went from a price of $8.99 a bottle to $4.99 a bottle.
“That made all the difference,” Allan said. His company’s six varieties of soup — all clean label and fresh packed through high-pressure processing — are now available in 750 to 800 stores nationwide.
Allan and Jensen didn’t just have high praise for 301 INC’s impact on their business. On a personal note, they both said manufacturer’s VC arm, which has a team of about 20 people, was enjoyable to work with.
“They’re the type of people you can have a beer with or go out to dinner. You actually want to hang out with them,” Jensen said. “That’s definitely not like everyone else I’ve met in the finance world. We’d want to work with them every day.”
Cultivating existing brands
General Mills’ 301 INC wasn’t the only major food and beverage manufacturer’s VC arm hoping to build relationships that would lead to future investments at Natural Products Expo East. Cultivate Ventures, Hain Celestial’s strategic platform, also manned a booth to showcase its products and make connections.
Starting almost a year ago, Cultivate Ventures has a unique model. Eight of the nine brands it works with were already owned by Hain Celestial when the strategic unit got its start. The newest brand in the portfolio, Better Bean Company, was acquired by Hain Celestial earlier this year.
Cultivate Ventures utilizes the same sort of focus on brands that have potential, division CEO Beena Goldenberg told Food Dive.
“The concept originally was, take some of these underserved brands, some of the smaller Hain brands that are in great places in terms of space that consumers are interested in ... pull them out of the Hain bag and treat them as more of a little entrepreneurial business unit. And all of the sudden, they're getting some focus and some love and they're starting to grow again.”
“The concept originally was, take some of these underserved brands, some of the smaller Hain brands that are in great places in terms of space that consumers are interested in ... pull them out of the Hain bag and treat them as more of a little entrepreneurial business unit."
CEO, Cultivate Ventures
Hain Celestial is already known for its products in the healthy and natural space, so Cultivate Ventures isn’t necessarily a vehicle to help the manufacturer be associated with trendy brands. Goldenberg said they are concentrating on brands that can help Hain Celestial’s products stand out along the perimeter of the store — an area where many consumers, including millennials, are concentrating.
The brands under Cultivate Ventures, Goldenberg said, are getting the specialized attention and investment they need to drive success — especially since the parent company has been more focused on its category leading brands. Goldenberg said Cultivate Ventures is bringing an entrepreneurial and grassroots spirit to the larger company.
“We’re out of Hain’s sales team's bag. We have our own sales group, we have our own supply chain, we have our own research and development,” she said. “So almost like building a little company on our own."
Goldenberg said Cultivate Ventures leverages some of Hain Celestial's resources — especially in terms of legal, corporate financial and regulatory expertise.
Cultivate Ventures is figuring out its path forward, but so far has found good momentum for some of its brands — like BluePrint Juice and Tilda rice, she said. She isn’t quite sure what might happen next, but said the company is looking for more opportunities to invest in or acquire brands that fit its model. Even though every brand Cultivate Ventures has worked with so far was acquired, Goldenberg said they have flexibility to make investments in startups as well.
"We’ve identified our areas of interest, and we’ll see what fits,” she said.
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