Most food and beverage startups today meet some of the top consumer trends: Better for you, natural, clean label, plant-based, functional.
But how can larger food companies become associated with these trends? And what can be done to help startups that are delivering on those ideas succeed?
Many big food companies have started incubator, mentorship, accelerator and venture capital programs to get into this space. These programs, which vary based on the company, provide startups with things such as funding, expertise, connections and support — and maybe the hope of an eventual acquisition.
The benefits of these programs go both ways. While the larger companies give a boost to the startups, the fledgling businesses — which are often passionate, tech-savvy and innovative — bring their new ideas and perspective to the bigger food companies.
"The common denominator, I think, is really the excitement and the buzz behind these great new emerging brands," John Haugen, vice president and general manager of the 301 INC venture funding platform at General Mills, told Food Dive. "I think everybody has tapped into that, and everybody has seized these tremendous growth opportunities. ... I think everybody understands that there’s a real seismic shift happening in the food industry, and people are structured and approaching this in a variety of different ways."
Regardless of how they’re approaching the programs, large companies like Kraft Heinz, Chobani and General Mills are relishing the opportunity to work with startups, helping them get on course, cheering their success and potentially making plans to deepen their relationships through acquisitions.
Kraft Heinz's Springboard: Sowing the seeds for food's future
Kraft Heinz has been a big player in the food space for more than a century — a position that gives it gravitas, market share and deep industry knowledge.
However, as trends started to shift toward better-for-you, organic and natural, functional and authentic foods, and sales gravitated away from traditional retail outlets, the CPG giant started to see some gaps in that knowledge. Sergio Eleuterio, who is head of Kraft Heinz’s Springboard incubator and accelerator program, told Food Dive the company founded this unit in part to fill those in.
"We said, 'Where are we going to learn new practices and ways of doing things?' " he said. “And obviously, the startups and the nature of the founders and how inspired they are could provide a lot of learning for us. So we said we want to buy into this area in the future of food. There are amazing startups and founders and products out there. Let’s build an incubator program so that we can help them develop — but at the same time, get those learnings, codify them, reapply them to the mother ship and build playbooks."
Springboard has different programs under its umbrella. It has an on-site incubator program, in which a group of startups spend 16 weeks working with all departments of Kraft Heinz in its Chicago headquarters. It also works with brands already owned by Kraft Heinz that could benefit from a jolt of entrepreneurial innovation, and partners with other food and culinary brands to help bring products to market.
The Springboard incubator program was first announced in March, at Natural Products Expo West, though Eleuterio said the company had been working toward the measure for some time. The first group of startups in the incubator — which included Ayoba-Yo biltong, antioxidant-rich lemonade Poppilu, Kumana avocado sauce startup, Quevos egg white chips and Cleveland Kraut sauerkraut — spent the summer in a We Work office in Chicago getting mentorship, expertise, connections and inspiration from both Kraft Heinz and each other.
The brands also got grants, ranging from $50,000 to $100,000, to help them accelerate their business — and the agreement with Kraft Heinz gives the CPG giant the right to future equity in the startup.
The startups worked every day with top leaders at Kraft Heinz. They learned about marketing, branding, choosing co-packers, research and development, and negotiating contracts. But the startups weren’t just being told about how to improve their businesses.
"Our innovation center in Chicago, in North Glenview, was open to them," Eleuterio said. “We had Springboard Labs fully equipped. They had access to our pilot plants, to our personnel there, so they could do all of the packaging technology, 3-D printing, all of the things you would imagine to happen in a global innovation center were made available to them."
Almost all of the companies took advantage of the opportunities at Kraft Heinz, Eleuterio said. Cleveland Kraut completely switched its packaging from glass jars to snackable plastic pouches and worked on its branding. Kumana, which landed an agreement to expand into 1,700 Safeway stores, worked on how to do local marketing. Ayoba-Yo spent time figuring out how to find co-packers, improve its supply chain and maintain authenticity. And Quevos partnered with Kraft Heinz’s internal testing panel to try to determine how to best find and market to "superfans."
But the learning went both ways. Eleuterio said he was impressed with how Ayoba-Yo operates on the e-commerce side — especially with a lean team. The company’s website structure and use of keywords and search engine optimization is an approach Springboard used to market other products online. And Cleveland Kraut has brought a new and trendy twist to a declining fermented foods category — which Kraft Heinz also is in with its legacy pickle brand Claussen — showing Kraft Heinz avenues for impovement.
"I think the objective of the incubator program is learning, and we’re very happy with where we are. ... I think overall, they loved the program. Very positive feedback. … We’re in the learning process. We [are] very humble in our approach and learning as we go.”
General manager, Springboard Brands
Now that the first round of the incubator program is finished, Springboard is preparing for the future. It will have two incubator classes in 2019. The platform also is working to bring startup-style culture and innovation to legacy Kraft Heinz brands Jell-O, Boca and Devour, as well as Ssäm Sauce, the signature condiment from hip urban restaurant Momofuku’s chef and founder David Chang.
While the future may include partnerships — financial and otherwise — between Kraft Heinz and the startups, Eleuterio said the aim of the program is not making acquisitions.
“I think the objective of the incubator program is learning, and we’re very happy with where we are,” he said. "… We’re in the learning process. We [are] very humble in our approach and learning as we go."
Although the program is new, Eleuterio said it is meeting its objectives — and having a positive impact on Kraft Heinz. Still, none of the products have had rousing successes just yet.
Eleuterio told Food Dive that Springboard will continue to expand and shape how Kraft Heinz does business in the future.
"The accelerator program is trying to learn from that market and to make that impact — ... we believe it has a lot of future and a lot of potential growth," he said. "...As we always say, Kraft Heinz is about looking at the long term, so to make that impact on the long term, we are starting to find the seeds now."
Chobani Incubator: Paying it forward
Most food companies’ incubator programs are dedicated to showing startups the ropes, sharing resources and institutional knowledge of the business.
The Chobani Incubator does just that — but from a perspective that is wholly different than Big Food.
"Where we started is very pure." Peter McGuinness, Chobani’s chief marketing and commercial officer, told Food Dive. “It was founder to founder. It was truly a pay-it-forward. And it was pure in its intention. ... We made a lot of mistakes. But we had a lot of courage. We took risks. Some were worth it, some were not. We almost got gobbled up a few times. We had recalls. We had strategic companies trying to buy us. We took on private equity partners. So we powered through a lot of stuff and persevered and came out stronger, better and still wildly independent."
The yogurt disruptor first announced its incubator in January 2016, making it one of the first food companies to establish one of these programs. The Chobani Incubator, McGuinness said, is founder and CEO Hamdi Ulukaya’s way to pay his company’s success forward. After all, Chobani was itself a startup, beginning humbly in 2005 — well before becoming the Greek yogurt market share leader and doing about $2 billion in sales in 2016. McGuinness said he does not believe a company can have a true incubator to accelerate startups if it wasn't a disruptor itself.
“We don't view the incubator as an offshoot or a department. We view the incubator as core to our vision and mission, which is making better food for more people,” McGuinness said.
Since its inception, the program has hosted four classes of startups that McGuinness said have products that exhibit what they call DNNA — delicious, nutritious, natural and affordable.
While Chobani only makes products in the yogurt category, its incubator participants run the gamut of grocery products. Current participants include Ithaca Cold-Crafted hummus, Supernatural Kitchen ingredients and MatchaBar shelf-stable ceremonial tea. Previously, the incubator has worked with Banza chickpea pasta, Noka superfood smoothie packs and Snow Monkey ice cream.
McGuinness said there is no "ideal" company for the incubator to work with. He and Ulukaya go through applicants that meet the DNNA standard. They also taste the food to ensure that it is delicious. If the food meets these criteria, and the company has a passionate founder with a heart and mind in the right place, they will be considered for the program.
"We don't view the incubator as an offshoot or a department. We view the incubator as core to our vision and mission, which is making better food for more people."
Chief marketing and commercial officer, Chobani
The program includes four months of participating with Chobani leaders and facilities on-site in New York or elsewhere. It isn’t quite a residential program; participants spend some time each month at the incubator’s offices. The startups have free access to all of Chobani and get to meet with leadership from the company's departments. They also receive workshops and education on topics including sustainability, scaling, brand and marketing, food quality and safety, and labeling and nutrition.
Each startup in the program also receives a $25,000 no-strings-attached grant to grow their business. Chobani covers any travel and lodging expenses for incubator participation.
McGuinness said most of the participants get a lot out of the program. It’s not uncommon for a participant to report 250% growth. Many products go through rebranding when working with Chobani’s creative team. In the first two incubator classes, he said, 30 new SKUs were created soon after the program finished. Chobani also connected participant Chloe’s Fruit with coffee company La Colombe for a cold brew popsicle. Rumi Spice was able to grow, and the saffron-sourcing company now has 1,900 women in Afghanistan working for it.
The yogurt company also added a food-tech component to its incubator. This branch of the program is aimed at smoothing the supply chains, cutting back on waste and pollution, and quickening response to food safety issues. The first two companies — Cinderbio and Skyven Technologies — are currently working with Chobani.
Regardless of how well the startups work with Chobani or how successful the products are, McGuinness stressed that Chobani does not use its incubator program as a scouting platform for new acquisitions — or to keep “good” stories in the news. The program is something Chobani does because it helps the food business in general.
“We did not develop an incubator because our main business is declining, or our core brands are irrelevant to millennials or a modern marketplace,” McGuinness said.
And even though Chobani is a relatively young company, McGuinness said it still finds inspiration in working with so many startups.
“They remind us that we're entrepreneurial. They remind us of how we're founder-led. They remind us that we're not like the big giant food companies. They remind us that courage and creativity are amazing things that we should never lose. So I think they keep us young,” he said. “They continue to ground us as we get bigger and older. ... And also inspire us. Because they're highly creative, these companies. Incredibly innovative.”
General Mills' 301 INC: On the leading edge of trends
In 2015, General Mills got into the startup game with its 301 INC, a venture capital platform to fund and work with emerging brands. The platform brought a new twist to a previous setup that focused on developing new business models for existing General Mills brands.
While 301 INC doesn’t have a specific incubator program, it runs an extensive mentorship and accelerator platform for businesses that it funds. In the last three years, 301 INC has taken stakes in 10 brands, bringing them under its wings to help them develop, scale and target the market.
Haugen with 301 INC told Food Dive that the platform’s mission is to “find opportunities that have truly remarkable products,” and be the part of General Mills that is on the cusp of new industry trends. 301 INC seeks to have a close partnership with brands throughout.
“Our approach is that we have a dedicated team at 301 INC that, ... from beginning to end, ... we put a lot of stock in that relationship, and really billing ourselves as hopefully being sort of an extension of that leadership team,” Haugen said. “Then our approach is really to combine investment capital with access to the resources and capabilities that are directly available on our team."
301 INC brings General Mills expertise in product development, with a team that can help startups achieve quality and consistency — and improve product taste, appearance and texture without necessarily impacting clean label and health attributes. They also can work with supply chain and distribution issues.
“It’s a high engagement model,” Haugen said. “We sweat the details with the brands in our portfolio — that’s really our approach — and at the end of the day, we want our partners to run their business. We don’t come in and tell them how to run their business. We want to be that indispensable partner, to kind of be the co-pilot to help them effectively run their business."
"It’s a high engagement model. We sweat the details with the brands in our portfolio — that’s really our approach — and at the end of the day, we want our partners to run their business. We don’t come in and tell them how to run their business. We want to be that indispensable partner, to kind of be the co-pilot to help them effectively run their business."
Vice president and general manager, 301 INC
During the last almost three years, 301 INC has invested in products that are trendy and cutting edge. Haugen said about half of the investments are with plant-based brands, including Kite Hill cheeses and yogurts, Rhythm Superfoods veggie chips and snacks, and Beyond Meat’s burgers and other products. It’s also invested in probiotics-rich products, including Farmhouse Culture chips and drinks and GoodBelly Probiotics juices and shots.
Haugen said 301 INC should be the area of General Mills that is on the front lines of what he called provocative trends. As consumers are more interested in ultra-fresh foods and beverages, 301 INC led a $17 million funding round for the startup Urban Remedy — which makes organic ready-to-eat meals and snacks with a three-to-four day shelf life — in January. Haugen said that it’s OK to be both excited and scared about working with a business like that, which presents great opportunity.
“We know consumers want great-tasting, nutrient-dense foods. This is an ultra-fresh experience. It’s totally clean,” Haugen said. “...They have a huge challenge on their hands when they scale a business that is delivering products with three to four days fresh to the consumer. ... There is a way to do it, and there’s a way to do it sustainably, and that there’s a way to do it profitably. And so that’s why I love a business like that.”
While 301 INC has been in the startup game for three years, and General Mills is known to acquire companies to expand its reach and bottom line, none of the brands that have worked with the platform have been purchased by the food giant. Haugen said there is a part of him that wishes they all could become part of General Mills — especially given the close work that 301 INC does with them. Acquisition isn't the an overt goal of 301 INC, but it is a possibility.
"We want these brands from an investment standpoint to perform well, but certainly one of our objectives is, in some cases, that these brands over time can continue to grow and can ultimately become part of the General Mills portfolio," Haugen said.
He added that 301 INC’s success story can be told both through General Mills as well as the growth of the brands and feedback from their leaders. He said he thinks the platform could eventually work in other markets outside of the United States.
“I think the vision is that we can be a nimble business development tool to spot trends and emerging brands early, and that over time, we can play a significant role in helping build and shape the future growth portfolio of General Mills,” he said.