Can the same company that brought consumers Trix and Lucky Charms also help to put low-sugar, plant-based protein bars into their hands?
Yes it can, and with good reason, too: Tastes are changing and legacy products may no longer deliver to the bottom line what they once did.
Consumers want “fresh” and “authentic,” and are turning away from Big Food to small specialty brands.
So an 18-year- old with an aversion to dairy might find an eager audience for No Cow, his vegan protein bars. But his company, D’s Naturals of Cincinnati, also caught the eye of General Mills, long-time producer of Trix, Lucky Charms and other breakfast cereals.
In 2017, General Mills invested in D’s bars, which already were ringing up significant sales after just two years. The undisclosed investment, through venture arm 301 Inc., was meant to help D’s get “to the next level.”
It could provide a boost for General Mills, too, where annual sales of cereal, snacks, yogurt and super-premium ice cream have been drifting lower of late. General Mills isn’t alone in establishing a “captive VC fund” — Kellogg’s, Tyson, Campbell’s and others in Big Food also are doing it. They’re putting money into promising startups that may give them entree into the next food trend, says Karen Martin, managing director of mergers and acquisitions at BMO Capital Markets Corp. in Chicago.
“Campbell’s and General Mills have been incredibly active in putting stakes in the ground through their venture capital funds … to figure out where the new food trends will be and who the winners will be” among consumers, Martin said in a webinar last week.
The webinar, dubbed “Buying Innovation,” focused on merger and acquisition activity in the food industry last year. It was organized by The Food Institute, a trade group, and sponsored by BMO Harris Bank and Niagara University.
Mergers and acquisitions, known as M&A, climbed steadily in 2017 from a year earlier, according to the Food Institute. “No deal is too big and no deal is too small,” Martin said, noting that “the math of doing M&A is still very, very favorable” because there is “an abundance of capital looking for investment.”
Buying a market leader that is “scalable” and then expanding its distribution is one way Big Food is using M&A to grow product categories. Another route is via the venture funds, which invest but do not take control of smaller firms and startups. Through the funds, “they’re going to capture the knowledge directly themselves and if there’s value to extract, either by integrating or selling off [the company they invested in],” she said.
In response to a question, Martin suggested we’ll see more Big Food VC funds. But she noted that since they have been around for only a few years, “we’re yet to see what will be [their] outcome.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected].