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Kellogg’s invests in unusual new smoothie company

June 16, 2017
Consumer Packaged Goods

Kellogg’s investment fund has led a fundraising round by plant-based smoothies maker Bright Greens, another bet by the cereal giant to pursue breakfast alternatives that have becoming increasingly popular with consumers.

On Thursday, Bright Greens will announce that it raised $2 million in a seed round led by eighteen94 capital, the venture capital fund that debuted last summer with plans to invest about $100 million into startups that are pioneering new ingredients, foods and packaging. The idea is to take minority stakes in those newer, disruptive food companies to support their growth, mainly through the expertise Big Food makers like Kellogg can bring to packaging, marketing and distribution. This trend has become popular—General Mills (GIS, +0.14%) and Campbell Soup (CPB, -0.05%) also have VC funds—as Big Food makers suffer from slow sales for legacy brands as consumers tilt toward healthier fare offered by newer brands.

“We are casting our net pretty widely so we don’t miss the next trend or idea that could grow into the next trend,” said Simon Burton, managing director of eighteen94 capital, in an interview with Fortune to explain Kellogg’s investment strategy. “You have to be open-minded about where you go looking.” As part of the funding, Burton is joining Bright Greens’ board.

So far, the VC investments from Kellogg—which makes Special K, Raisin Bran, and Froot Loops cereals—have been keenly focused on breakfast. Bright Greens makes frozen produce-packed cubes that can turn into a smoothie consistently by simply adding some hot water and shaking it in a container. The idea is that Bright Greens’ products, which retail in some Whole Foods (WFM, -6.74%) stores and over 1,000 Kroger (KR, -18.59%) locations, are healthy but also convenient. Kellogg earlier this year also invested in Kuli Kuli, which makes plant-based powders that can be used as smoothies, as well as “superfood” bars.

These investments come at a critical time for Big Food makers. Sales for Kellogg’s U.S. morning foods business, which books $3 billion annually, slipped 2% last year. Kellogg also lost market share in the cereal aisle. The food maker must confront the fact that consumption patterns are changing. Smoothies are popular, though sales for blending systems have softened as consumers increasingly are buying them from food service providers because they don’t want to go through the arduous process of making smoothies at home. With that in mind, Kellogg’s bets on Bright Greens and Kuli Kuli may be savvy if shoppers embrace new smoothie formats.

Bright Greens founder and CEO Brian Mitchell said that when he started the company in 2015, the goal was “to give you something that is as close to the ground if you were to pull it out of the garden and blend it.” He says the investment from Kellogg would help Bright Greens beef up hiring and boost production, but expects Kellogg will maintain a hands-off approach. “My job is to maintain the quality, integrity and the core mission of Bright Greens, but when I come across a challenge, I can go to Kellogg and they can say ‘Here are the things we can do to support you,'” Mitchell said.

Bright Greens and Kellogg were paired together through CircleUp, a web-based platform that allows consumer-focused startups to raise funding from investors. Founder Rory Eakin says relationships like these can benefit a big corporation because while Kellogg and others won’t see an immediate sales boost, investments in startups can potentially result in multi-year or even multi-decade growth if those newer food categories become adopted broadly.

“Many of these large consumer packaged companies are highly dependent on legacy brands that aren’t showing top line growth,” Eakin said. But shifting priorities and trying to ramp up on new food category innovation is a challenge, because legacy brands generate hundreds of millions of dollars and must be protected via advertising and new product launches. “Bright Greens is an innovation that would be difficult to approve internally,” Eakin said. “But Kellogg wants to win in breakfast and they know healthy snacks are trending. Bright Greens is a fit for their [longer term] growth plans.”

By John Kell

Source: Fortune

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