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General Mills’ VC arm invests in breakfast food startup

April 4, 2017
Consumer Packaged Goods

General Mills’ venture capital arm has invested in its’ eighth food startup, this time placing a bet on granola and cereal maker Purely Elizabeth in a partnership that unites two breakfast food purveyors.

On Monday, General Mills will announce that the VC arm, known as 301 Inc., has invested $3 million in Purely Elizabeth to acquire a minority stake. The seven-year-old natural foods startup founded by Elizabeth Stein makes oatmeal, muesli, cereal and other breakfast foods and already sells the brand in about 10,000 retailers, including at Whole Foods, Kroger and Target. The ancient grain oatmeals and cereals incorporate other ingredients like chia, hemp, and quinoa.

“We see this brand as well beyond where [Stein] plays today,” said John Haugen, VP and general manager of 301 Inc. “The biggest chunk of her business is in cereal and granola but we think it can expand beyond there.”

301 is a division that General Mills (GIS, -0.78%) officially launched in the fall of 2015 for the Big Food maker behind Cheerios and Lucky Charms to place strategic bets on startups as those smaller rivals disrupt the food aisle and present a real challenge to legacy, established brands. With the investment in Purely Elizabeth, 301 has now put money into eight startups including plant-based food maker Beyond Meat and kale chips purveyor Rhythm Superfoods. Purely Elizabeth is the second started by a woman—the other is sauerkraut snack maker Farmhouse Culture, which was founded by Kathryn Lukas.

Though General Mills and Purely Elizabeth are essentially competitors in the breakfast food aisle, Haugen says there are a lot of differences between their portfolios. “Even in categories like cereal, consumers are always craving variety,” he said. “We think Purely Elizabeth’s combination of ingredients and quality is differential.” And while General Mills has been remaking its cereal portfolio—adding whole grains, removing artificial ingredients and colors, and adding gluten-free options—Purely Elizabeth is a brand that is firmly premium priced and built on purported nutrient dense ingredients.

Stein, who studied at New York-based Institute for Integrative Nutrition, says she developed her company after learning about obscure food ingredients that were healthy but couldn’t even be found at the local Whole Foods. She found it difficult to recommend ideal foods to her gluten-free clients. “I thought, I need to make my own recipes,” she told Fortune.

Around that time, Stein found herself at an exhibition for a local triathlon in the fall of 2008, setting up a booth to try to drum up interest for her nutrition practice. She said few wanted to become a client, though she received universal praise for the blueberry muffins she made for sampling. Everyone wanted to know where they could buy them.

“That was the a-ha moment,” she said. She began to incorporate ancient grains and hemp and chia seeps in her foods, but never thought the side business would take off. “I thought the ingredients were so niche that they wouldn’t ever go mainstream,” Stein said. “The raw food world was super premium and that’s all it would be.”

But consumers are eating healthier these days and food executives say this trend toward disruptive new foods and brands isn’t a fad. The ingredients Stein uses are far more popular today than they were when she started Purely Elizabeth. That suggests newer products from Purely Elizabeth, like the soon-to-be-launched granola bars that uses mushrooms as an ingredient, could find a broader audience than years past.301’s investment in Purely Elizabeth, however, is a pretty familiar formula at General Mills. “We are looking for brands that have breakout, remarkable products and brands that can be expandable,” said Haugen.

By John Kell

Source: Fortune

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