Thursday, May 25, 2017

Nine of the World's Biggest Packaged Food Companies Have Launched Venture Capital Units

Not our favorite industry.
As noted in the intro to last March's "M&A In European Food":
I'm not sure that consumer packaged goods is the area to be in, at least not in the U.S. and not based on names like Kellogg or General Mills.

For a quarter-century those manufacturers ratcheted prices as though they were tobacco companies but people find it easier to give up their Cheerios than their cigarettes.

The managements milked that approach for pretty much all it was worth so, as operating entities, they aren't all that attractive but someone will decide the only thing left to do is to asset strip or dividend recap the life out of the former cash cows....
Who knows though, maybe they've bottomed, see charts after the jump.

An extensive piece from Reuters, May 24:
Food and drink megabrands are seeing their sales chewed away by smaller, nimbler, cooler rivals. They can't beat them - so now they're joining them.

Nine of the world's biggest industry players, including Danone (DANO.PA), General Mills (GIS.N), Campbell Soup (CPB.N) and Kellogg (K.N), have launched venture capital units over the past 18 months, a Reuters analysis of the sector shows. 

The aim of the strategy, according to interviews with executives, is to buy into - and learn from - the kind of start-up innovation that has become their nemesis, from micro-distilled spirits and cold-pressed juices to kale chips and vegan burgers.

Food and drink multinationals spend far less on R&D than their counterparts in many sectors like tech and healthcare. They have been wrongfooted over the past five years by the shifting habits of consumers who are increasingly shunning established brands in favor of small, independent names they regard as healthier, more authentic and original.

This is forcing the companies to take a leaf out of Silicon Valley's venture capital playbook - and their success or failure in harnessing promising new trends at a very early stage could help determine how well they adjust to the changing landscape, and whether they ultimately emerge as winners or losers.
"It's difficult for companies to have the persistence and to replicate the energy and the passion that these early-stage entrepreneurs have," said John Haugen, head of General Mills' venture capital arm 301 Inc, adding innovation was extremely tough because of how quickly market trends were changing.

"We're just a year or a little more than that into these investments," he said of 301, where his team of about 15 sits down twice a month to pass around dozens of samples from start-ups. "For me it's part of a total long-term growth strategy for our company."

In the United States - the world's biggest packaged food market - small "challenger" brands could account for 15 percent of a $464 billion sector in a decade's time compared with 5 percent now, according to Bernstein Research.

The researchers point to successful upstart brands like Chobani Greek Yogurt, which they say has stolen more than half of General Mills' market share in yogurt, and Kind Snack Bars which have taken a big bite out of Kellogg's snack bars.

The nine companies to recently launch venture capital arms also include Hain Celestial (HAIN.O), Tyson Foods (TSN.N) and Pernod Ricard (PERP.PA). Typically, their funds range in size from about $100 million to $150 million.

While it is still early days for them, the experiences of the handful of food and drink firms that have had funds for several years - Nestle (NESN.S), Unilever (ULVR.L), Coca-Cola (KO.N), PepsiCo (PEP.N) and Diageo (DGE.L) - could offer some guide to the future....MUCH MORE 
HT: Quartz, whose piece, "Giant Food Brands are Coming for Your Kale Chips and Craft Whiskeys" contains a sentence I guarantee I've never seen before:
These venture capital units are allowing moves like Kellogg’s first investment, on Kuli Kuli, which makes snack bars out of the nutrient-rich moringa plant
And on to the charts of the two companies mentioned in that March 7 post:

GIS General Mills, Inc. daily Stock Chart

K Kellogg Company daily Stock Chart