Small, nimble rivals give food and drink megabrands a wake-up call

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, General Mills, Campbell Soup and Kellogg, have launched venture capital units over the past 18 months, an 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 coldpressed juices to kale chips and vegan burgers.

Food and drink multinationals spend far less on research and development than their counterparts in many sectors like tech and healthcare. They have been wrong-footed over the past five years by the shifting habits of consumers who are increasingly shunning established brands in favour 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. Multinationals spend far less on research and development than their counterparts.

“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 US – the world’s big- gest packaged food market – small “challenger” brands could account for 15 percent of a $464 billion (R6.12 trillion) 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 Yoghurt, which they say has stolen more than half of General Mills’ market share in yoghurt, and Kind Snack Bars which have taken a big bite out of Kellogg’s snack bars. – Reuters