Kraft Heinz, the food giant better known for its ketchup and Oscar Mayer cold cuts, is announcing its first bets on the brands it hopes will be part of the future of snacking.
The company plans to announce Monday the first five food start-ups it is partnering with through its growth arm, Springboard, which it launched in March.
The brands are: Ayoba-Yo meat snacks, Cleveland Kraut fermented food, Kumana avocado-based sauces, Poppilu antioxidant lemonade, Quevos egg-white snacks.
The five brands it selected are “breaking the mold, trying new things,” said Eduardo Luz, president of US grocery for Kraft Heinz. “As we get closer to them … we see what works,” he added.
Springboard focuses on developing and learning from young brands, a strategy that other big food companies have adopted as they grapple with stagnating sales.
Wall Street is increasingly focusing on Kraft Heinz’s own sales, which were down 3.3 percent in the US this past quarter.
The ketchup-maker is backed by private equity firm 3G Capital, known for its aggressive cost-cutting. After having slashed $1.7 billion in costs following the 2015 merger of Kraft and Heinz, it now finds itself with the same challenge as many of its food-giant peers: how to get consumers to buy more of its products when small upstarts incessantly eat into sales.
PepsiCo, Coca-Cola, Mars, General Mills, Campbell, among others, have all launched similar venture or incubator arms.
The goal is to stay closer to the pulse of innovation. For many, it is also to catch small brands before they become so powerful food giants are forced to buy them at skyrocket prices. Kellogg, for example, recently paid $600 million to buy protein bar RX bar.
Still, many of today’s biggest successes, like Kind Bar, have originated outside these incubators. Mars recently invested in the snack bar at a valuation of at least $3 billion, sources have told CNBC. And only a small fraction of start-up brands ever grow into anything large enough to make a dent in the sales of a big food company.
Even with slim success rates, companies including Kraft Heinz hope to learn from how start-ups think and reach the newest generation of food shoppers.
“We have a lot to learn from these founders,” Luz said.
Ayoba-Yo meat snacks was founded by two brothers from South-Africa who brought their 400-year-old family recipe to the market in 2017. Egg-white chip brand Quevos was founded by two college students.
Kraft Heinz set up Springboard as an independent platform, with its Chicago headquarters about 10 minutes from its offices. The arm has “a couple dozen” employees, all of whom came from Kraft Heinz.
The program gives access to Kraft Heinz’s scale, kitchens and understanding of best practices. Kraft Heinz is not taking an initial stake in the companies but will give them funding. It plans to have two classes of five per year.
“It’s a huge commitment,” said Luz, “that’s what differentiates our program.”
Three Kraft Heinz brands are now run out of Springboard: plant-based protein brand, Boca, Jell-O and Devour, the frozen meal brand Kraft Heinz launched in 2016. Springboard is also partnering with David Chang’s Momofuku to bring its Ssam sauce to retailers.
The unit’s goals include “explosive growth,” said Luz.
Kraft Heinz has long benefited from the market-leading position of some of its brands; there is a certain segment of the population that will always have Heinz ketchup in the refrigerator — regardless of money its corporate parent spends on advertising and innovation. Indeed, Heinz has been growing at least 5 percent every year since 2015, Kraft Heinz said in a recent presentation.
But organic sales for Kraft Heinz were down 1.5 percent in the latest quarter, suggesting its largest brands are not enough. Other brands in the food company’s portfolio include Capri Sun, Oscar Mayer and Ore-Ida.
“Some brands are tougher to turn around, some brands are firing on all cylinders,” said Luz.
Kraft Heinz has also been considering acquisitions of smaller, bolt-on brands, sources familiar with the situation tell CNBC, requesting anonymity because those deliberations are confidential. Among those, it has considered buying yogurt company Noosa Yoghurt, sources say. The brand has roughly $250 million in sales.
Luz would not comment on any potential acquisitions.
Kraft Heinz’s reputation for steep cost-cutting is not a detriment at it looks to find growth and smaller partners, said Luz. “That’s our advantage,” he said.
“People mistake those things,” he later added. “We want to be lean, be agile — take the bureaucracy out and manage brands with freedom … The efficiencies — they fuel the business.”
Kraft Heinz has also been trying to launch innovation on its own: it has a new partnership with the Food Network and is rolling out Heinz Real Mayonnaise.
It recently took to Twitter to ask if it should bring its Mayochup combination of ketchup and mayonnaise to the U.S. After affirmative feedback, it said it now plans a U.S. launch for the spread later this year.
“We reacted in about two hours to something that was online,” said Luz. “That playbook is a challenger playbook,” said Luz.
