Kraft Heinz Seeks Out "Disruptive" Food Brands

MarketsMotley Fool

When you hear the word "disruptive", a bottle of ketchup doesn't usually come to mind. And yet, that's exactly what Kraft Heinz (NASDAQ: KHC) hopes to achieve with its new brand incubator, called Springboard. The 149 year-old company finds itself having to adapt in an age of health and value-conscious consumers who are increasingly opting for more natural foods and low-cost private label brands.

Kraft Heinz pivoted from its two-year integration effort recently and is now focused on growth. Since the company has showed modest revenue declines over the integration period, the market remains skeptical, and the stock has fallen. Can Springboard stir things up?

Continue Reading Below

Spring forward

According to the press release, Springboard is seeking "authentic propositions" with "inspired founders" in one of four categories:

  1. Natural and Organic
  2. Specialty and Craft
  3. Health and Performance
  4. Experiential Brands

The company will be accepting applications to join a "dynamic 16-week sprint" in Chicago. I'm not exactly sure what that entails, but at the end of the "sprint", winners will receive financial support, as well as guidance on fundraising from the company. So it doesn't appear that Kraft Heinz will be wholly committing to these young companies, but it'll let participants work out of its commercial kitchen in Glenview, IL, in a professional setting.

The search for ideas

Springboard is the Incubator extension of Kraft's Accelerator Program, an in-house team dedicated to the development of new Big Bet brands. Current Kraft Heinz accelerated brands include Devour frozen meals, which it launched in 2016.

Innovations are part of the company's two-pronged growth strategy of renovating core names like Kraft, Heinz, Oscar Mayer, Planters, and others for the modern age, as well as finding new brands the company hopes to turn into the next big star.

Examples of renovation efforts include removing all artificial ingredients from its Kraft macaroni and cheese products back in 2015 in response to customer nutrition concerns, and the extension of Heinz ketchup into parallel categories like mayonnaise, mustard, and barbecue sauce.

Examples of innovation include the aforementioned Devour frozen snacks, which have spurred the turnaround in Kraft's frozen food category, and the new Oprah Winfrey-backed O, That's Good! side dishes unveiled last summer.

Then, there's the recently released Just Crack an Egg, which seems to be a blend of the two strategies, incorporating Kraft cheese, Oscar Mayer breakfast meat, and Ore-Ida potatoes under the new "platform" brand.

Late to the game?

Kraft Heinz is certainly not the only large food and drink conglomerate to have an incubator program. In fact, it may actually be the last major food company to do so. Another major company backed by 3G Capital, AB-Inbev, launched its ZX Ventures program for beverages back in 2015. Since 2015, just about every large consumer packaged goods company has launched some sort of venture fund or incubator program:

Company Venture Fund/Incubator Year
General Mills 301, Inc. 2015
Campbell Soup Acre Venture Partners 2016
Kellogg's Eighteen94 Capital 2016
Danone Danone Manifesto Ventures 2016
Tyson Tyson New Ventures 2016
Land O'Lakes Land O' Lakes Accelerator 2017
Barilla Blue 1877 2017
Kraft Heinz Springboard 2018

All these funds are either run by internal teams, or outsourced to external co-investment partners. For the biggest companies, the funds often exceed $100 million. Even a portion of that would be huge for a start-up but just a drop in the bucket for these multi-billion dollar conglomerates. Still, in an age of stagnating growth for traditional consumer products, no one wants to miss out on the next big idea.

The next big meal

Springboard is a way for Kraft Heinz to get early looks at food offerings that are just small ideas today, so it likely won't make a big difference in the near term. Of course, even Kraft Heinz' powerhouse brands were just ideas in someone's head at one point, and the company, just like all of its competitors with internal venture funds, needs to innovate even faster to meet today's rapidly evolving consumer tastes.

10 stocks we like better than The Kraft Heinz CompanyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and The Kraft Heinz Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

Billy Duberstein owns shares of The Kraft Heinz Company. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool is short shares of General Mills and Kellogg. The Motley Fool has a disclosure policy.