Kraft's bet on growth includes egg-­white chips and sauerkraut

  • Kraft Heinz in March announced the creation of Springboard, a new arm focused on finding and developing brand growth.
  • As part of the effort, it created an incubation program to nurture small brands.
  • It's announcing its first five brands.
Cleveland Kraut makes a wide range of sauerkraut.
Source: Kraft Heinz
Cleveland Kraut makes a wide range of sauerkraut.

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.

Ahead of a formal announcement on Monday, the company told CNBC its new growth arm, Springboard, is partnering with these five food start-ups: Ayoba-­Yo meat snacks, Cleveland Kraut fermented food, Kumana avocado-based sauces, Poppilu antioxidant lemonade and Quevos egg-white snacks.

The brands it selected are "breaking the mold, trying new things," said Eduardo Luz, Kraft Heinz's president of U.S. grocery. "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 U.S. 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.

Companies including PepsiCo, Coca-Cola, Mars, General Mills, Campbell have launched similar ventures 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 that food giants are forced to buy them at high prices. Kellogg, for example, recently paid $600 million to buy protein bar RX bar.

Poppilu antioxidant lemonade
Source: Kraft Heinz
Poppilu antioxidant lemonade

Still, many of today's biggest successes, like Kind Bar, have originated outside these incubators. Mars recently invested in the snack brand 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.

Ayoba-Yo meat snacks
Source: Kraft Heinz
Ayoba-Yo meat snacks

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.

'A challenger playbook'

Kraft Heinz has long benefited from the market-leading position of some of its brands: A certain segment of the population 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 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 them is 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 said. "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 it 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.

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