RXBar driving millions for Kellogg as its cereal business falls out of vogue

Key Points
  • RXBAR net sales during the first 12 months of Kellogg's ownership surpassed $200 million.
  • The nutrition bar is reinvigorating the old brand's snacks and breakfast food business.

For a nutrition bar that contains a simple ingredient list of egg whites, fruit and nuts and boasts just about 200 calories, RXBar is proving to be the fuel Kellogg needs to invigorate its snacks and morning foods portfolio, a segment that has been struggling as Americans turn away from sugary cereals and opt for more health-conscious alternatives.

According to RX president Jim Murray, since the Michigan-based food giant acquired the clean-label protein bar for $600 million in October 2017, net sales during the first 12 months of Kellogg's ownership hit $213 million, a 180% increase over the previous year.

Murray, who joined the company in 2016 as director of finance after four years at PepsiCo and now runs the day-to-day operations, says the acquisition has allowed RX to stay true to its values. "The only thing that has changed is getting better at execution and scale," he said at the CNBC Evolve summit in Chicago on Tuesday.

RX is now under the umbrella company Insurgent Brands so that Kellogg can expand into new product lines. In March Insurgent introduced TIG Snacks, bars made with puffed chickpeas, roasted green lentils and crispy wild rice in bold and savory flavors. That same month, RX expanded into the breakfast sector with RxOats, using the same "ingredient on the package" approach.

All this momentum is driving Kellogg's growth. Its business saw an increase of 3% in its second-quarter net sales, to $3.46 billion from $3.36 billion in the year-ago quarter. While the RXBar was a key driver of this growth, Kellogg's other key brands in the snacks sector include Pringles, Cheez-It, Rice Krispies Treats and Pop-Tarts.

Big Food pivoting to adapt to future food trends by snapping up promising start-ups is a growing trend. Legacy companies know that being authentic, transparent, sustainable and organic is what it's going to take to stay alive. Start-ups have the ability to quickly adapt to trends, develop new products and bring them to market much faster than a large company can.

The magic behind the marriage

"Start-ups are extremely disadvantaged competitively," Murray said at CNBC Evolve. "To think that we have all the answers even with experienced staff and leaders would be a naive thought. Kellogg can provide openings to doors we would need months to get into and answers to questions or problems we may have never experienced before."

Kellogg's brand cereal
Justin Sullivan | Getty Images

Although this was considered an acquisition, Insurgent operates as a stand-alone company. To Murray this was imperative so the start-up can continue to deliver innovation. "We can launch a new product or brand relatively under the radar if we choose," Murray said. "Early on, the decision-making can happen at the top, but to be really agile, we can't have the bureaucracy."

"As a start-up you are way more prone and accepting of just taking the risk and not worrying how it plays out. … We focus on what we do really well and partner with Kellogg on the capabilities that have been built over the 100-plus years Kellogg has been in business," Murray said.

"One thing I like to tell people who ask me questions about our relationship with Kellogg is that the best feeling I get when I have a conversation with them is when they always ask, 'How can we help?' These four simple words speak volumes in defining our mutual value exchange," he said.

Murray said his mentorship from Kellogg North America president Chris Hood has been one of the biggest bonuses of this acquisition. "At RXBar we had no mentors. There was no one to turn to," he said. "We partner closely on strategic questions. Kellogg has a lot of experience in the industry and can provide a perspective that we don't have.

"We need to keep reminding people that our brand is less than 10 years old. In fact, our first sale of a bar was less than seven years ago."

After its initial launch, in 2013, RXBar saw $600,000 in sales in nine months. In 2014 its sales reached $2 million. But after the acquisition, sales exploded, hitting $160 million in 2017, ahead of Kellogg's projections of $120 million by year-end. "Peter and Jared, our founders, once told me that when they started out they hoped the business would reach $10 million one day."

For start-ups entering into a relationship with a legacy company, Murray said fear can be your biggest downfall: "There's always the fear that this is going to change things. Don't be afraid. Going into it with that fear can close the ability to have a strong relationship."

CNBC Evolve will return, this time to Los Angeles, on Nov. 19. Visit cnbcevents.com/evolve to apply to attend.