In the summer of 2014, RXBar went from a basement project to a real business. Last week, it sold to Kellogg’s for $600M. That’s the kind of timeline to exit and acquisition price investors across geographies look for, and it’s one that came directly from Chicago.
But the RXBar acquisition is more than just a one-off win. It’s a growth signal for one of Chicago’s booming new industries: simple food and beverage. Simple food and beverage companies are ones that focus on producing and distributing foods with whole, pronounceable ingredients that are transparently presented and are meant to be nutritionally good for you.
Overwhelmingly, consumers are siding with the simple food and beverage movement. Research conducted by Hershey shows that 68% of global consumers want to recognize every ingredient on a label and 40% wanted food and beverages to have as few ingredients as possible. In the meantime, larger food and beverage brands that have historically dominated the market are seeing that smaller, simple brands are outpacing them. These newer players with annual sales under $1B – and often much less than that – are outperforming the big-name brands, growing revenue about three times faster and seeing market share increase by 1.7% while their entrenched competition sees a decline of 0.7%.
Even as these smaller companies grow their market share and attract customers away from the top food and beverage companies nationally and globally, they are not as represented in VC investing. This stems from the fact that these companies are based outside the main centers of VC investing, as are their potential acquirers like Kellogg’s.
They are based, though, in the Midwest.
- Limitless Coffee and Tea, helmed by simple foods industry leader Matt Matros of Protein Bar, produces and sells coffee made from clean beans to eliminate the potential for contaminants and deliver coffee in its “purest” form.
- Here, which works under a “farm to label” model makes fresh, clean, plant-based packaged goods with ingredients sourced from local Midwestern farmers.
- Tovala is a smart oven and meal-subscription company that uses steaming and clean, simple ingredients to provide customers with convenient, healthy meals.
- Fooda takes the concept of convenient, healthy meals and brings them to office lunches.
- Farmers Fridge is transforming vending machines into state-of-the-art self-serve restaurants by offering fresh, healthy food instead of traditional packaged fare.
- Finally, Simple Mills (which my VC group Hyde Park Angels has a stake in), produces baking mixes, crackers, and ready-to-eat cookies made from simple, clean, non-GMO, and gluten-free ingredients.
And these companies are growing. Fooda recently raised $12.5M, Simple Mills is the fastest-growing natural baking mix and cracker brand, and Tovala earned a spot as one of the top-performing Kickstarter campaigns of 2016.
This traction in the simple food and beverage market aligns with a greater overall national trend around simple, healthful eating, but it’s entrenchment in Chicago is also a product of companies that came before.
Operating off playbooks set by giants in the Chicago food and beverage space like SkinnyPop (which went public in 2015), Mike’s Hard, Peapod, Protein Bar, and GrubHub(which went public in 2014), this new surge of young startups has the foundation laid for them to rise even faster. While companies like Simple Mills and Tovala are benefiting from some of the same resources their forebears relied on to get their start, such as the gains from taking home the top prize in the Chicago Booth’s New Venture Challenge as GrubHub did before them, the real value lies in the mentorship and investment they receive from these leaders. Many of the founders of these now large and powerful companies, like Andy Friedman and Pam Netzky of SkinnyPop and Matt Maloney and Mike Evans of GrubHub, are actively mentoring this next wave of startup food and beverage leaders.
These startups are also benefiting from the growth in new capital and resources available to the food and beverage space. Former McDonald’s CEO Don Thompson recently opened Cleveland Avenue, an accelerator for food and beverage companies, in Chicago. Tyson launched its venture arm and made a commitment to invest $150M in new food businesses in 2016. Mars-Wrigley recently brought its President of Global Business Development, Keith Levy, to Chicago to head up its global growth efforts in its newly merged confectionery business.
These major corporate players aren’t just accelerating growth and investing capital in simple food and beverage startups; they’re also going into business with them. Companies as far-reaching as McDonald’s, Miller-Coors and U.S. Foods are relocating to startup-dense areas, strategically partnering with startups and acquiring them outright.
In other words, Chicago is poised to see a lot more stories like this recent RXBar announcement. The simple food and beverage space has never looked so strong, and its base is here.
Originally published on Forbes.