Chicago’s Food Innovation Continues to Deliver

RXBAR’s $600 million sale this month to Kellogg was a dream exit for any entrepreneur. Co-Founder Peter Rahal launched the business just four years ago, when he began making protein bars in his parents’ kitchen in the Chicago suburbs.

The company grew fast, especially in the last year. RXBAR expects to do around $120 million in revenue this year, up from $7 million in 2016. It plans to sell over 100 million bars this year, up from the 1.5 million it sold in 2014.

It’s a remarkable story of a Chicago brand that became a hit with consumers, grew quickly, and in just a few short years worked its way to an exit worth hundreds of millions. But it’s not the first Chicago food startup to see this level of success in recent years. And, thanks to Chicago’s growing entrepreneurship and tech scene, and the city’s proximity to consumer packaged goods giants throughout the Midwest, it likely won’t be the last.

SkinnyPop’s Fat Check 

SkinnyPop founders Andy Friedman and Pam Netzky sold their first bag of low calorie popcorn in August of 2010. The Chicago-based company featured a healthy snack option and an alternative to other popcorn brands that skewed more indulgent.

During those first four and a half months, SkinnyPop did $90,000 in sales and sold its product in less than 100 stores. By 2013, it was doing $70 million in annual revenue, Friedman said.

Friedman and Netzky sold a majority stake in the business to a private equity firm in 2014 for $320 million, and at the time had just 11 full-time employees and were selling their SkinnyPop bags in 50,000 stores. SkinnyPop is now the flagship product at Amplify Snack Brands, which went public in 2015 and valued the business at $1.35 billion.

“Chicago absolutely had all the resources we needed (to succeed),” Friedman said. “Chicago has always been a popcorn-friendly city.”

SkinnyPop hit just at the right time. Like RXBAR, it focused on simple, healthy ingredients (it’s made of just popcorn, sunflower oil and salt). It’s a product that’s allergen free, peanut free, dairy free, gluten free, and non-GMO, which made it a quick favorite in school lunch boxes and office pantries.

“You’re not going to find any words in any of our products that have Xs and Qs and Zs, and words you don’t know what they mean,” Friedman said.

SkinnyPop was proof you could build and scale a food startup in Chicago, and build on the city’s legacy as a place for food companies to thrive.

“Chicago is very open to new and fresh ideas, especially in the food space,” Friedman said. “I think it’s a great place for entrepreneurs to start.”

Chicago: A ‘Leader in the Food Space’ 

RXBAR and SkinnyPop are just two examples of startups in the food space to find success in Chicago. The city is also home to online grocery pioneer Peapod, beverage brands like Mike’s Hard Lemonade and Gatorade, and publicly traded Grubhub, which today has a market cap of $4.5 billion.

Also fueling the food innovation movement in Chicago are companies like McDonald’s, which is moving its headquarters from the suburbs to downtown to get closer to the city’s tech talent, and Tyson, which recently launched a venture fund that is based in Chicago. Former McDonald’s CEO Don Thompson recently launched food-focused venture fund and accelerator, Cleveland Avenue, to invest in food startups, and the city is home to major CPG brands that are looking to acquire startups, like U.S. Foods’ acquisition of Chicago startup Food Genius in 2016.

“The unique thing Chicago has is there’s this mashup of technology and true CPG,” said Peter Wilkins, managing director of Chicago VC firm Hyde Park Angels. “You have a collection of capital, talent and channels. And if you have that infrastructure in place, it’s easy to scale.”

“We certainly are among the leaders in the food space as we know it,” Wilkins said.

Chicago’s proximity to Midwest CPG brands is advantageous to an upstart like RXBAR, for example, who doesn’t have to travel far to meet with executives at Kellogg in Battle Creek, MI. And as Chicago’s innovation economy continues to grow, Wilkins said he expects more RXBAR-like exits from Chicago’s food startups.

“The landscape and the disruption of the market, which allows innovation to take place, is ripe for more of that,” he said.

The Next Wave 

Chicago has a growing group of venture backed startups in the food space that are poised for growth. Earlier this year Home Chef, a meal kit delivery startup similar to Blue Apron, was reportedly exploring a sale for more than $600 million. The startup has raised $50 million to date. Wise Apple, a subscription lunch startup for kids, has raised over $4 million and brings ready-to-serve lunches and snacks directly to your door. Tock, a restaurant reservation app from Chicago restauranteur Nick Kokonas and former Googler Brian Fitzpatrick, is helping restaurants cut down on no-shows with pre-paid ticketing. It has raised more than $9 million from investors like ex-Twitter CEO Dick Costolo and Origin Ventures.

The list goes on. Fooda, a firm that helps businesses offer catered lunches to their employees, has raised $32 million; Tovala, a Y Combinator-backed startup that built a new steam oven and meal delivery service, has raised $2.3 million; and Simple Mills, a startup that makes nutrient-rich baking mixes that’s raised over $4 million.

Investors are increasingly betting on food-related startups, hoping to catch an RXBAR or SkinnyPop-like return. And Chicago’s number of food startup success stories is starting to pile up.

All this week we’re writing stories about Chicago’s growing food tech and innovation scene. Check back in the coming days as we cover more of the companies and people to watch in Chicago’s food entrepreneur space.

Originally featured in ChicagoInno.