Kellogg Forms Venture Arm To Invest In Emerging Businesses

Kellogg Company (NYSE:K) is establishing a venture capital fund that will take minority stakes in new emerging businesses in consumer-oriented categories. The venture arm, called eighteen94 capital (1894), will also invest in start-ups pioneering new ingredients, food products, packaging and game-changing technology to help support their growth

The fund plans to invest approximately $100 million in growing businesses in Kellogg’s core categories – cereals and snacks -- as well as adjacent categories. The investments will be important to Kellogg’s 2020 growth plans.

Kellogg’s mainstay U.S. cereal business, which accounts for 40–45% of its sales, has been performing poorly since 2012 due to sluggish category growth. Lower demand for cereals due to competitive pressures from other breakfast alternatives including yogurt, eggs, bread and peanut butter has been hurting the category growth. Moreover, changing consumer views on health and wellness with a shift in consumer attitude from dieting to health and wellness has hurt the sales of Kellogg’s weight-management cereal brands, like Special K and Kashi.

The company is trying to revamp this segment through brand building, in-store capabilities and product and packaging innovation as well as reformulating many existing products.The investments are being funded by cost savings from its re-structuring program, Project K.

Amid the struggling cereal sales, the venture arm can support growth by investing in newer growth food categories. Consumers now prefer food with more nutritional benefits, such as protein, gluten-free choices and with simpler ingredient lists.

Kellogg’s executive for 10 years, Simon Burton, will be the managing director of 1894. Kellogg has also formed a partnership with Touchdown Ventures to assist in the fund management.

Other food companies have also formed venture funds to invest in with emerging food brands which include General Mills, Inc. (NYSE:GIS) 301 INC and Campbell Soup Company’s (NYSE:CPB) Acre Venture Partners.

Zacks Rank and Other Stocks to Consider

Kellogg carries a Zacks Rank #3 (Hold). A better-ranked food stock is B&G Foods Inc. (NYSE:BGS) , which enjoys a Zacks Rank #1 (Strong Buy).