Investing in emerging food and beverage brands

While many companies talk about what they’re doing, Kraft Heinz recently spoke about what they’re not doing. They launched plant-based macaroni and cheese (Knot Cheese), Knot mayonnaise (a plant-based spread), and plant-based “Knot Cheese American Style Slices.” Thanks to Oscar Mayer’s new “Knot Dog,” or “Hot Knot Dog,” the hot dog now has a friend. And, of course, there’s room on the grill for Knot Sausages.

So what isn’t Kraft Heinz doing? They aren’t developing their own plant-based versions of their products. Absolutely not!

Kraft Heinz, like other food and beverage companies, has been exploring how to enter the fast-growing (albeit sometimes slowing) plant-based space, but not just through research and development. Rather than looking to reinvent itself, the company has formed an innovative joint venture with artificial intelligence company NotCo to develop plant-based variations of Kraft Heinz staples. And in a bold move to blend science with sales power that could be a model for a partnership (or, of course, not), products are rolling off the production line relatively quickly.

Investing in startups for rapid innovation

The new product development process at large food and beverage companies is extremely time-consuming and tedious. This is no secret. It is easier to acquire or fund a startup with an innovative product or process, giving it the direction, manufacturing capabilities, marketing and distribution network that it would not otherwise “have.” This is a win-win, as large food and beverage companies have embraced the idea that the partnership is as important as the product. Still, investing in or partnering with a startup does not come without challenges. And, like Coca-Cola and Honest Tea, even if the product is successful, it may not have a happy ending.

Many large corporations are investing in and partnering with startups to innovate, even if some of the ventures go out of business. It’s hard to be a startup; it’s hard to invest in and work with them. Coca-Cola founded Venturing and Emerging Brands (VEB), Kellogg founded eighteen94 Capital (now apparently defunct), General Mills founded 301 Inc., and Campbell founded Acre Venture Partners. In 2017, PepsiCo created the Greenhouse Accelerator to “accelerate sustainable, breakthrough innovation,” matching more than 50 companies with funding and mentors. Chobani’s founders recently made headlines for acquiring Anchor Brewing, and Chobani’s Food Incubator allows them to invest in and partner with small businesses.

“We’re here to support small businesses with big hearts and ideas who are venturing into the food industry,” said the Chobani Food Incubator, which was founded in 2016 and now has 47 companies in its portfolio.

Kraft Heinz, the parent company of Capri Sun, Oscar Mayer, Classico, Jell-O and Kool-Aid;

Maxwell House, Planters and others are taking a slightly different approach than investing alone. Kraft HeinzNotco, a little-known joint venture between Kraft Heinz and Notco, is the latest joint venture between a major food and beverage company and a startup, and it’s a whole different kind of innovation. In this brave new world of food and beverage, DIY and ROI are coming together. Let the money talk, and allocate cash, not just products, to companies doing things you think will work. But this isn’t just about buying brands. It’s about teaming up to reinvent Kraft Heinz’s own business as plants transform the planet.

Kraft Heinz Knott says its goal is to use startup science and big company know-how to “change the way consumers enjoy plant-based foods.” Combining the agility of a startup with the resources and marketing of a big company, the company is designed to get the best of both worlds, from mind to brand, to get to market quickly with sound science and great marketing.

“Agility is a bit of an overused word, but entrepreneurs have the ability to move very quickly,” Simon Barton said when he led Eighteen94 at Kellogg.

The idea is that the best way to invest in innovation is to fund and even acquire startups. Why beat startups when you can make them or buy them? As capital dries up and costs rise with inflation, deals become more attractive to startups. But does matching work, and for how long and how well does it work? The answer is that it’s hard to grow a small startup into a big force. And even if these matches work, it doesn’t mean they’ll sustain the investment and attention of giant corporations.

Learning from the past: Coca-Cola’s Honest Tea

Take Honest Tea, for example, which Coca-Cola once ran. Coca-Cola acquired Honest Tea, which was founded in Bethesda by Yale Business School student Seth Goldman and professor Barry Neilbuff in 1998. Coca-Cola bought 40% of the company for $43 million in 2008 and the rest in 2011. It then discontinued Honest Tea in 2022 to focus on Gold Peak Tea and Peace Tea. Rather than let it go, Honest Tea’s founder and Spike Mendelson later launched Just Tea. While Honest Tea is history, Coca-Cola still makes and sells Honest Kids products, which are touted to be low in sugar and full of flavor. So, while Honest Tea may be over, Coca-Cola hasn’t completely discontinued the brand.

Coca-Cola decided Honest Tea wasn’t its preference, but it remains to be seen where Kraft Heinz’s partnership with Notco will go. Will this help Kraft Heinz put plant-based foods to good use, or will it remain nothing more than a footnote? Kraft Heinz’s Notco joint venture aims to use Notco’s AI technology, Giuseppe, to combine data from thousands of plants to identify combinations that replicate animal-based products at a molecular level. With science as a springboard to sales, the hope is to “reinvent Kraft Heinz’s iconic portfolio to be animal-free and 100% plant-based.”

Miguel Patricia, chairman and former CEO of Kraft Heinz, believes NotCo’s technology is “revolutionary in that it enables us to create delicious food with simpler ingredients, incredibly quickly, and with less environmental impact.”

And Notco CEO Matthias Muchnick says he founded the company “not just to develop my own products,” but “to reach out to other brands and manufacturers who share the same aspirations” of a sustainable, plant-based future.

Kraft Heinz brings scale, go-to-market capabilities, and a portfolio of beloved brands that can serve as the foundation for “better plant-based foods,” according to Knotco. Headquartered in Chicago with a research and development facility in San Francisco, Kraft Heinz Knot Co. aims to address “plant-based innovation across many of Kraft Heinz’s current product categories.”

Startup Partnerships in the Food & Beverage Industry

That may sound ambitious, but it’s not the first time Kraft Heinz has turned to small businesses for growth: In 2018, the company launched Springboard to incubate, scale and accelerate the growth of “disruptive American brands.” It was an incubator that “seeks emerging and authentic brands” in the natural, organic, specialty, craft, wellness, performance and experiential sectors. Kraft Heinz must be hoping its latest plant-based partnership isn’t just “more of the same.”

“The team will be supported by the best minds from both sides, as well as external experts,” NotCo said in a statement. “We are focused on a startup culture and seeking world-class talent.”

Kraft Heinz said this is “not a normal joint venture” and that products are produced at assembly line speeds rather than “normal” speeds. Kraft Heinz Chairman Patricio said the joint venture is “an important step in the transformation of our product portfolio” and will “help us realize our vision to offer consumers more clean, green and tasting products.”

Of course, as always, the consumer has the final say. Will this joint venture be a huge success or will it “fail”? Either way, it’s part of a trend of big food and beverage companies partnering with and investing in smaller companies to become more agile, innovative, and get the next new (and maybe “big”) thing to market quickly. Innovating is never easy; there are no guarantees at all, and the big companies have a lot of brands to cater to, but if things go well, the food and beverage giants can expand and evolve in ways they probably couldn’t on their own.