Mondelēz International is planning to accelerate investments by its venture capital arm as the snacking giant looks for start-ups to contribute a bigger portion of its future growth.
Despite being around for nearly five years, the Mondelēz entity known as SnackFutures has made only seven investments largely focused on three areas — food companies it views as disruptive, snack players prioritizing wellbeing and developers of new and novel technology used to make products.
Richie Gray, a Mondelēz vice president who was appointed to head SnackFutures in April, said with disruption intensifying in the food space and the company looking for ways to “accelerate” its growth in the future, it has become “more serious about scouting, identifying and investing in these companies than we have been.”
These upstart companies “take small amounts of share, which isn’t necessarily a threat to our business today, but it’s a great opportunity for us to ensure that we have the growth in the future,” Gray said. “It’s mission-critical for Mondelēz to be able to engage in and be part of” this.
SnackFutures currently has stakes in five companies with the goal to “at least double the portfolio that we have today, and maybe a little bit more” by the end of this decade, he said. The goal is to eventually get Mondelēz to a point where it invests in about 1% of the deals it reviews.
The Cadbury and Triscuit maker wants SnackFutures to be a meaningful part of its long-term 2030 vision that focuses on boosting growth and evolving its portfolio to get 90% of its revenue from chocolate and biscuits. Startups also play a valuable role in providing Mondelēz with an entrepreneurial and growth mindset that the CPG giant, which posted $31 billion in net revenue during its 2022 fiscal year, can incorporate into its business.
Erin Lash, a director of equity research in the consumer sector for Morningstar, noted Mondelēz has made nine deals in the past few years, including Tate’s Bake Shop, Perfect Snacks and Clif Bar, adding about $2 billion in sales. With the acquisitions responsible for a low-single-digit percentage of sales, they aren’t enough to “move the needle on its overall results.”
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“We think Mondelez will continue scouring the landscape to expand its reach by adding brands and businesses in untapped categories and/or geographies from time to time,” Lash said.
SnackFutures typically invests in companies with single-digit growth rates and about $20 million in net sales that could benefit from Mondelēz’s marketing, R&D, manufacturing, retailer connections, supply chain and other areas of expertise.
In the past, SnackFutures has invested in companies such as Torr FoodTech, which developed a way to use mechanical pressure and ultrasonic energy to replace sugar and other binders in snacks like bars; Celleste Bio, a maker of lab-grown cocoa; Eastern Standard Provisions, a seller of direct-to-consumer hand-twisted soft pretzels with all-natural ingredients, and premium chocolate and snack creator Hu. Mondelez purchased Hu in 2021, the only company SnackFutures investment that its parent has acquired.
Feeding the M&A pipeline
Gray noted companies that SnackFutures invests in are expected to be one channel that Mondelēz will heavily depend on in the future when it looks for companies to buy.
Potential acquisitions must be big enough that they can be easily incorporated into Mondelēz’s larger size. They also must have growth rates that are “way above” what Mondelēz is posting while generating hundreds of millions of dollars in sales annually, he said.
“We want it to be a feeder of our M&A pipeline so that when we’re investing in a company, we’re doing it with a view to ultimately acquiring them when they get to the level of scale that can make a difference for Mondelēz,” Gray said.
He added that SnackFutures is benefiting from the insight it has amassed during the last half-decade. Gray, who has worked for Mondelēz and before that Kraft Foods for a total of 25 years, has built on that by spending the previous four months identifying ways to streamline the process the incubator uses to decide which company to purchase a stake in and how to “ramp up growth” to where they are big enough to potentially be acquired.
”We want that time to be quicker,” he added. “That portfolio of companies won’t represent an enormous revenue number, but when you look at the growth rate applied to that, then it becomes this tangible contributor to our plans.”