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Kellogg's $100 million search for the next big thing in food

MoneyWatch Headlines for June 24, 2016
MoneyWatch Headlines for June 24, 2016 01:11

More than a century after W.K. Kellogg discovered how to make flaked cereal, the managers of the company he founded are intensifying their search for the newest trends in the packaged food industry.

Kellogg Company (K) this week announced the launch of 1894 Capital, a reference to the year Kellogg first created Corn Flakes. It's a $100 million venture capital fund dedicated to helping entrepreneurs develop new types of foods, ingredients, packaging and enabling technology. According to Simon Burton, the Kellogg executive overseeing 1894, the Battle Creek, Michigan-based company is approaching this effort with an open mind. He added that the fund welcomes pitches.

"The speed of innovation out there in the food industry has accelerated pretty dramatically and this is a great way for us to tap into new ideas and emerging trends more quickly," Burton said in an interview.

Kellogg aims to help companies at the early stage of their development with annual revenue of about $5 million to $10 million and has staffed 1894 with experts in the food industry to assist entrepreneurs, according to Burton. He declined to discuss any companies that 1894 might invest in.

"We do not want to limit ourselves too much," Burton said.

Like other packaged food companies, Kellogg has struggled to adapt to the changing tastes of consumers who are demanding more fresh and natural products. The company last year adopted a cost-cutting tool called "zero-based budgeting," which requires managers to construct their spending from scratch each year rather than base their numbers on what happened previously. Even so, Kellogg's latest quarterly results disappointed Wall Street.

Shares of Kellogg have risen 7 percent since the start of the year, underperforming peers such as General Mills (GIS), which has surged 15 percent, and Post Holdings (POST), which has gained more than 28 percent. One reason for Kellogg's struggles has been stagnant sales for cereal in recent years as consumers flock to alternative morning meal options such as egg-based sandwiches. Kellogg, though, sees better times ahead and expects cereal sales to turn positive in 2016 for the first time in years. Its other products include the Kashi organic line and snacks such as Pringle's potato chips and Keebler cookies.

"By investing directly in the most promising entrepreneurs and ventures, we can increase greatly our access to game-changing ideas and trends that could become significant sources of growth for us," said Kellogg Vice Chairman Gary Pilnick, in a statement. "At the same time, we will be providing these companies with essential growth capital and access to Kellogg resources and expertise, which will help drive their ideas and businesses."

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