By Annie Gasparro
Kellogg Co. plans to buy niche protein-bar company RXBAR for $600 million, joining other big food makers in tapping new brands to make up for falling sales of sugary, processed products.
Kellogg mainstays like Frosted Flakes and Pop-Tarts have faced declining sales in recent years. Chief Executive Steven Cahillane, who took over this week from John Bryant, is tasked with bringing the company more in line with the turn many consumers are making toward more natural, fresh foods.
Many of Kellogg's competitors are also buying newer brands to adapt. Conagra Brands Inc. earlier this year bought Duke's meat snacks and recently said it would buy Angie's Boomchickapop popcorn. Campbell Soup Co. in July said it was acquiring Pacific Foods, an organic soup maker, for $700 million. And last year, General Mills Inc. bought EPIC Provisions meat snacks.
But in buying buzzy smaller brands, these giants risk depriving these startups of the identity that made them attractive to consumers. Kellogg acquired Kashi in 2000 and made big changes to the cereal maker's marketing and innovation strategy, only to see it lose ground to newer all-natural brands.
The 25 largest food and beverage companies have lost billions of dollars in market share in recent years, consultancy A.T. Kearney said. Those companies averaged 2% annual sales growth from 2012 through 2016, compared with 6% growth for their smaller rivals, the company said.
After moving Kashi's operations from Southern California to Kellogg's headquarters in Battle Creek, Mich., executives realized they were hurting Kashi's brand identity and move it back to the West Coast.
"Kellogg learned some lessons with Kashi. We won't compromise our values, " RXBAR co-Founder and Chief Executive Peter Rahal said.
Mr. Rahal said his company will continue running its business as a separate unit out of Chicago, but will benefit from Kellogg's distribution, research and development capabilities. Mr. Rahal said he wants Kellogg to help his brand grow beyond protein bars and sell his products in more schools, hospitals and hotels.
RXBAR said in September it was exploring a sale. The Chicago-based company had $7 million of earnings before interest, tax, depreciation and amortization in 2016 and is projected to generate more than $20 million of Ebitda in 2017, according to people familiar with the matter.
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