Food company gets deep pockets for marketing push
Steve’s breakdown: Check into Primal Kitchen and their founder Mark Sisson cause it’s go time for a marketing push via Kraft Heinz.
PITTSBURGH & CHICAGO: Kraft Heinz buys paleo brand Primal Kitchen for $200M
Kraft Heinz announced that it will purchase better-for-you condiment and sauce brand Primal Kitchen for $200 million. The transaction is expected to close in early 2019, according to a release.
Although the brand will be under Kraft Heinz’s Springboard division — an incubator for “disruptive” foods — the company will retain its headquarters in Oxnard, California and continue to operate autonomously. Kraft Heinz will provide Primal Kitchen access to supply chain and distribution channels to expand the brand’s reach.
Primal Kitchen produces condiments, sauces and dressings like mayonnaise, salad dressings and avocado oil, all of which will complement Kraft Heinz’s core condiments portfolio. The brand is also expected to grow its healthy snacks category and generate about $50 million in revenue this year.
Primal Kitchen is a young, hot upstart brand that has made big waves since its 2015 debut. With three years of operations under its belt and a forecast to already rake in $50 million next year, it’s no wonder that Kraft Heinz came in to snap it up.
Lately, Kraft Heinz has been in a slump. Earlier this year, the company had seen sales drop for seven straight quarters — though it has managed to pull that number back into the black — and this spring, Credit Suisse downgraded it to “underperform,” pointing to the company’s lack of product innovation.
Kraft Heinz spent the year trying to revamp its existing items to meet customer demand for natural, clean label, plant-based and functional products. The company’s biggest effort at the moment to do so comes not from its internal products — which have seen significant facelifts like no-added-sugar versions of Capri Sun, Oscar Mayer hot dogs without byproducts and Kraft Macaroni & Cheese with nothing artificial — but from the investment in its very own incubator. The company founded this unit — called Springboard — earlier this year to bridge the gap between stodgy legacy products and those consumers are craving.
Sergio Eleuterio, who is head of Kraft Heinz’s Springboard program, previously told Food Dive that the idea behind the program’s launch was to “build an incubator program so that we can help them (startups) develop — but at the same time, get those learnings, codify them, reapply them to the mother ship and build playbooks.”
Primal Kitchen is the first brand to be acquired and put under the Springboard umbrella. The Kraft Heinz unit also has a partnership with Ssäm Sauce, the signature condiment from hip urban restaurant Momofuku’s chef and founder David Chang.
Putting Primal Kitchen into this division signals that the brand is separate from Kraft Heinz’s core brands, but it is also strategically placed for growth. Growing the brand in the incubator could be a lot cheaper and faster than integrating the product into its internal portfolio. At the same time, Primal Kitchen, which will continue to operate autonomously, can take advantage of the development expertise and large distribution network already in place.
Acquiring this paleo condiment and snack line is Kraft Heinz’s newest step into the better-for-you space, as it works to keep pace with other big companies. Other CPGs have seen success by adding products to their portfolios that have the health halo that customers are demanding. In the last year, PepsiCo bought Health Warrior for an undisclosed amount, Keurig Dr Pepper purchased Core for $525 million and Coca-Cola acquired Topo Chico for $220 million.
Kraft Heinz is continuing to struggle to bring in revenue. The company’s shares are down 34% since January. This $200 million expense could be a Hail Mary toss in an effort to turn around fortunes — much like Kellogg, which bought clean-label RXBAR for $600 million last year. In its latest earnings report, Kellogg noted net sales were up 7%.
Whether Kraft Heinz will see this level of success will have to wait a few quarters. However, the future looks bright if the rapid growth that Primal Kitchen has been seeing continues.