General Mills' 301 Inc. unit recently invested in Rhythm Superfoods and Good Culture.

ANAHEIM, CALIF. — Among hundreds of exhibiting food companies at Natural Products Expo West, at least two have caught the eye of 301 Inc., the business development and venturing unit of Minneapolis-based General Mills that launched last October. The initiative began in 2012 as a new business development team within General Mills. That group identified ideas that were later used to introduce such new products as Progresso and Nature Valley Bistro Cups, Pillsbury Pancake Batter, and nibblr, a subscription-based snack service.

John Haugen, 301 Inc., General Mills
John Haugen, founder and general manager of 301 Inc. and v.p. at General Mills

“We spent a period of time walking in the shoes of entrepreneurs and building businesses ourselves, and we found out it’s hard work and takes a long time,” John Haugen, founder and general manager of 301 Inc. and vice-president at General Mills, told Food Business News during an interview at Natural Products Expo West, held March 10-13 in Anaheim. “As we were scouting and spending a lot of time in the marketplace, we realized there are so many great ideas that are in the marketplace already, and while it’s very difficult for us to replicate the passion and vision and energy of the entrepreneur, we found the resources and capabilities we have can be game-changing in nature for the entrepreneur. So it became how to align ourselves to maximize the strengths both of the entrepreneur but also the resources and capabilities of General Mills.”

Earlier in March, 301 Inc. along with CAVU venture partners took the lead investment in a $2.1 million strategic financing round for Good Culture, an Irvine, Calif.-based maker of sweet and savory organic cottage cheese varieties made with grass-fed dairy and free of stabilizers and additives.

“A lot of people would look at it as 301 Inc. investing in a cottage cheese company, but we really look at it as a clean label, nutrient-dense protein snack,” Mr. Haugen said. “Cottage cheese is a great category. It’s over $1 billion in size but relatively nascent. We think this brings news to a large but somewhat nascent category and really delivers a product that’s on trend with consumers today.”

Good Culture offers sweet and savory organic cottage cheese varieties made with grass-fed dairy and free of stabilizers and additives.

In January, 301 Inc. led a $3 million Series financing round for Rhythm Superfoods, Austin, Texas. Founded in 2009, Rhythm Superfoods offers plant-based nutrient-dense snacks, including Rhythm Kale Chips and Broccoli Bites and Roasted Kale. At Expo West, the brand unveiled a new line of Beet Chips in such flavors as original, sea salt, and cinnamon and coconut sugar. The products are made using a proprietary dehydrating process.

Just weeks into the partnership, Scott Jensen, chief executive officer of Rhythm Superfoods, said 301 Inc.’s support already has been “super, super helpful.”

Scott Jensen, Rhythym Superfoods
Scott Jensen, c.e.o. of Rhythm Superfoods

“Everything they’ve said and more they’ve followed through on,” Mr. Jensen told Food Business News at Expo West. “They have opened up all of their silos of expertise. We have someone in 301 Inc. that has been working in packaging engineering for six years, and so he’s helping us figure out whether we really need a strong corrugate as we’re using right now on our cases. Can we pull 11c out of it? In my packaging, am I paying too much because I have too thick of a film? We don’t have the technical expertise as their team does.”

The partnership also has unlocked opportunities for synergies, Mr. Jensen said.

“We have product made in Mexico right now, and they have Old El Paso tortilla chips made in Mexico, surprisingly close to where our plant is… ‘What truck or train route do you use?’” he said. “Up until six months ago, they owned the Green Giant frozen vegetable plant in Irapuato (Mexico). They were the largest or second largest procurer of broccoli in North America. Now we’re buying broccoli. So their introductions to some of their supply chain people that they knew of, those are the kind of things they have been really open on, blowing wind in our sails. I couldn’t be more thrilled.”

Rhythm Superfoods beet chips, General Mills, 301 Inc.
Rhythm Superfoods unveiled a new line of Beet Chips at Expo West.

In addition to helping Rhythm Superfoods scale its operations and improve margins, Mr. Haugen said 301 Inc. is focused on product optimization.

“I look at things like category management opportunities at retail, shopability, how can you help consumers more easily navigate to your products?” he said. “And we’re also doing more long-range thinking around areas such as innovation pipeline. Where should the Rhythm brand expand to next? And so we’ve got some capabilities and tools we can use to help them ask that question.

“It’s really about us applying those capabilities to help Scott grow his business, so ultimately, Scott drives that conversation. This is not about us coming in and imposing our will or telling him what he should do to grow his business.”

When scouting for a potential investment, Mr. Haugen said 301 Inc. has several criteria.

“We’re looking for established proof of concept in the marketplace, a viable product, a strong brand, demonstrated that the brand is growing and building turns in a lead channel,” Mr. Haugen said. “Oftentimes, that will be the natural and organic channel. And then, there’s a second stage of growth, which is when a brand demonstrates the ability to migrate out of that channel and move into other channels, or possibly the brand can expand into another category or subcategory or segment. That shows us there’s evidence the brand can scale.”

Additionally, Mr. Haugen said 301 Inc. is open-minded to a range of business structures, including new channel opportunities.

“If you look at how quickly things are moving with consumers navigating a range of channels to research and discover and buy and consume food, that’s a key part of the future of food and the food landscape,” he said.

2016 Natural Products Expo West show floor
Mr. Haugen said he canvassed the Expo West trade show floor, packed with hundreds of exhibiting food companies.

At Expo West, Mr. Haugen said he canvassed the trade show floor for product trends and potential investments for 301 Inc.

“I continue to see a lot in the protein area,” he said. “We’re seeing continued new forms of protein, plant-based protein, insect protein. I think that’s continuing. I think the consumers are looking for their food and their calories to do more, so there are some exciting new proactive health benefits, things like probiotics and health for the gut is interesting, and the science continues to support further development of that. In general we continue to see a proliferation of snacks and blurring of meal occasions.”

He said brands seeking capital should consider a more holistic approach to growing the business.

“The capabilities and skillsets that maybe got you from one stage to where you are now may not be those that get you to that next stage,” he said. “Entrepreneurs with a good idea and a head start used to have some competitive insulation, and today because of all of the focus and attention and energy put on early-stage businesses, I think the cycle times are compressing.

“When a brand catches that lightning in a bottle and has the opportunity to take it to the next level, I think their time horizon now might be tighter than what it is. I think that’s important to think about in the context of how you’re going to set up your capital structure and govern it to grow your business.”