Kellogg's Snack-Bar Startup Sees Peanut Butter as Growth Source

(Bloomberg) -- Chicago Bar Company, the snack-bar maker acquired last year by Kellogg Co. for $600 million, is betting that peanut butter can help provide a much-needed spark to its parent's sales.

The maker of RXBAR, which saw sales quadruple to about $131 million last year, is preparing to release single-serve pouches of peanut and almond spreads. They'll initially be offered only online before arriving at brick-and-mortar stores -- replicating a play that helped the company muscle into the crowded snack-bar category with a product made from egg whites, dates and nuts.

The company's goal is to become an “entrepreneurial platform” to fuel growth for Kellogg, where sales have fallen each of the last four years. The stakes are high for new Chief Executive Officer Steve Cahillane, who took over a couple of days before the deal to acquire Chicago Bar Company was announced.

Cahillane took the reins at a company that has been battered by broad shifts in how consumers eat and shop. Kellogg has said that sales will be roughly flat this year, with RXBAR helping to end the slump.

‘Innovation Problem'

“We want to create an organization that ultimately solves the Big Food innovation problem,” Chicago Bar co-founder and CEO Peter Rahal said in an interview, referring to larger companies' struggles to find products that resonate. “That's our role in the Kellogg company.”

Sales of U.S. nut butters have dropped about 4.8 percent since 2014, sliding to just under $2 billion last year, according to data from Euromonitor. But that largely reflects declines at the the largest peanut butter brands -- Jif, Skippy and Peter Pan. As with other corners of the food space, natural and organic brands have fared better: Maranatha, an organic brand owned by Hain Celestial, has grown 17 percent over the last three years.

RXBAR embodies that trend. As the company's sales have surged, Kellogg's snack-bar business, which includes the struggling Special K brand, has seen sales plummet 34 percent since 2012.

The new RX spreads will come in three flavors: peanut butter, vanilla almond and peanut butter honey cinnamon. Rahal, 31, envisions the product as a “snacking condiment” that will be applied to apples and bananas as U.S. consumers increasingly eschew three square meals in favor of grazing throughout the day.

The nut butter expansion was in the works prior to the Kellogg deal, and as the two companies get to know each other, the main focus is on taking the original RXBARs to international markets.

The food industry, which has struggled to keep up with fast-changing consumer trends, has a reputation for stifling innovation at the upstart companies that get gobbled up by larger companies. So far, Battle Creek, Michigan-based Kellogg has mostly been hands-off at RXBAR, leaving the company and its executives to operate the business from their Chicago headquarters, according to Rahal.

“They're not down our throats, but they're here for consultation and support,” Rahal said.

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder

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