Kellogg buys RXBar in Chicago for $600 million – Consumer News

on Oct6

6 October 2017 | 2:00 pm

Four years ago, Peter Rahal was making protein bars in his parents’ Glen Ellyn kitchen. Today he agreed to sell his company, Chicago Bar Company, to Kellogg for $600 million.

“We couldn’t have dreamed of this opportunity,” says Rahal, 31, who co-founded the company that makes the RXBar—made from only eggs, dates and nuts—with his childhood friend, Jared Smith. “We started with $10,000 dollars. We didn’t go to investors. We just f—ing did it.”

Two other members of RXBar’s senior staff, including chief sales officer Sam McBride and sales manager Jessie Stewart, also grew up with Rahal and Smith in the western suburbs. They’ve been close friends since their days at Glen Ellyn’s Benjamin Franklin Elementary School and continued on together to high school at Glenbard West.

After upgrading from his parents’ kitchen to their basement, Rahal and Smith moved to a commercial space a 242 N. Western Ave. in April 2013. The rest of the year “was a brutal survival period where we learned how to scale,” Rahal recalls. The early days were a struggle “because one, you’re physically making the product; two, you’re not paying yourself anything; and three, your product isn’t cool yet so you don’t have a sense of accomplishment.”

They decided to sell online only, after realizing, “Oh my God, there’s too many bars, we can’t get into Whole Foods,” and quickly gained traction. (Today, RXBars are distributed nationally at Whole Foods, Target and other major retailers.) By summer 2014, Rahal and Smith had found partners to help commercialize the business, which allowed them to stop making the bars by hand and begin hiring staff. The company produced about 1.5 million bars that year.

A turning point came in early 2016, when the company redesigned its packaging. The new labels focused on the short, real-food ingredient list and “no B.S.” mantra.

“We made the original packaging on PowerPoint, so once we sold some bars we were self-aware enough to realize, ‘Hey, our baby’s ugly,'” says Rahal. “The redesign really changed the business.” This year, RXBar is on track to sell a projected 120 million bars, creating $100 million in revenue.

The company, which now counts 75 employees, will remain based in Chicago after the deal with Battle Creek, Mich.-based Kellogg closes, likely by the end of the year. Rahal will remain CEO, reporting to Deanie Elsner, who leads the food giant’s U.S. snacks business. Rahal says he’s looking to hire 40 people and will move headquarters next spring to a new nine-story building at 412 N. Wells in River North.

Kellogg’s resources will allow RXBar to keep growing rapidly. The brand, which now has 11 flavors, will continue to expand its offerings and will introduce products beyond bars, Rahal says.

With RXBar, Kellogg is acquiring a business that appeals to younger customers and has a strong presence online, CEO Steve Cahillane, who took the job at the breakfast-cereal giant this week, said in a statement. “RXBar is perfectly positioned to perform well against future food trends,” he said.

“As the fastest growing nutrition bar brand in the U.S., RXBar has built an incredible business as a clean-label, high-protein food,” a Kellogg spokesman wrote in an email to Crain’s. “RXBar is an excellent strategic fit for Kellogg and helps advance one of (our) goals… to become a global snacking powerhouse.”

Read more:
Why is everyone selling protein bars?
Big or small, food companies come clean

Kellogg hired Cahillane from vitamin purveyor Nature’s Bounty, a sign that the maker of Frosted Flakes wants to pursue a more health-conscious strategy. The Battle Creek, Michigan-based company has been struggling to cope with broad shifts in how Americans eat and shop. Cereal sales have declined for years, and Kellogg’s snack-bar business also has performed badly—with its once-strong Special K brand losing its allure with consumers.

Large packaged-food companies also are facing concerns that a grocery price war will further batter margins, especially as Amazon pushes into supermarkets with its acquisition of Whole Foods. Grocery stores are increasingly turning to private-label products in a bid to draw price-conscious customers, adding another headwind to national brands.

Shares of Kellogg have dropped 15 percent this year. The stock was little changed on Friday, trading at $62.83 in New York.

Bloomberg contributed.



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