Could Chicagoland CPG Bring New Industry Opportunities

0:00Sustainable banana bread, regenerative tomato soup, and investor insights from the Chicago Venture Summit.

0:18Hi, everyone. Welcome to the NOSH podcast, where we go inside the business of natural, organic, sustainable, and healthy food. I'm reporter Lucas Southard. In light of the July 4th holiday weekend, we brought you a special podcast recorded from my trip to Chicago, where I attended the World Business Chicago Venture Summit, the future of food. I talked to founders and investors on why the Midwest is a unique place for CPG innovation and why it is advantageous and, at times, challenging to be located in the middle of the country. First up, I spoke with Bluestein Ventures about its investment portfolio and how it strategizes differently than VCs located on the coast.

1:01After, I spoke with the founders of GoNanas, a banana bread mix company that graduated the Mondelez Accelerator Program. The founders told me about raising capital in the Chicagoland area and why the brand is uniquely positioned to make the jump into nationwide distribution. Take a listen. I'm Ashley Hartman, co-managing partner at BlueSign Ventures. We invest in the future of food with a mission to transform the food system to be better, healthier, and more sustainable. We do so by investing across the supply chain. Anything from goods on the shelf, how goods get to the shelf, and how goods are made.

1:37Invest in the earliest stages of a company's life cycle from seed to series A. And like to partner with our companies to help them scale. So have made 45 investments across the supply chain in food. anything from consumer brands like Vive Organic to next-gen commerce like Foxtrot to digital technology like Fork Heights and food tech like Meaty. Can you tell me a little bit about kind of what makes Chicago a unique ecosystem for CPG? I'd love to change that perception because Chicago actually happens to be the center of the food industry. It's by nature of our location, but we are, you know, really the hub of where food comes, you know, everything we like to say, everything comes through Chicago one way or another.

2:25So we have, you know, a really thriving hub of for distribution, for example, some of the largest distributors are here like Kehi or Gordon Food Service. You've got a lot of the largest CPG companies that are located here. When you think about Mondelez, Mars, Pepsi, and then you have, you know, spins, presence marketing, you have all this ripe kind of infrastructure for the food industry to thrive in Chicago, which has led to a lot of innovation. You know, you've seen a ton of exits like RxBar, Vital Proteins, Simple Mills. And so that's led to even more talent and more innovation across the ecosystem in food.

3:03So I think it's underlooked, but we'd like to shed some more light on that, which is why the future of Food Summit is great. I think one great example of a brand that started in Chicago and has thrived in other markets is Foxtrot. So an innovative retail concept that's reinventing the modern convenience store that started as our hub in Chicago and has been a really great platform for other brands to even launch in and to build their own innovative, like engaged, innovative consumer bases. So I think that's exciting to see, you know, a retail concept plant their flag in Chicago. But we have a ton of, you know, a huge thriving ton of brands that are all around Chicago that are cropping up from non-alcoholic brands like Visitor to, you know, regenerative, sustainable brands like Tomato Bliss to allergen-free brands like Everybody Eats.

3:55So, you know, excited to see where these companies go, leveraging kind of all Chicago has to offer. Amira, tell me a little bit about what you do at Bluestine. How might there be a slightly different growth strategy in the Midwest as there is here? I oversee a lot of our pipeline. So deals come through me and I'm lucky to chat with founders in the food ecosystem every day. I'll echo a lot of what Ashley said, but I'll also add, you know, what is interesting to me as someone who's lived on both coasts and now is back in the Midwest. I'm originally from Iowa, is that Chicago is an incredible place to start a brand or to be a second market.

4:36I think it's more representative of the rest of the U.S., quote unquote, than, you know, New York or L.A. And I can confidently say that having lived in both cities. It's an incredible place to, you know, really understand your consumer and to go out and either launch a brand or, you know, see as kind of a second opportunity. And it's often overlooked. I think people get excited about, you know, being in New York or being in L.A., but that doesn't necessarily equate to, you know, the large success that you'll see if you can tap into the Chicago ecosystem. Is there obstacles or maybe some difficulties in being a Midwestern brand launching that you've maybe seen that brands have faced as being kind of in the middle of the country maybe and trying to get traction in some of these other big markets on the coast?

5:23We do have incredible VCs focused on food in Chicago, like Bluestine, Supply Change Capital, STG ventures, you name it, there are so many. But I do think, you know, unfortunately, part of the struggle of being in the Midwest is not having access to some of the big name coastal funds that are focused on investing in consumer brands or the food industry. So that's definitely something that we see as a challenge. But at the same time, you know, Chicago has such incredible VCs. It's just tapping into them and making those connections. I'm Annie. I'm one of the co-founders of GoNanas, and we make better for you baking mixes, specifically banana bread mixes.

6:12We've got all sorts of different flavors, and we'd like to think that we have cracked the code to making something taste super indulgent and homemade from a mix. So it's not just a clever name. No, not just a clever name. All of our products actually have you add real bananas to the mix, which is really our unique value prop there. We're here with your co-founder. You want to introduce yourself as well? Sure. I'm Morgan. I'm the co-founder, other half of GoNanas and excited to be here. Morgan, tell me a little bit about being a Chicago-based brand and why it's maybe unique to being based here in the Midwest and being kind of in somewhat of the distribution manufacturing hub of food CPG.

7:03Yeah, there are so many great resources and it's such a great environment here. We were actually part of the Mondelez Accelerator based in Chicago that really taught us so much about being a CPG brand and helped us grow a lot in the past year. So there's just a lot of opportunity here. And being at events like this too, you can just feel the ecosystem and have all those resources. So it's really awesome. You were telling me before we got on that you're not necessarily looking for funding right now, but it's good to be here and meeting new investors. How does fundraising from the Chicago viewpoint maybe differ from other places or how is it unique to finding good investors in this ecosystem here, as opposed to if you were based somewhere else?

7:50Yeah, well, I certainly can't speak to what it's like in other parts of the country, but I think here in Chicago, it is a very supportive environment, especially within the food and beverage space. And it's really tight knit as well. And so, you know, once we got one of our first investors, they were very active in connecting us to many more who eventually jumped on. And it seemed like every call that we ever got on, we'd say, oh, you know, this is one of our advisors and investors. And it was, oh, yeah, I had lunch with that person last week or our kids are on the same soccer team. So it just feels like a very, very tight-knit community.

8:30And whether or not somebody does eventually invest or, you know, help out in the realm of your company, they're always a resource. So it's a wonderful place to have a startup. Obviously, being based here in the Midwest, there's a lot of retailers that have their headquarters in the area. How does that provide maybe an advantage to your brand as you try to scale up into retail and get more distribution? Is there a way that you can leverage your brand and where it's located and the kind of story behind it? For our brand specifically, we really launched direct-to-consumer during the pandemic. And so a lot of our brand presence and revenue was really made up of the digital space.

9:15And so breaking into retail can be really challenging because every buyer is going to tell you, I want data. I want to see what your velocity looks like in our area. And so getting that first one can be really challenging. And I think, as Morgan mentioned, the opportunities here, you know, getting into the Mondelez Accelerator or even locally getting into a store like Foxtrot that has a huge presence here in their headquarters here, just those little things that can give you credibility really allowed us to, you know, get a meeting with the global buyer at Whole Foods and launch globally with them instead of just starting regionally.

9:53So I think just having those opportunities to crack the door open for us to bust through. I think the pandemic was really good for our business. Banana bread was blowing up and people were shopping online more than ever. So it was really a blessing in disguise because it helped us grow and build our brand. I think now the challenge for a lot of other companies, too, is making that transition to retail and balancing both and being an omni-channel business. because it is getting harder to play in the digital space and then retail is getting more expensive. So I think for us, it's making that jump to retail, which is capital intensive, as you mentioned.

10:33So being capital efficient and then just learning how to balance both businesses is definitely a challenge. But we're also excited to enter retail. It's also kind of been a dream of ours since the beginning. So we're very excited. Are there specific channels that you guys are targeting? I mean, you mentioned, you know, Andy mentioned Foxtrot as being a really good kind of resource. And it's obviously a Chicago kind of based platform. How do you see that? You know, is there other retail channels that you think you can maximize or that you can really lean into your brand identity for? Yeah, I mean, what we're excited about with our product is it's not just something that can play in the natural or specialty space.

11:18It can really have mass market appeal. We don't position ourselves as the vegan and the gluten-free and the nut-free banana bread. We're the banana bread that everyone can eat. So we're really fortunate and excited about that positioning because it really opens up the opportunity. I think we are focused on reducing food waste. So we are typically placed in the bananas section of the grocery store because you need real bananas to make our mixes. So we're actually focused there to help them reduce waste of the bananas. Bananas are the number one best-selling fruit in the grocery store and then a big contributor to food waste.

11:53So now you have a reason to use those spotty bananas and it's a win-win-win for everyone. So that's really our focus in the coming years. Getting back to the investor landscape, do you think there's an advantage to being a Chicago-based brand again and targeting investors that are really trying to uplift Chicago or Midwestern food CPG brands? I think there are certainly some companies that can experience a benefit by, you know, people just wanting to invest in the city of Chicago. I think for us, a lot of our investors are Chicago-based investors, which is great. But truthfully, I don't think the reason they invested in us was to support the ecosystem, more so what Morgan was talking about.

12:43Maybe they're pretty passionate about reducing food waste, which is super important to our company. And then ultimately, they just really believe in the product. I think if we were a little bit later staged and had a larger presence here, an office with many employees, that's something that could play to our advantage. But I think at this stage, that probably didn't play as much into it. In terms of the Mondelez Accelerator program, tell me a little bit about that and what that opportunity opened up for you all. That was one of the greatest experience we've really had as a company. I like to say it was like getting our MBA in the CPG space.

13:23You know, as we mentioned, we were such a digitally focused brand and they really taught us what it means to launch into retail and all the pieces necessary. And beyond that, you know, this space is such a small community, whether you're within Chicago or the CPG space in general. So getting to meet other founders at similar stages or slightly bigger, slightly smaller, and being able to learn from a community and grow with them was one of the best things we got out of the program. And we're still very close with a lot of the founders today, a year later. So it was really great. And it was really fun for us, too.

14:02What does the future hold for the brand? Is there some goalposts that you guys have set out to try to accomplish in the next year? Is there kind of growth markers that you've targeted as where you want to reach in the near future? Yeah, absolutely. I would hope so. Yes. Some I can't disclose, but I think our goal is to be a national and a household brand. So just launching with Whole Foods globally was a big milestone for us. And we have another large retail launch coming this fall that is also national. Can't wait for that one. I wonder who it is. So really retail. And we learned a lot about that from Mondelez and growing our online business and in stores.

14:47those tend to be our milestones coming up and helping reduce the food waste by getting in those produce sets. So we're pretty focused on that and growing the team and just building an organization to last. So that's pretty much our focus and a lot of exciting things coming up.

15:06Hi, everyone. It's me again. For the other two interviews from the Venture Summit, I talked to CPG soup brand, Tomato Bliss, who make, you guessed it, tomato soup. The brand explained to me how its focus on one agricultural crop is fighting monocrops in the Midwest, and how its sense of place gives it purpose and a leg up with certain consumers. And finally, I spoke with S2G Ventures, who filled me in on how the firm hopes to make the most impact with its investments, and why a touch of stereotypical Midwestern kindness can be refreshing when it comes to venture capital. We are an heirloom tomato business.

15:43We make small batch heirloom tomato soups with a real commitment to our ingredients, the integrity of the heirloom tomatoes that we grow on our farm in southwest Michigan. And we also support other like-minded farmers in the area who are interested in growing heirloom tomatoes to bring a more biodiversity to their farms. And also who are focused on healing the soil within the Michigan area. We always say Michigan sun and soil provide. At the end of the day, it really comes back to that. We are really proud to be in Michigan. So the way we started, honestly, is our tomato bliss came from a love of heirloom tomatoes.

16:26We quickly came to realize that tomatoes have become a commodity crop like wheat or soy. So we bought a farm in southwest Michigan and went to go plant our sweet little heirloom tomatoes and realized that industrial farming had turned our farm into nothing more than dirt. We literally needed a drill just to get the little seedlings into the ground. And then when it rained, the water ran off. And so we quickly realized there's work to be done to really tend to our land and heal our soil and build a more sustainable food ecosystem. And that's really our mission and our why is to bring more biodiversity to food.

17:08It kind of aligns with a lot of what's being said here at the Chicago Venture Summit in that there's a real connection to the agricultural community here in the Midwest. Can you talk a little bit more about how the kind of connection to agriculture is really important to telling the story of the brand and how it's important to telling the story about the Midwest and Michigan? Yeah, as you know, in the Midwest, we have a lot of farmland and we are focused not only obviously on our farming practices, but we also support other like minded farmers that I can mention. And that's really important and core to our mission, being able to partner with other farmers to give them a guaranteed source of revenue for their surplus heirloom tomatoes, to work together to give them the opportunity to grow heirloom tomatoes and more biodiverse foods so that we can really all partner together to support, you know, and heal Mother Earth.

18:10That's what it kind of comes down to. Is there specific difficulties that you find in being a, in this case, a Michigan-based company or, you know, based here in the middle of the country in the Midwest that make it just, yeah, provide more obstacles to getting your brand out there, getting brand awareness, maybe getting outside investment or funding the different projects that you do? How has that shaped the business as a whole? Actually, Lucas, to the contrary, if I'm honest, we have found that being... Yes, we're very grateful. Being true to our Michigan roots has provided us so many opportunities.

18:49We have a vision for turning Michigan into the biodiverse farming capital of the country. And in Michigan, there's a real pride for local grown and made. And that's what we are. You know, we are grown, produced and distributed in the Michigan area. It allows us to support the Michigan infrastructure. It also allows us to be really thoughtful about our carbon footprint and the impact that our business is making to really make sure, like I said, that we are building a truly sustainable food system. And by sustainable, I mean better for people, better for the planet and profitable. Correct me if I'm wrong, but it seems like you're saying that because maybe there's not as many Michigan-based food brands, it provides you a unique opportunity to kind of be a spokesperson for your state, for this region, and for the farmers and agricultural community that you stand for.

19:46We'd be delighted to be in that position. Absolutely. You know, at Tomato Bliss, we received a grant from the Michigan Department of Agriculture. They've really supported our vertically integrated business. customers love the fact that we're Michigan grown and made. There's a real camaraderie around local in Michigan that we're proud of. We've also partnered with Gordon Food Service, which is a Michigan-based business. They've been tremendously supportive of Tomato Bliss and the work that we're doing. So we find that in our backyard, we just have so much support and it's given us a real platform to grow.

20:23Can you tell me a little bit about maybe some of the distribution opportunities that arise in being located where you are and having that sense of place and how you see the brand growing throughout the country eventually. So today it's really wonderful because we're able to partner with chefs. We can invite them to our farm, allow them to understand sort of not only what we're making in our heirloom tomato soups, but also our philosophies on farming, on biodiversity. And we have found early stage that they're really excited about the opportunity to say local heirloom tomatoes, farm fresh heirloom tomatoes on their menu.

21:02And we're really, we're really proud of that. As we continue to expand across the country to be seen, as you can imagine, heirloom tomatoes can be grown in other parts. But today, I've got to be honest, There's so much opportunity in the Michigan area and there is so much land that we can hopefully help convert from monoculture, commodity crops to biodiverse ecosystems that we're just continuing to be focused in the Michigan area. There's plenty of wood to chop. So I'm here with one of the principals at S2G Ventures. Audra, I'm going to let you pronounce your name so I don't totally butcher it on this podcast.

21:43Kapuchinskis. I could have gotten it, but I didn't want to fumble. But I'm excited to talk to you about how being an investor that's situated, that's located here in Chicago, might offer different opportunities for CPG brands that might usually be looking for venture funding or for a partner that tend to be located a little bit more coastally. What is S2G doing and how are you offering a kind of a different perspective from investors in the CPG industry? Yeah, thanks, Lucas. And that's a great question to dig into. So first I'll start with, I mean, I think within Chicago, there's just a tremendous innovation ecosystem that has been cultivated over the last couple of decades.

22:31So World Business Chicago is doing a great job. 1871 is doing a great job. M-Hub, that focuses more on kind of the hardware side of things, you know, they just landed a$50 million property with which they're going to scale up their operations. So there's really this innovation ecosystem that has really been flourishing over the last number of years. And I think that generally in the Midwest, I mean, you have the typical Midwestern attitude of helpfulness and more of an openness to collaborate than perhaps you would have in some of the more competitive markets. And I do see that coming together in groups like the Chicago Seed Co.

23:13That's a coalition of a number of investors in Chicago, many of which do make investments in the CPG space and in early stage businesses in particular. You have the Hatchery that is working with the earliest stage of CPG businesses that are really looking for access to commercial kitchens and the first place where they could start to think about scale up. And I think, you know, so there's definitely capital here. There's resources to think about how you scale. But I think one thing that's really important to highlight about Chicago and just the Midwest in general is, you know, this is a very practical place to start and build a business because a lot of the friction points that we see to these businesses scaling are really getting access to resources that can help you scale effectively.

24:01And so when you look across the entire food supply chain, whether it's production of product, whether it's manufacturing, whether it's distribution, I mean, a lot of the biggest businesses in the food industry are headquartered in the Midwest. So, you know, whether it's an ADM that's located in Chicago and we work closely with and they're doing some really great work or Mars was here talking about their sustainability initiatives and they have a headquarters here. I mean, all of these groups have innovation efforts. They have capital that's available. They're working on pilots and trials. They have networks that they're willing to open up to these emerging businesses.

24:38And if we're really going to think about scaling up these emerging businesses, and particularly as it relates to sustainability, I mean, sustainability is something that one business isn't going to solve on its own. That requires building a coalition of stakeholders. And you can find those stakeholders in Chicago and in the Midwest more broadly. It makes me think a lot about what I've heard by many speakers today at the Chicago Venture Summit, that, you know, Chicago is kind of the center of food, as it's been called. I'm sure there's certain cities and certain regions that would probably want to argue that.

25:18Sure. I mean, and I will say, you know, like San Francisco is a hub for a lot of cutting edge technologies as it relates to food tech and discovery platforms, for instance. But I would say that a lot of those technologies are being developed here in Chicago as well. So I don't think it's a I don't think it's a mutually exclusive. Us against them. Yeah, exactly. Well, I hope not. Yeah. And we have investments across all of them. Like we have investments sprinkled across the U.S. and internationally. we're headquartered in Chicago because this is where industry is centered. And so if you think holistically and you take a systems approach to really thinking about the food system and how you move the needle at scale on sustainability and bring in more nutrition, bring in a healthier planet and kind of focus areas like that, the coalition of partners that you need is represented in the Midwest and you need to be able to pull them all together and to do that.

26:13And so it's just a great kind of meeting place for all of these different collaborators. I mean, you can see it through Patagonia's acquisition of Moonshot a few months ago. You know, that's like a great case study where they started with a focus on sustainability and thinking about how to showcase where they're sourcing their product from. And at the end of the day, Patagonia saw a ton of value in that. And I think broadly, there's a conversation happening across the entire food supply chain, thinking about how do the ingredient companies link up with the producers? How do the ingredient companies then loop back with the CPG companies and really provide differentiated inputs that go into their products, whether they're differentiated in terms of how those inputs are produced.

27:02So whether they're produced regeneratively or organically, or if it's more, you know, thinking about things from the angle of functionality and really differentiation. You know, there's like a bunch of conversation happening now around the gut microbiome or just other, you know, pretty specific functions that specific ingredients can deliver. Everybody loves the healthy gut stuff these days. Oh yeah, totally. So hot right now. If you have a leaky gut, don't worry. There's products for you. I ingest a lot of probiotic, prebiotic, postbiotic samples all the time. So I got to imagine my gut's in pretty good health at this point.

27:39Well, and actually that brings up a good point. You know, like IFT is based here, the Institute of Food Technologists, and they do a great job of showcasing just where these emerging technologies, like where they're headed, they highlight the talent aspect of this. So how do you formulate with these new ingredients? How do you think about like highlighting some of the functionality and bringing that through products? And if you're building a CPG brand today and you're thinking about how to differentiate, I think there's so much more available to you today than there was maybe 20 years ago. And I think that Chicago presents, and the Midwest in general, presents a lot of opportunity with which you could explore some of those different levers to differentiate yourself with.