Exclusive: Campbell Soup Invests $10M in Meal Kit Startup Chef’d

May 24, 2017

Campbell Soup has invested $10 million in Chef'd, a bet on a meal-kit startup that points to the sweeping changes Big Food makers must confront as food and beverage spending gravitates to online channels.

On Wednesday, the maker of Pepperidge Farm cookies, Goldfish crackers, and the namesake line of soups will announce a strategic partnership and investment in Chef'd, part of a Series B round of funding that also included online grocer Fresh Direct. Under the terms of the investment, Campbell Soup (cpb) will also get a board seat at Chef'd and become the company's largest strategic investor. Importantly, the investment from Campbell is a direct stake—not via Campbell's $125 million venture capital arm Acre Venture Partners, which debuted in early 2016.

"We believe that digital and e-commerce is going to transform [the food] industry," said Mark Alexander, President of Campbell Americas Simple Meals and Beverages, in an interview with Fortune. That migration in spending has already occurred in many other consumer product categories, like books, electronics, and apparel. Food executives say their industry is next, as millions of consumers buy food through online grocery delivery and meal kit services, channels that lean on a direct-to-consumer model that cuts out brick-and-mortar stores.

Campbell Soup has invested $10 million in Chef'd, an e-commerce meal kit startup that launched in 2015. Courtesy of Campbell Soup 

Large packaged food companies like Campbell, Alexander says, have one critical advantage. They know this consumer-driven shift is happening and can aim to pivot in time to participate in changing consumption patterns. Campbell is estimating that between 2016 and 2021, e-commerce sales of food and beverage will reach $66 billion, a compound annual growth rate of 38%. With sales for many Big Food makers barely budging, it makes sense for Campbell to invest in a sub-segment that's seeing strong consumer interest.

While the partnership between Campbell and Chef'd is just starting, both touted ways they can benefit from closer ties. Campbell has deep relationships with traditional brick-and-mortar grocers and has a portfolio of well-known brands, including Bolthouse Farms, V8 and Garden Fresh Gourmet salsas , which could be folded into a variety of Chef'd recipes. Meanwhile, Chef'd gives Campbell the ability to tap the direct-to-consumer model that meal kits are serving, as well as data Chef'd compiles from the customers that use the startup's service.

Founded in 2015, Chef'd competes with the likes of Blue Apron and HelloFresh but unlike most of those rival services, it doesn't require customers to book a weekly subscription. Instead, it lets customers order as many (or as few) meals as they'd like and repurchase them as much as possible. Those meals are conceptualized by professional chefs, including some former Top Chef contestants, as well as by consumer-product companies like Hershey (hsy) and PepsiCo's (pep) Quaker Oats. Campbell on Wednesday said that under the term of the partnership with Chef'd, future kits could include any of Campbell's U.S. brands. A "dinner in a bowl" kit might feature a recipe with Swanson broth, for example.

"We are excited about working with Campbell," said Chef'd CEO and founder Kyle Ransford. "The customer thinks of them as an iconic can of soup but we think they are a forward-looking company. The efforts they are making are thoughtful and interesting from our standpoint."

Millennial and Gen Z shoppers are fueling the broader trend of ordering groceries online and buying meal kits, which is why executives think traffic at grocery stores will continue to falter in a way that mirrors the pressures seen at big-box retail and department stores. Campbell Soup would be hurt by lost foot traffic to traditional grocery stores because like all major Big Food peers, it relies on shelf space for sales.

The shift in spending does present an opportunity. Meal-kit delivery services, for example, are helping persuade shoppers to give online grocery delivery services a try, according to investment firm Morningstar. And all these new services can boost sales for consumer-packaged goods companies that opt to compete. Campbell isn't alone in aiming to tackle the trend. Unilever's (ul) venture capital arm recently led an investment in meal-kit startup Sun Basket, while Kroger (kr) is reportedly testing a meal kit service of its own.

"E-commerce will transform the food industry as it's already done with entertainment and apparel," said Campbell Soup CEO Denise Morrison at an industry conference in February. "Consumer buying behaviors have changed rapidly and as you can see 41% of American consumers visit cooking websites to find recipes and 64% of people who try online shopping find it more convenient."

With the movement toward omni-channel food ordering seen as irreversible, Campbell says it must invest to compete as the entire ecosystem evolves to address new ordering and delivery methods. "This is a game-changer for consumers, food makers and retailers alike," Morrison said.

Alexander says Campbell thinks there are three big shifts occurring: a transition in food and beverage spending from physical stores to online channels; services like meal kits; and so-called "contextual commerce" like the automatic fulfillment Dash Buttons made by Amazon.com. "Our strategy is to have initiatives in each of those areas," he said. One way that Campbell could work closely with Chef'd: if a customer were to visit the food maker's recipe website Campbell's Kitchen, they could see a recipe they like and immediately place an order to get all ingredients mailed to their homes.

"That idea of having a more seamless fulfillment of recipes online would be something we would be pursuing," Alexander said.

When Fortune asked if the pact could lead to a bigger stake or full takeover later on, the executives at Campbell and Chef'd declined to speculate on the future. "We are excited to work with them and take a stake in the company and also to build this strategic partnership," Alexander said. "In terms of where it goes from there, time will tell."

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