News From Terre Haute, Indiana

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December 20, 2013

Graze fights General Mills to become the Netflix of snacks

ATLANTA — Americans may soon get their snacks the same way they rent movies.

Graze.com, which has been selling personalized, mail-order boxes of snacks in Britain for five years, plans a major U.S. push in January, funded by its majority owner, private- equity firm Carlyle Group. While Graze has barely landed in the U.S., its $70 million of sales in its home market this year already has Big Food's attention. General Mills is rolling out a service almost identical to Graze, right down to the $6 price.

If the idea of a snack subscription, with treats such as Mississippi BBQ Pistachios and Apple Crumble dried fruit and nut mix sent to customers' mailboxes, sounds like Netflix Inc.'s video-rental service, there's good reason. Some of Graze's founders came from Netflix's British equivalent, Lovefilm. The tech developers brought the same model to processed food, tapping into demand for healthier snacks.

"It's quite real," Roger Kay, founder and president of Wayland, Mass.-based Endpoint Technologies Associates, said of the prospects for the emerging category. "There's definitely room for web-based subscription services, especially in the area of consumables if it's something you know you are going to want to have every month."

 Graze, which has about 350 employees globally, declined to disclose how much money it has raised or the size of Carlyle's stake. Other investors include Octopus Investments Ltd. and DFJ Esprit LLP, both in London.

To manage its growth initially, Graze requires an invitation code that will be phased out soon. Once in, customers create an online profile, listing preferences and limitations such as allergies.

They can then elect to get boxes once a week, every other week or monthly. The boxes are designed to fit in a mailbox and have four different snacks, chosen from among 90 ever-changing options, in portions ranging from about an ounce to 2 ounces, sealed in plastic tubs.

One snack called the Cheese Board includes cashews, salsa corn sticks and herb crackers covered in an orange powder. The Salt & Vinegar Nut Selection includes almonds and peanuts. The Orange & Ginger flapjacks are a kind of moist granola bar popular in Britain.

"I've watched with interest the wider market in the U.S. on subscription go absolutely bananas," Graze Chief Executive Officer Anthony Fletcher said in an interview. "This is a source of convenience. You don't have to worry about it."

General Mills' version, called Nibblr, was developed at 301 Inc., a unit in the Minneapolis-based company that incubates products outside core brands such as Cheerios, Yoplait yogurt and Progresso soup. The company is looking for new avenues of growth amid higher costs and shaky consumer demand. General Mills earlier this week posted second-quarter profit that trailed analysts' estimates because of higher ingredient expenses and foreign-currency exchange rate fluctuations.

Marketing Director Martin Abrams says his team looked at the subscription market broadly for inspiration. These days, everything from dog treats to razor blades can be purchased by subscription. Similar services have sprung up that send consumers assortments of new products in areas they're interested in, such as Birchbox for beauty products, Glossybox for cosmetics and Shoedazzle for footwear.

Graze's low price will be attractive to consumers as the company grows, said Kay, a technology industry analyst who consults on brand strategies. Graze then can add more premium offerings with higher profit margins or raise prices once it establishes a loyal U.S. customer base.

General Mills took Nibblr national in November and has spread word by mostly social media. Others in the market include NatureBox.com, which ships snack bags once a month for $19.95 and smaller companies offering boxes for vegans or fitness buffs.

Fletcher says the larger competitor's offering looks "heavily inspired" by his company's product, an assertion General Mills' Abrams dismissed.

Graze started with national distribution from London five years ago and now ships 300,000 boxes a week in the U.K. The company began testing in the U.S. early this year and an all-out push starts in January, when consumers make New Year's resolutions.

The company's single plant and shipping center in Jersey City, New Jersey, can reach 250 million addresses using the U.S. Postal Service and FedEx Corp. The company has about 55,000 U.S. customers and is adding 1,000 a day.

At its heart, Graze is a data and technology company, Fletcher said. The company analyzes customers' preferences, 15,000 new ratings per hour, stocking levels and a host of other data using DARWIN, which stands for "Decision Algorithm Rating What Ingredient's Next."

Graze's $6-a-box price includes shipping, made possible in part by a database it calls "the brain." The company uses it to determine whether a certain address would be better served by the USPS or FedEx, down to a particular day of the week.

General Mills' Nibblr boxes are similar to Graze's, using the same four plastic tubs. Customers get the same delivery intervals, as well. Like Graze, Nibblr gives customers control to change, suspend or cancel delivery online any time.

Unlike Graze, whose box is made of earthy brown cardboard, Nibblr decorated its box to look like a gift -- for oneself or someone else, Abrams said. Nibblr targets women looking for snack options at work, he said.

Nibblr's Snacks include Apple of My Pie with cinnamon praline almonds, apple-pie spiced cookies and dried apples. Ale House Blend incorporates corn nuts, Brazilian Steakhouse Peanuts and Mini Pretzels. Nibblr's tagline: "Discover something delightful." Graze's soon-to-be pitch: "Snacking reinvented."

 

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