It wasn't long ago that if a consumer purchased a smartly-branded, health-infused-yet-delicious packaged food, they might assume it originated from Boulder, CO, the epicenter of the natural foods movement. But these days, Austin, Texas is stealing Boulder's thunder. From Epic Provisions' reported $100 million sale to General Mills, to Amplify Snack Brands' (the maker of SkinnyPop popcorn) recent acquisition by Hershey for $1.6 billion, it's clear Big Food is paying attention. Inc. examines why Austin has become the hotbed of food startups.

The Whole Foods Effect

The Austin-based natural-foods giant has long been a launch pad for local startups, which often start out with shelf space in a single region and then expand nationally. The Whole Foods Local Producer Loan Program, which started more than a decade ago, has committed to $25 million in funding for upstarts around the country. In Austin specifically, "you can't overestimate the impact of Whole Foods' being here," says Adam Grossman, the founder of personal-care brand the Seaweed Bath Co. "It's the talent, the access to people in the company, the trends they see."

The Playbook

"There's more to selling food now than fat, calories, and taste," says Brian Goldberg, a serial food entrepreneur whose Austin-based company, Amplify Snack Brands, which was recently acquired by Hershey for $1.6 billion. "Consumers now, Millennials and younger, the stuff they are looking for is more authentic brands, not what the big guys make. They want better-for-you products with transparent, simple ingredients. They want to know there weren't, like, kids making it in Peru."

The Mentorship

The nation's first consumer packaged goods (CPG) accelerator, SKU, was born in Austin and provides entrepreneurs with 12 weeks of coaching in everything from branding to supply chain to distribution. The Seaweed Bath Co. graduated from SKU, as did Epic. The next big hit: Siete Family Foods, a maker of grain-free tortillas and tortilla chips.

The Funding

As more CPG hits have emerged from Austin, the network of investors looking to grow such companies has increased. Foremost among them is Cavu Venture Partners, an early- to midstage-growth venture capital firm co-founded by Clayton Christopher, a veteran food entrepreneur who created and sold both Sweet Leaf Tea and Deep Eddy Vodka. Cavu's portfolio includes Waterloo Sparkling Water and High Brew Coffee--as well non-Austin breakout brands such as Bai and Bulletproof.

The Acquisition Pipeline

Big food companies have been on an acquisition spree in recent years, and because of deals like Epic's acquisition by General Mills, Christopher's successes (selling to Nestlé and Heaven Hill), and Hershey's acquisition of Amplify, Austin has become a happy hunting ground. "Over the past 10 to 15 years, a lot of these billion-dollar brands like Coke, Pepsi, Doritos, and Budweiser have been dying a slow profitable death" because of changing consumer tastes, says Christopher. "And yet the food and beverage industry spends less on R&D than pretty much any other industry. It's safer to use entrepreneurs as an innovation pipeline."

From the November 2018 issue of Inc. Magazine