Food and agriculture is the biggest industry on earth, with a loyal customer base of 7 Billion. The World Bank estimates that agriculture and food make up about 10% of the world’s GDP. Based on the projected global economic growth of $88 trillion in 2019, food and agriculture would be worth approximately $8 trillion.
Food and beverages were a huge part of the record $1.71 Trillion spent in 2018 in grocery stores and other retailers as well as at home on meals and snacks. 9.7% of Americans’ disposable income went to food in 2018, 5% at home, and 4.7% far away. This percentage has remained steady over the 20 years despite economic fluctuations.
Despite its loyal customer base and strong production capacity, the food industry is currently facing unprecedented challenges due to changing consumer trends. The focus and requirements of consumers have changed over the years. Food industry innovation is under increasing pressure due to consumer focus on sustainability, freshness and health.
Innovation imperative
Agtech innovators have come up with innovative ways to harness the power technology has to boost the world’s food supply. Agtech innovations help protect crops and increase yields. They also enable structural changes that will improve the agricultural system and achieve important sustainability goals, such as lowering greenhouse emissions, decreasing water consumption, and possibly sequestering carbon in soil.
But this is just the start. We all need to eat multiple meals per day. There’s still great opportunity for investment in innovative food- and beverage technology.
The potential for technology to improve food quality is huge. It can also be used to increase food consumption and reduce waste. This will help to minimize the environmental effects of a rapidly growing human population. Venture capitalists are monitoring this space closely, as they are well aware of the immense opportunity. PitchBook estimates that funding for foodtech has skyrocketed, from around $60 million in 2008. To more than $1Billion in 2015, according to PitchBook. CB Insights says that unique future food investment from VCs have more than doubled since 2015, when there were 223 VCs. They are now 459. When looking at exit activity and total investment, food tech has outperformed agtech. This is still a relatively small amount, considering the vast potential customer base for food tech that includes more than 7Billion people worldwide (and growing).
The key drivers for food tech investment
Consumers are increasingly pickier about the food they eat. They must juggle work and personal life and are looking for convenience in their meals. This convenience can’t be at the expense quality. It is more important than ever for people to be able to identify what is in their food, as well as where it comes from. They also want to know how it affects the environment.
A growing focus on sustainability, freshness and health has placed significant pressure upon the food industry to innovate.
In years past, incumbents of consumer packaged goods (CPGs) rushed to satisfy these increased demands, promising high-quality, convenient food. Falling margins on commodity ingredients and industry consolidation have deterred these efforts. Many have now refocused their attention, leaving the door open for new waves of hungry (pun intended), innovators or startups.
Today’s customers aren’t just looking for consistency and convenience, but also healthy food that is easily accessible, minimizes waste, and aligns to their personal brands. It has never been harder to run a food company. The demands of consumers have increased to include ethical mantras, but they have not lost sight of the importance and convenience of food. Spending trends show that consumers will pay more for food tech innovations that are convenient, healthy, and have a low environmental impact. This is a great opportunity for food entrepreneurs to profit from these growing market demands!
Food tech
Today, food ordering and delivery is the largest category in tech. Meal ordering has the largest number of privately owned, venture-backed startups within food tech. It was an exceptional year in food tech with record-breaking funding of $16.9 billion. Crunchbase says that the three biggest deals for the year were $1 Billion for Swiggy, India’s most popular online restaurant portal; $600 M for Instacart a U.S. food delivery service; and $590 M for iFood a Brazil-based marketplace for restaurant sales.
Consumers have an appetite (again, with the puns!) In the wake of Blue Apron’s scandalous failure, investors have become more cautious about ordering groceries and delivering food. Many investors have begun to focus their attention on emerging food tech frontiers following these failures.
Future Food Tech
Food tech innovations in food are beginning to offer new and innovative solutions across the value chain in three key areas. These areas offer innovative solutions to severe problems within the food industry. We predict that they will be the focus of significant investment in the future.
Consumer food tech
Consumer food technology is the sector of investment in food technology that focuses primarily on developing technologies for the consumer. This sector aims to satisfy consumer-driven demand, be it plant-based proteins, novel distribution methods or nutrition-based tech. Some examples of innovators in consumer food tech include meal kit distribution, nutritional and alternative protein/diary companies.
Organic food began to lose its appeal and became more commonplace. Everybody seems to be adopting the meatless lifestyle, whether it is plant-based, vegetarian, or animal-free. The arrival of “meatless beef” is unavoidable.
Burger King (via Impossible Foods), as well as McDonald’s (via Beyond Meat), now offer meatless burgers. They are attracting new customers who normally shop at Whole Foods or Trader Joe’s. Memphis Meats is another example. Ikea is also working to create a vegetarian version for its famous Swedish meatballs.
But the story doesn’t end there. Other innovative companies are focusing on the commercialization and development of alternatives proteins such as Clara Foods which is made from egg whites obtained from cell culture, Ripple Foods or Oatly which are geared towards developing dairy-free and nutfree milk options. UBS estimates the market for plant protein could increase from under $5 billion now to nearly $85 billion over ten years at an average 28% annual growth rate.
Brightseed and Renaissance Bioscience are both paving new roads in the nutraceuticals and biological fields, seeking to improve the quality and sustainability of food and nutrition.
Industrial food tech
Some companies only focus on the food. Others are interested in how to make, package and distribute this new type of sustainable, healthy, and innovative food. Industrial foodtech is a sub-segment that focuses on solving fundamental business problems and B2B challenges within the food sector. This group includes innovators in novel processing, packaging technology, and new/functional components that improve nutritional, labeling, and formulation characteristics.
In order to fulfill the promise of sustainable, healthier food systems, investment in food tech will continue increasing.
Apeel Technologies and Hazel Technologies lead the way in food preservation technology companies. This is a huge problem that needs to be solved. 40% of food that goes unutilized in the U.S. is pre-consumer waste. An improvement in food-waste profiles could lead to a decrease in the need for arable land.
Food processing/grading technology will also be in the forefront of this market. P&P Optica, for instance, received financing to expand their food quality and foreign objects detection technology. This hyperspectral tech can provide food-safety enhancements in automated foreign object detector detection as well as the ability to standardize and improve meat quality grade over time.
This segment, along with an expanding sector in industrial ingredients, such as sweeteners and emulsifiers among others, is rapidly growing. Food producers are under increasing pressure to not only innovate but to also do so sustainably. Aromyx and other companies are using smell and taste to improve production processes across a range industries.
Supply chain & procurement
The Chipotle food contamination crisis and others like it highlight the importance to improve visibility into food supply chain networks. Through the commercialization and distribution of new methods for tracking food provenance, Safe Traces as well as other startups contribute to food traceability. Consumer awareness of food fraud is rising. They also demand food traceability records and proof of origin. This has made it a compelling business case for food supply chain innovation to meet these requirements. Consumer preferences for convenience, quality and gourmet food have changed and this has led to an increase of fast-casual restaurant options.
Finistere portfolio company Farmer’s Fridge, and BingoBox provide chef-curated meals and snacks at conveniently located vending machines or automated convenience shops. Starship Electronics is partnering with local restaurants to introduce a fleet to deliver food to people. 6D Bytes uses AI to make healthy foods like smoothies. Starship Electronics uses machine learning and AI to prepare them.
Innovators in this sector are focused upon traceability and sustainability, improving freshness, eliminating food waste, and improving traceability. Good Eggs and Farmdrop are two examples of companies that provide fresh and sustainably-sourced grocery foods in reusable packaging. Full Harvest encourages the food chain to “shop ugly” and uses surplus or imperfect produce that might otherwise have gone to waste.
Technology will continue playing a crucial role in the way food is produced, packed, shipped, tasted, felt, and smelled, as well as how it is reused or repurposed. In order to fulfill the promise of healthier, sustainable food systems worldwide, investment in food technology will continue to rise. After all, we are what our bodies eat.
