With 7 billion loyal customers, food and agriculture is the largest industry on Earth. Based on the projected global GDP at $88 trillion in 2019, the World Bank estimates that 10% of global GDP goes to food and farming.
A record $1.71 trillion was spent in 2018 on food and beverages at grocery stores, other retailers, and away-from home meals and snacks in the United States. In the same year, 9.7% Americans spent their disposable income on food — 5% at the home and 4.7% away — a figure that has remained stable despite the economic changes of the past 20-years.
Despite having a strong customer base the food industry faces unprecedented challenges in production, supply and regulation due to consumer trends. Recent years have seen a shift in consumer focus and demands. Consumers are increasingly focusing on sustainability, health, and freshness. This has put significant pressure on the industry to innovate.
Innovation imperative
Agtech innovators in recent years have found new ways to harness the power and potential of technology to increase the world’s food supply. Agtech innovations can protect crops and increase outputs, which could enable structural changes to the agriculture system that could help meet important sustainability goals like lowering greenhouse gasses and decreasing water use.
But that’s just the beginning. Everybody needs to eat, multiple times per day. There are still huge opportunities for investment in innovative food technology or food tech that will improve the health of our food system through novel ingredients and better diets.
Technology has enormous potential to improve food. This includes reducing waste and improving food utilization. This could be a key factor in minimizing environmental impacts from a growing population. Venture capitalists are keenly following this field because they recognize the enormous opportunity. PitchBook says that food tech funds have risen from just $60 million in 2008 to $1 billion in 2015. CB Insights also reports that the number of unique investments by VCs or private equity funds has doubled, from 223 in 2015 and 459 in 2017. Food tech is now more successful than agtech when it comes to exit activity as well as total investments. This is a significant amount considering the sector’s potential customers, which currently exceeds 7 billion (and growing) globally.
Investments in food technology are driven by key drivers
People are more picky about what they eat. They have busy lives and need convenience when it is about their food. However, convenience should not be at the cost of quality. More than ever, consumers want to know the origins of their food and how it impacts the environment.
The food industry is under significant pressure to innovate due to consumers’ increasing attention on sustainability, health, and freshness.
In the past, CPG (consumer packaged goods) companies were eager to fulfill these high-demanded orders. But industry consolidation and falling margins in commodity ingredients have stopped these companies from pursuing their goals. This has led to many people shifting their focus and leaving the door open to new hungry innovators and startups.
Consumers are seeking convenience and consistency. They also seek nutritious food that is accessible easily, minimizes waste and aligns well with their personal brands. It is now more challenging than ever to own a food company. Although consumers are more interested in ethical and sustainable practices, they have not abandoned the need for convenience. But spending trends reveal that consumers are willing to pay more for tech innovations that provide convenience, health, or low environmental impact. Food innovators have an opportunity to capitalize on this market demand.
Food tech available
Today, delivery and grocery shopping are the most popular food tech sectors. Meal ordering, however, is the largest sector of privately-funded venture-backed startups in foodtech. With a record-breaking $16.9billion in funding, last year was a remarkable year for foodtech. Crunchbase reported that the three largest deals were $1 billion for Swiggy in India, India’s top online restaurant marketplace, and $600 million each for Instacart, a U.S. delivery service, and $590 millions for iFood, a Brazilian-based restaurant market.
Consumers are still hungry (again with the puns!) For grocery orders and delivery, investors are becoming more cautious after Blue Apron’s high-profile disaster. It highlighted the challenges of scaling, inability to patent food, spoilage, and contamination concerns throughout the supply chain. Many investors are now focusing their attention on new food tech frontiers after these mistakes.
Future food tech
Three key areas are where food tech innovations are starting to bring new approaches and solutions along the value chain. These areas are technological solutions that address serious industry pain points. We anticipate significant growth in these areas and increased investment attention over the next years.
Consumer food tech
Food technology investment’s consumer food tech sector focuses on developing technologies that are targeted at consumers. This segment targets consumer-driven requirements, whether it’s plant-based meats or novel distribution systems. Alternative protein/diary, nutrition, and meal kit distribution companies are examples of consumer tech innovators.
Another food trend emerged as organic food became less popular and more expensive. No matter what moniker you give it, everyone seems to be getting into the meatless movement. It is not difficult to find news or advertisements announcing the arrival “meatless meat”.
Burger King (via Impossible Foods), and McDonald’s are now offering meatless burgers. This will attract new customers to their stores, which typically shop at Whole Foods and Trader Joe’s. Memphis Meats, another example, and Ikea, a retail giant, are currently working on a vegetarian version its famous Swedish meatballs.
The list doesn’t end here. Other innovative companies are also working towards the commercialization alternative proteins like Clara Foods (eggwhites derived from cell cultures), Ripple Foods and Oatly, which are focused in developing dairy-free and nut-free alternatives to milk. UBS projects that the market for plant proteins could grow from less than $5 billion to $85 billion in 10 years, with a growth rate of 28% year-over-year.
Brightseed, Just, Renaissance Bioscience and Renaissance Bioscience continue to lead the way in biological and nutraceuticals research, exploring new ways to make food and supplements more sustainable.
Industrial food tech
While some companies concentrate on the food themselves, others explore how to package, process and distribute this new, healthy, and innovative food. Industrial food technology is a sub-segment in food tech that focuses primarily on the fundamental business model and solving B2B problems within the food industry. Companies include innovators in novel packaging and processing technology as well new/functional ingredient that offer improved nutritional, labeling and formulation characteristics.
To help realize the promise of healthier, sustainable food systems, investments in food technology will continue to rise.
Apeel Sciences, Hazel Technologies and Hazel Technologies are pioneers in food preservation technology. They also help improve the quality of produce during transportation. This is an area that is rich in innovation. Pre-consumer food loss accounts for 40% of all U.S. food waste. Improved food-waste profiles may lead to a reduction in the amount of arable land needed.
Food processing and grading technologies will also be a major focus in this sector. P&P Optica is a food inspection startup that has received funding to improve their foreign object detection technology. This technology can not only improve food-safety in automated foreign objects detection, but it also allows for standardization and improvement to meat quality grading.
This is in addition to a growing sector of industrial additives like sweeteners, emulsifiers, and firming agent, which are all rapidly expanding as large-scale food manufacturers face consumer pressure to innovate but also to sustainably do so. Aromyx is a company that uses smell and taste to enhance production in a wide range of industries. This includes pharmaceuticals, chemicals, food, beverages, and consumer packaged goods.
Supply chain and procurement
The Chipotle contamination and other similar incidents highlight the importance of better visibility into food supply chain chains. Startups like Safe Traces are working to improve food traceability through the commercialization of new ways to track food provenance. Consumer awareness is growing about food fraud and the need for food traceability. To meet these needs, there is a strong business case to innovate in the food supply chain. Changes in consumer preferences in quality, convenience, and gourmet products in foodservice have led to a rise of fast-casual restaurants. This has forced fast food restaurants into rethinking their delivery models.
Finistere portfolio startup Farmer’s Fridge offers chef-curated food and snacks through conveniently placed vending machines. Starship Electronics, in partnership to local restaurants, has introduced a fleet robots that can deliver food to the public. 6D Bytes makes healthy smoothies using AI and machine-learning.
These innovators are focused on sustainability, traceability, freshness, improvement of freshness, and elimination of food waste. Good Eggs and Farmdrop provide fresh and sustainable grocery food in reusable containers. Full Harvest encourages food suppliers to “shop ugly”, by using excess or imperfect produce that would otherwise be wasted.
Technology will continue to play a critical role in how food is produced, packaged, delivered, how it tastes, smells, and how it can be reused and recycled. To help realize the promise for healthier and more sustainable food systems, investments in food tech will continue increasing. Remember, what we eat is our most important resource.
