Sector News

Taking a bite out of the food industry: startups change the game

July 21, 2016
Food & Drink

Food is a huge, ever-evolving market, and research firm Research and Markets estimates it will grow at a 4.5% CAGR from 2015 through 2020, reaching $3.03 trillion in revenues.

Food-related startups have been disrupting the space for some time now, and last year alone, food tech startups raised $5.7 billion in 275 deals. Even Big Food manufacturers are getting in on the funding action. Last month, Kellogg K +0.47% launched a venture capital fund called Eighteen94 Capital (1894) to invest in “startups that are pioneering new ingredients, foods and packaging,” according to Fortune.

However, despite the launch of 1894, there has been a shift this year. CB Insights forecasts that 2016 may see less than half as many food tech deals as last year, and that startups in the space may see less than $2.5 billion in funding.

Food delivery seems to be the industry’s big winner right now. Companies such as FreshDirect, AmazonFresh, Deliveroo, UberEATS and Instacart are competing to bring groceries and takeout right to your door. Even as funding seems to be cooling off, DoorDash has succeeded in raising $127 million and is valued at $1 billion. “Food delivery has become a veritable venture capital obsession,” according to Bloomberg. With online penetration still only around 1%, though, food and grocery delivery remains stubbornly old school and offline. “There’s a lot of room for people to come in, innovate and disrupt,” Stan Chia, SVP of Operations at Grubhub, told the Los Angeles Times.

Companies bringing private chefs to homes and private events have not fared as well as delivery startups have. Dinner Lab, Kitchit and Kitchensurfing all went under this year. Collectively, these companies had raised more than $35 million, according to CrunchBase. But many food startups struggle to operate at scale, and these closures demonstrate some of the friction that has led to decreased funding this year. Those that survive are facing challenges beyond just competition.

Food startups must innovate without disrupting how consumers think about food and meals. “Consumers want the affordability, abundance and access of [the] existing system, but they also want authenticity, food that has been the fruit of labor, and that ties into the culinary traditions of the past as well as offering new ideas,” writes Teresa Novellino in the New York Business Journal. Food is such an important part of culture and social interactions that straying too far from the traditional can be overly disruptive and inhibit consumer adoption of products and services. Blue Apron and Plated have effectively tackled this challenge, creating a balance between innovation and tradition. Both companies offer regular delivery of preportioned ingredients and recipes to subscribers, who then cook the meals themselves. The services provide a modern, efficient solution while preserving the importance and enjoyment of cooking and mealtime.

Byte is a company that provides offices with vending-machine style refrigerators full of healthy food options. Megan Mokri, CEO and Founder of Byte, says:

The problem that we solve is the fact that you’ve got 150 million Americans shopping at high-quality grocers, yet when they go to work, their food is really stuck in the 80s. No fresh food. It’s largely vending machines with packaged snacks, because getting fresh food on-site is incredibly expensive.

In fact, 99% of offices have no fresh food on-site, according to Mokri.

Byte’s solution not only supports office workers’ well-being (90% of Byte’s customers said the company’s offerings allowed them access to healthier lunch options in the office), but also provides a new distribution channel for natural food brands, while allowing those brands to gather valuable consumer data. Each Byte refrigerator is RFID enabled, so people are automatically charged based on what they remove from the fridge. Byte has access to real-time inventory information, allowing the company to optimize inventory and personalize the contents of each fridge to meet the demands of the consumers at each location.

Byte’s high-tech refrigerators also help to ensure food safety. “We have real-time temperature monitoring of all refrigerators in the fleet, so we can do things like lock a fridge down if we see it was unplugged or [if], for some reason, the temperature is not being maintained,” Mokri says.

Ample—a meal shake made from natural ingredients—became the most-funded food campaign of all time on Indiegogo, raising $367,624 after surpassing its original goal of $50,000 in just 30 hours. The meal shake offers consumers convenience, quality ingredients and a great-tasting flavor. Free of GMOs, soy, gluten, added sugar and artificial flavors, Ample provides the carbs, protein and fats necessary to your diet from nutritious sources such as macadamia nuts, organic greens and sweet potatoes.

However, Ample does not consider itself exclusively a consumer product goods company. “I see it as preventative healthcare. Food is the most powerful drug we have,” says Connor Young, the company’s CEO and Founder. “When Big Food and Big Medicine don’t work with each other, we get $3 trillion in medical expenses and a big societal impact. This is where Ample is going to bridge the gap.”

Ample plans to run clinical studies to optimize future versions of the product and ensure that it is providing the best nutrition possible. “No food company has ever really gotten feedback on how their product affects their consumers’ health,” Young says. “No one is actually measuring the outcome on a physiological level, which is why they don’t care if they make it unhealthy, because they are not culpable for the health effects.” Ample intends to do things differently, creating a connection between food companies and medicine. Young says the most exciting part of the business exists in the science and the real health benefits that his company’s product provides.

Startups that attempt to disrupt the food industry must distinguish themselves from the competition without alienating the consumer. While radical ideas are often the key to success in technology, food is a source of comfort and tradition. So, startups in the space must carefully walk the line between innovating and respecting tradition—while also catering to today’s health-conscious consumer. We see companies such as Byte, Ample and Blue Apron pulling ahead in the space as they embrace consumers’ relationship with food while introducing them to new, healthy and convenient solutions.

By Deborah Weinswig

Source: Forbes

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