Waste Not, Want Not: Mapping the Food Supply Chain

In the midst of our umpteenth lockdown and with very few other distractions, food has taken up an inordinate amount of my attention. As a lifelong foodie with a mandate to invest in the supply chain, it was only a matter of time before I decided to combine these two passions with a deep dive analysis of the sector. The landscape is vast and complicated with huge amounts of innovative ideas grappling with one of the least digitized sectors in the whole economy.

As an investor, we tend to look for large inefficient industries where there is an expectation that new technologies could address significant pain points. The global food system accounts for 10% of the world’s GDP and employs as many as 1.5 billion people. Fine, there are a lot of mouths to feed, this doesn’t seem too surprising. What is staggeringly difficult to comprehend is that BCG estimates one third of the total food produced globally is lost or wasted — the equivalent of 1.6 billion tonnes or $1.2 trillion in value, with expectations that it will rise to 2.1 billion tonnes worth $1.5 trillion by 2030.

Waste tends to occur at the beginning of the value chain in developing countries where 40% of losses occur during harvest and processing, often as a result of inadequate technology, poor infrastructure, transport and storage systems, and more extreme weather conditions. In developed countries, 40% of food waste tends to occur at the retail or consumer level where there is an oversupply and a wealthy, more selective consumer. In hard numbers, the typical European and North American wastes 95–115kg per person per year versus 6–11kg in Sub-Saharan Africa, South Asia and South-East Asia. There is a massive disconnect between the 870 million people around the world that are undernourished and the amount of global food supply that is lost from farm to table. However, it is worth noting that this isn’t a developed vs developing market phenomenon — 54 million Americans are facing food insecurity (16% of the population), a figure that has increased by 17 million since before the coronavirus outbreak.

In addition to the economic and social costs of food waste, we also need to grapple with the fact that food lost and waste accounts for 8% of all greenhouse gas emissions and that nearly 30% of the world’s agricultural land is currently occupied to produce food that is ultimately never consumed (an area greater than China). The wasted water, labour, fertilizer and landfill volume is incomprehensible.

A very big problem…

So, between the economic, social, and environmental costs, we have a very big problem. Or room for improvement, if you’re an opportunist. It certainly can’t be addressed by any single startup but will necessitate global collaboration and innovation by governments, NGOs, farmers, and companies. Where it gets interesting as an investment thesis is that driving supply chain efficiencies across the food system could reduce the problem by $120 billion annually. In addition, incorporating food loss and waste reduction efforts into businesses can unearth new revenue streams by transforming losses, byproducts, and waste into new products (upcycling).

Why Now?

At Amplifier, we believe that the food supply chain is experiencing similar challenges to many parts of the supply chain, including:

• Slow digitalization
• Persistent data silos
• A lack of automation — in terms of data-driven decision making and in physical processes
• Poor demand forecasting
• Changing consumer preferences — food purchasing, the effects of the COVID-19 pandemic, environmental concerns and a move towards localization.

Each challenge is hindering the sector’s ability to adapt, and more fundamentally, to better address the chronic mismatch between supply and demand. However, certain technologies such as industrial IoT sensors and AI/ ML-enabled computer vision and big data analytics have matured to a point where their price point is more accessible and where they can be easily integrated into prevailing processes.

The opportunity is multi-faceted but the problem is huge and we expect to see investment in the space continue to grow. In 2020, foodtech companies raised a collective $18.1 billion in venture capital and supply chain technology reached a record $52 billion. Specialist investors such as Finistere, Atlantic Food Labs, and Culterra Capital continue to emerge, whilst sector-agnostic and supply chain-oriented funds such as Maersk Growth continue to inch into the space with investments such as ripe.io, startchy, fliit and Afresh.

As the chart above demonstrates, the most active sub-sector within the food supply chain is the Meal Kit & Delivery segment, which has also benefited dramatically from the COVID-19 pandemic with more consumption being done from home. It is unsurprising that some of the largest deals of 2019/ 2020 were consumer-focused food and beverage delivery companies, together with groceries and meal kits. Although this remains a booming space that involves a solid component of last mile delivery optimisation, we do not think it makes sense for Amplifier to focus here given the well-funded and crowded competitive landscape.

Noteworthy Transactions of 2019/ 2020

Amplifier is particularly focused on early stage companies with a software-led solution and a B2B focus. We believe that the first wave of innovation within the food supply chain occurred at the B2C marketplace level with companies such as Delivery Hero GrubHub, Cornershop and Postmates dominating the landscape. We expect the second wave of innovation will move up the value chain and will benefit from increased digitalization, enabling standardised data to flow between players and support better matching of supply and demand.

Amplifier’s Investment Preferences:

• Asset-lite
• Data-centric with an understanding of, or focus on, data capture and cleaning to enable data standardisation
• Easy customer adoption with seamless system integration and interoperable solutions
• Scalable across geographies
• Operating within less regulated markets

As a specialist supply chain investor, Amplifier is unlikely to invest in dedicated food or agriculture technologies such as vertical farming, alternative proteins or crop analytics. However, I will take a moment to reflect on the fascinating developments of food preservation technologies such as Apeel, Hazel Tech, Sufresca, StixFresh, Mori, bluwrap and Startchy. Many of these companies incorporate examples of biomimicry whereby strategies found in nature are used to solve human problems — in this case, extending the shelf life of fresh produce through natural coatings. I am a big believer in nature as a teacher and the closer we get to replicating her circular economy, the less of a waste issue we will have.

At a high level, we regard the value chain as incorporating the farm and first mile, manufacturing and processing, and distribution and consumption. The whole food supply chain is under pressure to digitalise and companies are becoming increasingly aware of the benefits of data standardisation and the promise it holds for more demand-driven forecasting. The opportunity for solutions to connect historically siloed data pools and leverage this consolidated data flow is incredibly exciting. By increasing the flow of timely, accurate data between farmers and end consumers, companies can maximise their assets and reduce waste, avoiding or supplementing expensive intermediaries and distributors.

Amplifier’s view of the food supply value chain

Subsector Mapping

We’ll now focus on the different parts of the value chain with special attention dedicated to those subsectors where Amplifier sees the most opportunity. The list is not exhaustive and I have tended to focus on B2B software-led solutions with a token sample of B2C marketplaces to set the scene. If we have missed something interesting, please feel free to reach out to me directly. Every day is a school day!

Key priorities across the food supply chain involve preventing or reducing food loss, enabling food security and traceability, and adapting to changing consumer preferences. However, standardising data and building the digital infrastructure on which more advanced solutions can develop remains the first step in multiple verticals. Companies differ dramatically in their levels of tech adoption and although certain players along the value chain may be collecting and harnessing data effectively, it is no guarantee that the integration tools exist to share it up or downstream. These data silos occur throughout many parts of the supply chain but particularly impair supply-demand matching in the case of perishable food. The inability or disinterest in sharing data is costing companies labour, time, energy and raw materials at a massive scale. We expect to see more startups address this fundamental issue by digitizing manual processes for huge incumbents, offering cost savings and building more sophisticated product offerings based on the underlying data.

Amplifier Food Supply Chain Mapping 2021

Digital Marketplaces

Digital marketplaces in all of their various iterations remain an attractive investment opportunity given their ability to coordinate supply and demand efficiently. Traditionally, distributors have tended to control prices across the food supply chain, often crushing profits at the farmer level and inflating prices at the consumer level.

The first wave of innovation in the food supply chain was characterised by significant activity within the B2C space where a marketplace model and a focus on last mile delivery connected consumers and food outlets on novel online platforms. Different regions created their own unicorns before a spate of international consolidation occurred. Many B2C marketplaces continue to arise and differentiate themselves by price, quality, variety, local produce or other features.

Going forward, we expect value to be generated with B2B marketplaces where bulk purchases are made on a repeat basis and where other trends towards improved traceability can be combined within streamlined platforms that remove middle men and reduce prices. Many B2B platforms have launched with simple tools to take historical supplier relationships online before offering the marketplace and predictive analytics based on the customers captured and the real-time data acquired.

Startups like Choco, Cheetah and Rekki eliminate order sheets and fragmented communication channels with different suppliers to offer one consolidated platform that addresses business needs (mainly restaurants in this instance). Silo marks a16z’s first foray into the space, providing tools to automate operations and manage relationships with a cloud-based online platform. Their ability to connect different data streams to provide inventory management, accounting, real-time reporting, and routing & logistics may become an industry benchmark.

These types of platforms tend to take a percentage of GMV and generate stickiness by effectively offering a productivity tool that allows customers to leverage the different prices and availability of multiple suppliers; whilst providing suppliers with access to a larger market and sometimes supporting the logistics and fulfilment side. B2B platforms tend to reduce costs, generate transparency, increase reliability of ordering and offer the opportunity to build in payment features and other workflow tools for additional revenue channels.

Companies like Pod Foods position themselves as a distribution solution and effectively democratise access to large retailers for niche brands struggling to compete with the incumbent CPG brands. We expect they will gain from an increasing number of niche companies selling differentiated, upcycled products in need of a modern distributor.

Forager, Farm’d and Hier leverage the typical B2B attributes detailed above whilst also specialising in local suppliers and offering the associated environmental benefits.

A particularly interesting subset of the digital marketplace subsector is the surplus management space where several startups are taking advantage of the historical inability to sell unattractive or damaged produce and buying it at discount from farmers or wholesalers. Imperfect Foods (it just closed a Series D round of $110 million), Misfits Market and Hungry Harvest are all technically B2C platforms that champion perfectly edible but superficially flawed produce whilst advertising their commitment to food waste reduction. Others such as Karma, Goodr and Spoiler Alert offer hybrid models that help identify and sell surplus food whilst enabling companies to claim tax benefits from food donations, tracking their social and environmental impact in tandem.

Given the size of the food market globally, we believe that multiple platforms can flourish and that marketplaces will differentiate themselves based on their product selection, pricing, fulfilment offerings, customised analytics, financing solutions and commitment to environmental and social goals.

Predictive Analytics

The reality is that most startups disrupting the food supply chain involve some component of predictive analytics based on their ability to aggregate and analyse big data. Once data is accurately captured and harmonized, automated decision-making can take place throughout the value chain, reducing errors and improving demand forecasting. By helping consumers and retailers to understand what items are constantly being over-ordered and wasted through AI-enabled big data analysis, inventory can be better planned in future.

Afresh’s AI solution is tailored to grocery retailers and fresh produce, offering easily integratable software for optimizing inventory management, merchandising, ordering and forecasting. Winnow, LeanPath and Orbisk all offer similar fullstack solutions for restaurants, hotels and supermarkets that use cameras, sensors and computer vision to identify what is being thrown away and provide waste reduction analytics.

Many of the companies arising in this subsector are dealing with very complex data sets but are benefiting from maturing technologies within IoT and lower costs associated with data management within the cloud. SaaS models are common and provide recurring revenues once customers have been convinced of the product’s value (which may not be immediate). We expect opportunities to arise from technologies connecting and automating the data flows between disparate players within the value chain.

Food Traceability

Food traceability is a notoriously difficult space to master given it involves the whole supply chain and multiple players with different (and sometimes competing) agendas. The value proposition is yet to be proven in some cases, with consumers increasingly interested in the origin of their food but often unwilling to pay for the privilege. Blockchain technology, IoT, AI and machine learning can help aggregate real-time data but potential solutions also need to navigate complex regulatory landscapes that change from country to country (never mind a product’s long journey from farm to table…)

Our market map includes companies that are addressing food safety through IoT-enabled cold storage management (Therma), to those undertaking the mammoth task of certifying food supply chains from end-to-end (ripe.io, Lumachain, Open SC). As is the case with many companies focused on transparency and traceability, there is undeniable value to companies and governments in tracking the journey of products through the supply chain but too often it is unclear who is willing to, or able to, shoulder the additional cost. By laying the foundations of a solid data infrastructure throughout the value chain and with the price of IoT sensors continuing to drop, we expect this area to become more commercially attractive in time and in parallel with stricter government regulations around food waste, food safety and sustainable supply chains.

Supporting Solutions

The food supply chain is at a relatively early stage of digitalisation and many companies are emerging to accelerate that transition. By focusing on the underlying infrastructure and building solutions designed to encourage interoperability, they are addressing a hugely fragmented industry and providing the fertile land on which other innovative companies can take root.

Backbone.ai sits horizontally across different parts of the supply chain but offers intercompany data automation that is applicable to many types of customers struggling with manual data input and the inability to easily compare various data sources. Separately, companies like mercatus and Uppler provide the backend software for enterprise clients to build their own B2B marketplaces, B2B webshops, e-procurement platforms and additional applications. They are the startups enabling incumbents to digitalise and defend market share. We predict that more companies will explore this opportunity as the pressure to adapt increases.

Procsea (seafood), Consentio (fresh produce), and Milk Moovement (dairy) harness similar technologies to connect partners within disjointed supply chains and digitalise workflows. Each solution is designed to minimise paper trails, encourage transparency and drive efficiencies, with interactive marketplaces often envisioned as part two of the product roadmap.

Upcycling

Our market map ends with upcycling, the process by which a new purpose is found for a used object or resource. It is perhaps the subsector least oriented towards B2B software-led solutions, but is nonetheless an area of huge interest personally. It combines my passions for food, waste reduction, efficiency and the circular economy. Over the course of this deep dive, it has also led me to upcycle my used coffee grounds into a body scrub and encouraged me to convert the many empty wine bottles into vases or candle holders.

In many ways, we can expect digitalisation to drive demand-driven production but upcycling startups provide innovative ways to reuse by-products that are unavoidable despite highly optimised processes. There is a smattering of D2C companies such as Regrained and Barnana that repurpose food waste or by-products to produce healthy, sustainable products but there are also more industrial applications. The ability to upcycle food waste into animal feed, biogas, and fertilizer is a tantalizing space and forces one to consider food waste as a valuable resource rather than just an avoidable cost. Currently, most food waste ends up in landfills (accounting for 21% of landfill volume globally) or it is incinerated, releasing copious amounts of greenhouse gases and making it impossible to recycle nutrients.

Groundbreaking companies such as WISErg are converting food waste into sustainable fertilizers and hub.cycle has a mission to connect industries where the waste of one is valuable for the other (think how spent grain from brewing can be transformed into bread). The upcycling startups that can scale rapidly and secure solid returns remain few and far between but there is huge value to be captured and the environmental and social benefits are vast.

Key Takeaways

In conclusion, Amplifier regards the food supply chain as a fascinating and intriguing area for investment. However, if I could attempt to summarise my deep dive succinctly, I’d suggest taking away the following:

• Over a third of global food production is lost or wasted, while over 870 million people worldwide are undernourished
• Driving supply chain efficiencies across the food system could reduce the problem by $120 billion annually
• The industry is huge but remains hindered by slow digitalisation and persistent data silos that exacerbate the mismatch between supply and demand
• In the immediate future, we expect to see data standardisation and workflow automation tools, B2B digital marketplaces, and predictive analytics to hold the most opportunity
• In the medium term, we believe food traceability technologies will advance with tougher regulations and ESG requirements on international food conglomerates
• Longer term, I hope that upcycling will become a fundamental piece to our supply chains. Weren’t we always taught that “one man’s waste is another man’s treasure”?

I would love to hear your thoughts and suggestions on the food supply chain, as well as any other innovative ways to mitigate waste. Feel free to reach out to me as sb@amplifierlab.io!