What’s happening around the future of food: Drivers, trends, and opportunities
In this series, we dive into technologies and industries we’re excited about, going deep into their change drivers and stakeholders while exploring investment trends and opportunities through an early-stage lens.
By: Kim Patel, Summer Associate
Sector: The future of food
In a sentence: The future of food refers to a series of trends and advancements that are driving how we get our food, what we eat, and the downstream impact, from our health to the economy.
Size and scope: Food and agriculture is a market valued in the hundreds of billions. The future of food encompasses a massive collection of technologies and products in the food supply chain and impacts everyone on the planet.
Stakeholders: We’re all stakeholders in the future of food, but there’s particular importance for producers (including farms and fisheries), manufacturers and processors, food wholesalers, retailers and grocery stores and food service suppliers (including restaurants and grocery-delivery services).
Change drivers: 2020 has ushered in an unprecedented era in the food industry that’s changing what we eat, how food is produced, and even how we think about the role of food in our daily lives.
The rise of ghost kitchens: There’s been a reversal of the core consumption habit of eating outside the home, with spend declining 20%. The pandemic has accelerated us into a delivery-first future as restaurants have shut down at an alarming rate — making more efficient virtual kitchens a possible lifeline for the industry.
Whether it’s dine-in or food delivery, food production was already moving to more efficient, tech-optimized kitchens. It will soon be just as cheap to have your food prepared and delivered as going to the grocery store and making it yourself. Sixty percent of U.S. consumers already order delivery or takeout once a week.
Diet and personalization: Forty-three percent of American consumers are following a specific diet in 2020. Digitalization and robotization increase the ability for personalization of food products. This shift is timely as demand rapidly grows due to the spread of new diets and low-cost home-testing health diagnostics.
Solutions exist include meal plans such as Platejoy, which offers meal plans tailored to specific diets and cooking habits and integrates nutritional data with health tracking devices. Another example is Sunbasket, a meal kit focused on special diets and organic ingredients.
Cooking at home: Seventy percent of consumers are spending more time cooking at home. Online food and ecommerce platforms will continue to grow and gain new adopters, as consumers continue to look for more convenient ways to shop.
Large companies are pivoting their business models to support the movement towards eating at home. Programmatic commerce providers have created partnerships with brick-and-mortar grocers to try and create a makeshift strategy to compete (Doordash, Walmart). Brick-and-mortar food brands have pivoted to direct-to-consumer really quickly (Milkbar, Lindt). Same goes for consumer packaged food brands, like Heinz to home, which launched in April. Companies are also launching new business models. Leon (a British food chain) launched Feed Britain, an initiative that lets shoppers buy produce or ready-made meals for home delivery.
COVID-19 impact: As more than half the world has been quarantining at home, consumer food habits have changed faster than maybe at any point in the last century. We can expect the traditional restaurant industry and how we view dining out to fundamentally change, for one. Between March and May, eating and drinking sales were down more than $94 billion from expected levels, according to the National Restaurant Association.
In the years ahead, restaurants will focus on the efficiency and consistency of the dining experience. We’ll also see growth in “off-premise” food preparation, products that make cooking at home more of an “experience” versus a chore. Consumer preferences will lean toward convenient ways to access food that’s increasingly more sustainable. This year also shined a light on holes in our food supply chain, especially in meat, which raised concerns of shortages. A trend that has been accelerated by the pandemic, we can expect increased momentum around the next generation of alternative proteins and upcycled food.
Where our portfolio fits: Lerer Hippeau has invested in traditional consumer packaged goods brands (Soylent, Brami) as well as technology around alternative and supported proteins (Plantible, Ingenuity Foods), automation (Bowery Farming), food distribution (Everytable, Foxtrot), the cooking experience (June, Spark), and ecommerce (Food52, Hungryroot, Plated).
Investment trends: 2019 was an exceptional year for food tech, with a record-breaking $16.9 billion in funding recorded. The three biggest deals of the year included $1 billion for Swiggy (India’s leading online restaurant marketplace), $600 million for Instacart (the U.S. grocery delivery service) and $590 million for iFood (a Brazil-based restaurant marketplace).
In 2020, we’ve seen dollars poured into the space around food delivery, alternative proteins, and technology to extend shelf life, among other themes. Examples include Uber’s acquisition of Postmates for $2.65 billion, Impossible Foods raising $500 million, Instacart raising another $225 million, and Apeel Sciences raising $250 million.
Where to look: The food tech space can be categorized into four distinct areas; retail tech, food tech, industrial innovation, and consumer tech and insights. Key opportunities within each area include restaurant tech, next-generation food production, logistic and supply chain, and ecommerce platforms.
How to evaluate opportunities: Companies that enable the future of food will be those that help provide access to affordable, safe, tasty, personalized food, or enhance the food experience. Here are opportunities within four high-impact areas.
Restaurant tech: The future of restaurants is not yet known and different companies will try varying approaches to connect with customers (parking lots, shipping containers etc.). Ultimately, the ideal business model tackling food service in the future will ensure it’s better for restaurants and chefs by lowering the entry barrier to starting a business, better for consumers by making it inexpensive to order freshly food prepared in safe, certified, and hygienic conditions, and better for our urban landscapes to redevelop existing, fallow real estate or other assets into productive assets rather than constructing new structures.
Next-generation food production: There are four promising areas within food production with opportunity for innovation and growth. First, businesses that advance microorganism-related food technology, making proteins we know, but in a more efficient way. Second, companies that aim to tackle improvements and traceability to areas relating to food waste, food safety and quality, transparency, traceability, and consumer protection. Third, those creating AI solutions that can process data and anticipate the “next big thing” in terms of consumer demand. And lastly, new tech that enables consumers to analyze our bodies and microbiomes at an unprecedented level.
Logistics and supply chain: Last-mile, delivery, and e-commerce logistics all depend on micro-fulfillment centers (MFC) and automation within those MFC’s. To survive the next 10 years, grocers need to simplify by improving manual fulfillment efficiency (with every delivery fulfilled by manual, in-store picking retailers lose over $10 per transaction), and taking control of fulfillment (third-party shoppers in your store can ruin customer experience). Companies that solve this problem will be able to achieve lower labor costs through automation, have ideal geographic locations to be closer to the consumer and facilitate faster delivery, and allow retailers to regain ownership of the customer experience.
Ecommerce platforms: Online food and e-commerce platforms will continue to grow and gain new adopters as consumers continue to look for more convenient ways to grocery shop. The winner here will be able to showcase ownership of the supply chain and hold unique IP, and therefore create product defensibility. Ecommerce within food is the most ripe for business model iteration. The companies that will win here are those that focus on disintermediation. Integrating wholesale suppliers, vendors, with the marketplace and logistics of delivery will create the largest online supermarket. Either the business will be one part of this flow or it will own the process end to end, but ecommerce platforms that sit solely on top will be squeezed out.
Seed considerations: There are several signs that an early-stage startup addressing the future of food may be well-positioned for success. The first is a strong founding team, one that showcases experience with the complex food supply chain. Even if the business is consumer-facing, any company in the food space will need relationships with other stakeholders, wholesalers, retailers, or producers.
Another is brand differentiation, whether a food brand or marketplace, good food or great consumer experience is not easy to build and that brand recognition is important. Finally, it’s key that companies have thought through the business model. The margin profile in food can be very small, so it’s important to understand in detail how the business model will evolve.
Are you building in the future of food space? Connect with our team.