The Future of Food in “Growing & Producing”- An Industry Itching to Shift
Large companies need new disruptive business models in order to grow stronger – or grow at all. We discussed that in our last article on our digitization framework. With their own corporate venture capital, accelerators and start-up programs, companies are now aiming for more than just new profits. They are actively investing in ideas that will revive their core business, one that often is on a trajectory to collapsing with current external factors.
The Food and Beverage industry is one that is now actively undergoing collective change. With the industry facing its biggest challenges yet – overpopulation, climate change, virus outbreaks, stagnating resources and changing consumer demands – new food startups are working on disruptive concepts to make our nutrition more resourceful, efficient and sustainable.
Within this article, we will be exploring the various trends within the grow and produce segment in the food and beverage industry. More specifically, we will be focusing on how investment trends within meat alternatives, agritech and ingredient innovation are accelerating the industry in shifting to a more sustainable future.
National Geographic has predicted that by 2050, food intake will increase by 35%. With our current food system, they predict that food production will need to double by then to meet new demands. Food giants around the world are seeing these challenges ahead, especially with the rise of blaming the industry for large parts of climate change and other environmental catastrophes of our age such as water shortages and pollution. But a major shift is happening. Instead of ignoring the statements and accusations, many industry leaders are recognizing their responsibility and are prioritizing to change the harsh reality that has been built over decades. Putting capital into foodtech start-ups with the help of venture arms is now becoming the norm to change, digitize and slowly shift into a greener industry. Nestle for example has accelerated its efforts by announcing that they will achieve zero net emissions by 2050, and zero environmental impact by 2030. They will do so by:
- Speeding-up the transformation of its products in line with consumer trends and choices
- Scaling-up initiatives in agriculture to absorb more carbon
- Using 100% renewable electricity in factories, warehouses, logistics and offices
- Developing new business models that will replace the ‘old ways of doing things’
Similarly, Unilever is taking action, being a core player in the B-Corp movement, participating in the MPM Advisory Council and inviting others to join them to achieve a collective vision of a global economy where all business works to create more shared and durable prosperity for all. Have a look at Unilever’s CEO Paul Polman’s message at the launch of the B-Corp Lab UK.
A trend of increasing venture capital into the future of food over the years has been showing the interest that investors are taking in these new exciting startups. A recent Dealroom report from October 2019, titled ‘The State of European Food Tech 2019’, estimates the venture capital investment in European Foodtech doubled to over €2.3 billion.
But what are the most important segments of foodtech innovations that food and beverage giants should have an eye on? Which startups can they collaborate or take inspiration from? Or the better question might be – which business models should get invested in to catch the opportunity of a growing market and to secure the future of not only the company’s future but also that of the planet?
2. Alternative Meats: Startups That Are Tackling The World’s Most Pressing Issues
The United Nations amongst other research and non-governmental institutions have been pointing to the fact that the meat and dairy industry has been one of the biggest contributions towards climate change. They have been stating over and over again that the industry created more greenhouse gases than the whole transportation industry combined (yes, including planes). The U.N.’s Intergovernmental Panel on Climate Change (IPCC) said that “plant-based foods and sustainable animal-sourced food could free up several million square kilometers of land by 2050 and cut 0.7-8.0 gigatonnes a year of carbon dioxide equivalent”.
Foodtech startups all over the world are the ones that have identified issues and potential opportunities first and are actively pushing for change. Beyond Meat and its meatless hamburger patties carved the way for other disruptors within this space, and has with that effectively started making meatless meat something that is accepted widely. Meatless burgers require 93 percent less land to produce, 90 percent less greenhouse gases and 46 percent less energy than a beef burger and have a more than 99 percent reduced impact on water scarcity (source: Beyond Meat website).
Tyson Foods, the largest US meat breeding and processing company, purchased five percent of Beyond Meat’s shares in October 2016. Today the burger patties are available in fast-food restaurants like KFC and McDonalds. And there are others following. For example, the US-based startup “Just” analyses the properties of plants in order to imitate animal products as authentically as possible. They managed to use mung beans to produce a liquid that behaves like eggs and, according to the start-up, tastes like one. A similar goal is pursued by the company “MyEy”, which offers vegan egg powder that can be used for baking.
In 2019, North America’s plant-based food and beverage market was valued at about USD 14 billion. The same year, the value of the European plant-based market amounted to about USD 7 billion. While these are still small numbers percentage-wise, sales of plant-based foods grew 11% in the past year and 29% over the past two years.
During the mid-March coronavirus panic buying peak in the United States, sales of refrigerated plant-based meat tripled compared to the previous year and maintained a growth rate of over 100% over the subsequent four weeks.
In addition to start-ups, food giants such as Nestlé and Unilever are increasingly turning to plant-based alternatives; either by investing in these startups or launching their own products. Nestlé launched the Incredible Burger and Unilever in collaboration with Burger King launched the Rebel Whopper.
3. Agritech & Food Processing – One Of The Fastest Growing Segments Within Green Foodtech
The buzzwords “Agritech” and “Smart Farming” stand for the changes in food production: the digitalization of production and new methods of cultivation in agriculture. For producers and consumers alike, these changes offer various improvements as it is now possible to massively reduce the use of chemical products. This has the potential to make agricultural production more efficient, accelerate breeding progress, reduce emissions and be environmentally friendly.
An example of this is vertical farming, a technology that will enable sustainable agriculture and mass production of plant and animal products in multi-story buildings in urban agglomerations. Fruits and vegetables can be produced all year round on several levels one above the other. Advocates of vertical farming argue that energy costs for transport from producers to consumers can be reduced and plants can grow in a pesticide-free environment.
Large food producers and retailers are investing or partnering with agritech startups and vertical farms. Funding for agritech startups has grown by 550 percent over the past six years. According to AgFunder: Food transparency is a growing customer trend in the western world and demands adoption in supply chains. To meet the ever-growing demand for food in terms of quantity and quality, the agriculture sector needs to innovate and adapt.
4. Ingredient Innovation: How Businesses Are Needing To Offer Healthier Options
Over the past few years, the taste is becoming relatively less important when buying and consuming food. Health benefits, non-processed ingredients and a more individualized approach to nutrition are now becoming more and more vital for consumers. Innovating within ingredients will become more and more centric to the success or failure of food giants, and they are aware of it. Healthy and functional nutrition is a primary driver for innovation in the industry. The study by St. Gallen University covering over 500 participants within Germany and Switzerland concluded that 91% of the participants find nutrition an important to very important criteria in their consumer behaviors, 13% more in comparison to the study conducted in 2014.
Additionally, the megatrend of individualization is becoming more and more centric within this segment. This creates a fragmented food market and affects areas ranging from gastronomy and tourism to sports and health industries. Ingredients play a key role in that customization and constant innovation of food processing.
The challenge faced by most Food and Beverage businesses is that “healthiness” is something that people perceive differently. Nestle Professional’s Food and Beverage Trends 2020 study highlights this issue, stating that 40% of their respondents reported that their definition of healthy has changed within the past two years. Taking an individualized and holistic approach to health is something that is increasing within the industry, and the mix of personalization and more nutritious food is something both startups and large businesses are taking note of.
On top of simply having different perceptions of health, food is increasingly becoming a tool for self-expression. In the future, what one eats will say as much about a person as what one does. An example is the German-based Mymuesli, a manufacturer of breakfast cereals and one of the first food brands to successfully implement personalization options at scale. At Mymuesli, customers can create and order their own composition of muesli, e.g. without raisins, added strawberries or less sugar. Comparing the prices between a standard muesli and an individually arranged muesli, one recognizes that the second one is definitely more expensive. Demand for it is still rising though, with the company’s annual revenue growing from 59.6m Euro in 2018 to an estimated 61m Euro in 2019.
5. Closing Remarks
Addressing global issues in a way that leads to lasting, far-reaching change is a difficult task. But for companies willing to rethink, restructure or reinvent their practices to reduce their impact on the environment and spur positive social change, the rewards can be great – from improved brand image to greater consumer confidence, to increased revenue, to more motivated and productive employees. Food and beverage giants are needing to change for multiple core reasons as mentioned above. It is now the time to act, making sure they don’t drag themselves, as well as our entire planet, down.
The ideas presented here as examples are pretty great and ingenious, but also simple and obvious. Consumers and buyers can implement some of these ideas directly. Some also challenge producers and the industry as a whole, and similarly to Unilever, are now looking to actively take part in policy-making initiatives that are shifting the industry. And even though some unsustainable aspects are extremely mature and have reached high economies of scale, those are the ones that are at most risk of collapsing once the competition leads the way.
Building or acquiring the right strategic ventures means 1% inspiration and 99% perspiration. Instead of running analyses and workshops with your entire organization, it is time to actually do things, fast. Stryber understands the interdependencies with your core business and helps you make the right strategic decisions, as well as find the right governance set-up. On that basis, we can support you in all aspects of growth strategies and sound make-or-buy decisions, whilst validating and testing business models that can disrupt the entire sector within months.
Are you interested in finding more innovative startups that are on a high growth trajectory and are actively contributing to a more sustainable food system? We’ve crunched the data for you – simply press here to view the free analysis.