Food Entrepreneur: Investing Trends in the Spotlight for 2021 | 2021-01-07

KANSAS CITY — Over the coming year, consumer trends sparked by the coronavirus pandemic are expected to continue, driving new innovations in food production and distribution. Startups that tackle key supply chain issues are attracting investor attention, said Anne Greven, global head of food and agribusiness innovation and FoodBytes! platform at Rabobank, New York.

“The pandemic has fundamentally exposed the fragility of the food system,” Ms Greven said. “As a result, it really helped validate the need for real innovation and real investment. Whether it’s direct corporate investment or special venture capital funds, we’ve seen a lot more money go to entrepreneurs who are really solving big problems in the food system.

Transaction activity accelerated as the impact of the initial outbreak stabilized. In 2020, funding for food and beverage startups grew 75% year-over-year to $5.6 billion, said Jake Matthews, principal intelligence analyst at CB Insights. , New York.

“The COVID-19 pandemic has dramatically accelerated investment in the food and beverage sector,” Mr. Matthews said. “Alternative protein companies have been the primary driver of these trends as sustainability and supply chain resilience are increasingly targeted.”

Plant-based meat substitutes have gained traction during the pandemic as widespread illness among workers in meat processing plants has led to temporary shortages of beef, pork and poultry. Just over half of American and European consumers have tried plant-based meat since the outbreak began, and 63% of them have become regular users, according to a UBS survey.

“The consumer perception is that having a plant-based diet is healthier and better for the environment,” Ms Greven said. “I still think there is room for good quality protein alternatives that appeal to the consumer.”

Mr Matthews predicted that food retailers will expand their alternative protein assortments in 2021.

“With the COVID-19 crisis highlighting vulnerabilities in the food system, grocers will continue to focus more on this category, and consumer adoption of plant-based meats and other protein alternative products will continue to grow,” did he declare. “2021 will be a breakthrough year for cultured meat and protein fermentation. We will see more investment and greater commercialization of these alternative protein products in the coming year.

Bennett Cohen, partner at Piva Capital, San Francisco, expects alternative seafood to be the “next wave of the clean meat movement,” reeling from investment shock in 2021 and beyond.

“Due to the continued rise of plant-based meat substitutes for pork, chicken, and beef, it will become increasingly difficult for startups to differentiate themselves from an already crowded shelf and stand out. crowded market,” Cohen said. “However, there is still room for new food tech entrants in the seafood sector, where startups have more opportunities to own a product category, such as shrimp, salmon or crab. .”

Several experts expect to see increased investment in technologies that automate production and delivery as labor issues persist in the food and agricultural industries.

“As more American farmers continue to struggle with devastating labor shortages, a problem exacerbated by COVID-19, expect to see an increase in autonomous robots in agriculture increasing the human efficiency and the efficiency of agriculture,” said Julia Reichelstein, investor at Piva Capital. “While the technology is nascent, advanced computer vision and new prototypes will soon drive robots through agricultural fields amid harsh weather, dangerous mud and even pesky insects. Thanks to these advances, robots will be able to perform a number of once manual tasks, from weeding to harvesting, in particular taking a first grip on high value-added specialty crops. Driven by advances in AI technology and customer urgency, we will begin to see an increase in venture capital funding in this area. »

Ms Reichelstein also predicted an increase in food traceability solutions as consumers demand more sustainable products with climate change increasingly a priority.

Expect to see increased investment in technologies that automate production and delivery as labor issues persist in the food and agricultural industries.

“Because of this demand, new tech companies with advanced smart tracking and data analytics capabilities will come to the surface, work with farmers, and bring food insights direct to consumers, restaurants, and grocery stores,” she said. “While consumers may not be very willing to pay for traceability alone, large-scale businesses and buyers will be more attracted to large-scale businesses and buyers, especially those with zero goals. net emission.

“While it is not viable to place a biometric sticker on every fruit or vegetable, innovative new solutions such as edible bio-tracing could bring breakthroughs, reduce costs and increase usage. Expect to see increased funding for startups that can solve this food traceability challenge on a larger scale in 2021.”

Health and wellness products are expected to grow in relevance as consumers continue to seek out food and beverage brands that promote the benefits of immunity, relaxation and stress relief.

“As the current pandemic crisis continues to introduce more stress and anxiety into our lives, mental health wellness will become a key priority for food companies in 2021,” said Jonathan Hua, investor. at Scrum Ventures, San Francisco. “Consumer demand for healthy foods and beverages that can improve mood, immunity, and overall mental health will see an unprecedented spike.”

The popularity of functional ingredients may continue to rise even after COVID-19 subsides. Ms Greven said the aging baby boomer population will drive demand.

Another trend spurred by the pandemic, e-commerce will continue to grow across all categories, according to Coefficient Capital, New York, which predicts large companies will buy direct-to-consumer brands at higher multiples. According to Coefficient Capital, consumers who shopped on a food or beverage brand’s website cited reasons such as better quality, better selection, better customer service and personalization.

“With ‘at home’ food overtaking ‘out of home’ food, and e-commerce accounting for a growing share of grocery sales, we will see increased M&A activity among food brands. and DTC beverages that seek to ‘unbundle’ the shopping basket,” says Matthews.

“Consumer demand for healthy food and drink products that can improve mood, immunity and overall mental health will see an unprecedented spike.” —Jonathan Hua, Scrum Ventures

Larger packaged food companies looking to maintain revenue gains made over the past year due to the shift to home consumption may pursue acquisitions in high-growth categories.

“Big companies have more capital because they have more cash,” said Nicolas McCoy, co-founder and managing director of Whipstitch Capital, Framingham, Mass. “They’re making more profit. They still have the underlying growth problem of legacy brands, so they still have to buy, even if they’re a bit up in legacy brands.

He cited the emergence of special purpose acquisition companies, or SPACs, in the food sector. These “blank check companies” have no commercial activity and offer takeover targets an alternative to a traditional IPO. The Wall Street Journal dubbed 2020 “a banner year for new SPAC registrations.”

“As a SPAC completes its first transaction, it then makes additions, which builds a new pool of buyers, especially for relatively small companies to buy for large CPGs,” McCoy said.

The events of the past year have amplified the importance of mindful consumption. Increasingly, buyers are looking for companies that advance equity, diversity, justice and inclusion across the industry, with more spotlight on women-owned and minority-owned businesses. As a result, efforts to support previously underrepresented entrepreneurs are advancing. PepsiCo’s Mtn Dew brand, for example, recently launched the Real Change Opportunity Fund to invest in black founders.

“I think the awareness around this has created a movement that will get some traction,” Ms Greven said. “What I fear and what I am cautious about is that it will be slower than everyone wants. It’s about changing the mindset of people, but also the way we think about to invest, and it depends on who has the money… We need diversity at all levels.