There were thousands of gadgets on display at the 2019 Consumer Electronics Show. But the product that won the most attention was not made of silicon, nor does it run on electricity.
It was a hamburger.
As it turns out, this win is a good metaphor for the expanding presence of food companies within the tech industry. Impossible Foods is the maker of the meatless burger. Digital Trends voted it the Top Tech of CES 2019. It also debuted its second-generation recipe, along with other techie products like a TV which can roll up and an Alexa enabled toilet.
Tech has evolved from being a novelty to a business staple, and companies that are not limited to software or hardware have been attracting the tech money. Investors who have put their capital behind tech companies and food say that the potential for growth in food and technology is appealing. Recent failures with meal delivery services and virtual restaurants, also known as virtual chefs, have caused investors to reevaluate where the opportunity lies.
Greg Golkin, managing Partner of the Kitchen Fund which invests into restaurant brands like Sweetgreen or Cava, stated that “Food is our biggest industry.” “Every human being on Earth needs to consume three meals per days.”
According to the Department of Agriculture in the United States, consumers, businesses and government agencies spent approximately $1.62 trillion on food and drinks in stores and away from home in 2017. According to the Bureau of Labor Statistics in 2017, food consumption surpassed all other necessities like personal insurance and health care.
Venture capitalists have noticed the enormous opportunity. Venture funding for U.S. food tech companies has grown from approximately $60 million in 2008 to $1 billion in 2015 according to PitchBook. PitchBook collects funding data. According to CBInsights research, the number and types of investors (VCs and private equity funds) has increased by more than twofold from 2015’s 223 to 2017’s 459, respectively.
Golkin stated, “Technology is no longer an industry in itself. It is part of every industry.” “So it’s only natural that tech investors find that intersection.”
Food companies are now more adept at appealing food tech investors, and they have taken on their high growth mindsets.
“Food has been a technology since the beginning; it’s just not branded as such,” Impossible Foods CFO and COO David Lee told CES attendees in a phone interview.
Lee spoke from his experiences at Del Monte Foods, a legacy food company. He said that it used to be driven by strategic players seeking an incremental competitive advantage. Now, disruptive companies seek to grow “hundreds of percents.”
A meatless “Impossible Slider”, a type of meatless burger, is shown in this photo. It was taken at White Castle on April 12, 2018. The Queens borough, New York City. White Castle’s meatless burgers sell for $1.99 and are approximately twice as big as regular sliders. The patties, which are primarily made from potato and wheat protein, were first to be sold at an American quick-service restaurant.
Are you making a poor bet?
Some food investments have not delivered the promised value, so investors are searching for other options. Many VC-funded virtual kitchens, including Maple, Sprig, Munchery and Sprig, have been defunct in the last few decades. Blue Apron, the first meal kit company to go public, was able to avoid being delisted after it reached a market value of less than $1 per share. The company was listed at $10 per share, with a market worth of nearly $2B on its debut day of trading in June 2017. However, it dropped below $1 per Share for the first time in December and its market value was only $128 million.
Greycroft cofounder Ian Sigalow (partner in Greycroft) was an investor at Plated, a meal-kit company that emerged as a new player. He claimed that there was a “dramatic over-investment by entrepreneurs and venture capitalists” which contributed to the company’s decline. Also, the steep learning curve for customers who have to adjust to receiving ingredients on a schedule and still making the meal at home made it difficult for them to make the meal.
Plated understands the barriers to entry and is looking for ways to expand its reach. Albertson’s bought Plated, which has experimented with premade meals and is currently planning its second version. This will be available to customers who don’t need the stability that a meal-kit requires, Josh Hix, the co-founder of Plated, said. CNBC reported that Hix was recently removed as CEO.
Investors now focus on the fastest-growing segments of this space, such as delivery apps and meat alternatives.
Spencer Krug of RiverPark Ventures is a principal who has invested in both tech and food companies. “While meal kit prices have definitely declined in investors’ eyes,” he said. For example, delivery is “a very large market that is still in its early stages,” Krug said.
A 2018 Statista report on online food delivery found that while delivery restaurant-to-consumer delivery (regardless of platform) is still by far the leading global category, platform-to-consumer delivery is growing faster. The promise for growth attracted $3.5Billion from venture capitalists in the first ten months of 2018, according to The Wall Street Journal. Based on PitchBook data, The Wall Street Journal reported October. UberEats is Uber’s entry into the market. Uber has been heavily promoting the service’s rapid growth. UberEats is now available in 165 cities, and it has been profitable in nearly 40.
Impossible Foods’ vegetarian-friendly burger is expected to thrive. MarketsandMarkets estimates that the meat substitutes market is worth $4.63 trillion in 2018 and could rise to $6.43 trillion by 2023. Beyond Meat, a plant-based burger company, may be the first to enter the public markets as it seeks an IPO.
A moral imperative
One reason tech investors are attracted to food could be more about their conscience than their finances. Perhaps you can recall a time in which social media promised positive social changes. However, today’s privacy scandals and tech addiction make the impact of pure tech companies seem a little more murky.
Food, however, is of obvious and indisputable importance.
CNBC interviewed investors and entrepreneurs to find out if they are motivated by the enormous opportunity for growth in food markets, but also by the urgent need for sustainable food options.
We are more urgent than ever in need of solutions to end world hunger and preserve the environment. The landmark October report by the United Nation’s Intergovernmental Panel on Climate Change stated that the world has only 12 years left to make substantial changes to the global energy infrastructure before major climate crises such as famine and other related issues, which could occur as early as 2040.
Josh Tetrick (co-founder and CEO, JUST), said, “When there is urgency, you have succes.” “Then more companies will enter the space,”
Dig Inn, a fast-casual restaurant chain, makes delicious bowls filled with vegetables and protein. It eagerly uses data, but it moves slower than other restaurants. It is committed to using local ingredients and being mindful of its impact on the natural environment.
“I believe that there are more investors than ever before and more businessmen and women who are standing up and saying, “You know? Adam Eskin, founder & CEO, said that they are looking to do something that makes a difference.