The 2019 Consumer Electronics Show featured thousands of gadgets and gizmos, but the top-rated product wasn’t made out of silicon or powered by electricity.
It was a hamburger.
The win turns out to be a fitting metaphor for the increasing presence of food businesses in the tech sector. Impossible Foods, the creator of the meatless burger Digital Trends named Top Tech at CES 2019, presented its second-generation recipe along with a host of other “techie” products such as a TV that can fold up and an Alexa-enabled bathroom.
As tech has become a more mainstream business model, there are many companies that offer tech services beyond software and hardware. Investors who invest in tech and food companies see the huge opportunity in the food industry as attractive. Investors are now forced to reconsider where the opportunities lie, after recent failures in meal kits services and virtual kitchens.
Greg Golkin (Managing Partner at the Kitchen Fund), said that food is the largest industry. He invests in restaurants brands such as Sweetgreen and Cava. “Everyone on the planet needs to eat three meals per day.”
According to the Department of Agriculture, Americans spent $1.62 trillion in 2017 on food and beverage in shops and away-from home items. According to the Bureau of Labor Statistics, the annual food spending far outstripped other essentials such as health care and insurance for average Americans that year.
Venture capitalists are taking note of this huge, future food investment opportunity. Venture funding for U.S.-based food technology companies has increased from $60 million in 2008 to more than $1 billion in 2015. According to PitchBook which compiles funding data, According to CBInsights, the number of unique investors including VCs has increased from 223 to 459 in 2015 to 2017, compared to 2015.
Golkin stated that technology is no longer its own industry. It’s part and parcel of all other industries. “So it is natural for tech investors that they find that intersection.”
Food companies are also more adept at appealing to investors in tech and have adopted their high-growth mindsets.
“Food has always had a technology,” Impossible Foods COO David Lee stated in a telephone interview at CES.
Lee, who worked at Del Monte Foods as a food industry executive, said that the industry was once driven by “large strategic players” seeking to retain an “incremental competitive edge.”
This photo shows a meatless “Impossible Slider” sitting on a table at White Castle, April 12, 2018, in Queens, New York City. White Castle’s meatless sliders are twice as large as the $1.99 burgers. These patties are made of primarily wheat protein and potato and were the first plant-based hamburgers to be sold in an American fast-food restaurant.
Is this a bad idea?
Some food investments are not delivering the returns they promised, so investors are now looking for alternatives. In the last few years, many VC-funded “virtual chefs” such as Maple, Sprig, and most recently Munchery have failed to deliver on their promises. There have been some major failures in the meal kit market. Blue Apron was the first company to be listed on the public stock exchange, but it lost its listing risk a year later, when it dropped below $1 per share. On June 2017, the company’s debut was at $10 per share and had a market capital of almost $2 billion. Its market value dropped to $18 million when it traded below $1 per share in December.
Greycroft partner Ian Sigalow, co-founder of Greycroft, was an investor in Plated meal kit company when many players were entering the market. He stated that the company’s decline was due to “dramatic overinvestment by venture capitalists or entrepreneurs”. Customers also had to learn how to use a scheduled delivery and still prepare the meals themselves.
Plated is aware of this obstacle to entry and is working to find other ways to reach more customers. Co-founder Josh Hix stated that Plated was acquired by Albertson’s grocery chain. It has been trying out premade meals in the store, and is now planning a second version of its meal kit to help customers who don’t have the same routine as a meal-kit. CNBC spoke with Hix, who recently resigned as CEO.
Investors are now focusing their attention on fast-growing areas like delivery apps and meat alternatives.
Spencer Krug, RiverPark Ventures principal, stated that while meal kits are now a less attractive investment option for many investors, there are still pockets of the market that are growing. Krug has previously invested in food and tech companies. He said that delivery, for instance, is still a large market.
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 of growth attracted $3.5B from venture capitalists to food delivery and grocery delivery services within the first 10 months, according to The Wall Street Journal. This was based on PitchBook data. UberEats, Uber’s Uber app, has also entered this space. The company has heavily promoted the rapid growth of the service. In December, UberEats was available in 165 cities and the company claimed that it was making a profit in almost 40 of these.
Impossible Foods’ vegetarian hamburger is another meat alternative that will be thriving. According to MarketsandMarkets, the market for meat substitutes was valued at $4.63 billion in 2018, and could grow to $6.43 billion by 2023. Beyond Meat, a plant-based burger manufacturer, may be the first to go public as it looks for an IPO.
A moral imperative
Tech investors may be attracted to food because of their conscience more than their pockets. There was a time when social media platforms promised positive social change. Today, tech addiction and privacy scandals have made the impact on pure tech companies a little less clear.
Food on the other side, however, has an evident and indisputable worth.
CNBC interviewed entrepreneurs and investors about their motivations for investing in the food industry. They also stated that they are motivated by the opportunity to grow the market but they are driven by the need to create sustainable options.
It is now more urgent than ever to find solutions for world hunger and to protect the environment. In October, the United Nations’ Intergovernmental Panel on Climate Change released a landmark report that stated the world only has 12 years to make major changes to the global energy infrastructure to prevent major climate crises like famine.
Josh Tetrick, cofounder and CEO at JUST, said that urgency is key to success. “Then you can have more companies in the space,” he added.
Dig Inn is a fast-casual chain that serves bowls of vegetables and protein. Although Dig Inn uses data to improve its kitchens, it still moves slower than its competitors. The company is committed sourcing local ingredients, and being responsible for its environmental impact.
“I believe there are more investors and business people who are saying, “You know what?” Adam Eskin, founder and CEO, stated that they want to do something important.
