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FoodTech has enabled the printing of hamburgers on 3D printers, production of cow’s milk without actual cows, and laboratory-grown chicken breasts. As we continue to advance, the projects become increasingly impressive, and the food tech industry is expected to revolutionize the entire food system. This trend has immense social and economic potential, and investors are already recognizing this fact.
For private investors, it is important to understand the FoodTech market and which companies are worth investing in. This market has enormous potential, and investors should pay attention to the companies that are leading the way in this industry.
What is FoodTech?
Food tech is often thought of as limited to online food delivery services from stores, cafes, and restaurants. However, this area is much broader and includes all organizations, companies, and startups that use IT in any aspect of food production, from creation to distribution, preparation, packaging, and disposal.
Innovations in the food industry have been considered for decades, as far back as 1931 when Winston Churchill noted the discovery of microorganisms capable of creating proteins from nitrogen. He predicted in his publication “Fifty Years Hence” in Popular Mechanics magazine that “We shall escape the absurdity of growing a whole chicken in order to eat the breast or wing, by growing these parts separately…” This is an early example of the revolutionary ideas that are now becoming a reality in the FoodTech industry.
Thanks to advancements in science, it is now possible to grow animal cells in a lab without causing harm. In addition, cow udders and human breasts can be recreated in a test tube to produce cow and mother’s milk respectively.
Currently, there are five main areas in the FoodTech industry that are experiencing particularly rapid development. As a result, investor interest in these areas is growing exponentially.
Delivery
This refers to the online ordering and delivery of food from stores and restaurants. From 2016 to 2018, over 60% of investments in food tech startups were allocated to this sector. Due to the pandemic, this segment has experienced faster growth than any other, which is understandable given the circumstances.
The graph demonstrates that the food delivery sector was already experiencing rapid growth even prior to the pandemic. Services such as American Uber Eats and Door Dash, German Delivery Hero, British Deliveroo, Russian Delivery Club and “Yandex.Eda” had already revolutionized the interaction between restaurants and customers worldwide, resulting in exponential sales growth within a span of just two to three years.
However, the pandemic has spurred the development of a new business model in the food delivery sector – dark kitchens. These restaurants operate without a dining room for visitors, and the food is prepared exclusively for delivery.
Startups focusing on dark kitchens are utilizing data analysis technologies for more efficient development and scaling. For example, Scandinavian aggregator of dark kitchens, Curb, applies data analysis at every stage of its food delivery service, from selecting advertising platforms to menu design and supply chain management, to improve customer service quality. In June 2021, Curb secured an investment of 20 million euros.
AgTech – Agricultural Technologies
AgTech refers to digital technologies and innovations in agriculture, such as gene engineering, artificial insect reproduction technologies, production of agricultural robots and their components, and greenhouse technologies.
In 2020, AgTech companies globally secured nearly $6.2 billion through 460 deals.
For instance, Indigo Agriculture, an American company that develops microbiological agents for seed treatment to help farmers grow corn, rice, soybeans, and wheat without excessive use of expensive fertilizers and chemicals, successfully raised $500 million.
Similarly, Ynsect, a company that produces mealworms for use in animal feed and fertilizer in an environmentally-friendly manner, raised $372 million.
Smart Packaging
Smart Packaging, also known as intelligent and active packaging, involves incorporating freshness indicators, time and temperature sensors, and components that can absorb gases and moisture, prevent bacterial growth, provide accurate information about the product’s suitability for consumption, or extend its shelf life.
In 2017, the market size for Smart Packaging was valued at $38.77 billion and is projected to reach $57.8 billion by 2023.
Most startups in this field are still in the research and development phase. However, there are also established companies that offer comprehensive solutions for better product storage. For example, Apeel Sciences has developed a special powder that is mixed with water and sprayed onto fruits and vegetables. This creates a protective film that helps to retain moisture and prevent spoilage, resulting in produce that stays hydrated 30% longer and oxidizes 60% more slowly.
In May 2020, Apeel’s valuation surpassed $1 billion, making it a “unicorn” in the food industry. Later that same year, Apeel raised an additional $30 million from major investors.
Sustainable Packaging
Sustainable Packaging, also known as eco-friendly or recyclable packaging, is a sector of the food industry that concentrates on discovering and creating the most environmentally friendly packaging solutions. These solutions may include reusable methods, or developing recyclable or biodegradable materials.
The global sustainable packaging market is expected to grow at an average annual rate of 5.7%, reaching $297 billion by 2024.
TIPA, an Israeli startup founded in 2010, is considered to be one of the most promising companies in the eco-friendly packaging sector. TIPA specializes in developing and producing compostable packaging for various types of food products, such as fresh, dry, chilled, and frozen foods. TIPA’s packaging has similar properties to conventional food-grade plastic, but is entirely biodegradable.
In late 2020, TIPA raised $4 million, bringing its total funding to $53 million.
Alternative Protein
The foodtech industry is currently witnessing significant growth in the alternative protein market, which is now the most popular and rapidly expanding segment after delivery. This market has immense potential and deserves individual attention.
Although the alternative protein market currently represents only 1% of the total protein market, it is projected to reach a valuation of 17.9 billion dollars by 2025. According to the same projections, by 2040, it will have grown to a massive 1.1 trillion dollars, accounting for 60% of the total meat market.
Despite the ongoing uncertainty in global markets, investments in alternative protein technologies, including plant-based and cell-based options, have reached an all-time high. In the period between January and December 2020, these technologies attracted over 3.1 billion dollars in direct investments.
How artificial protein is created
The industry for replacing meat and milk with plant-based alternatives has a significantly higher potential for growth than that of animal-based food. It’s possible that in the future, our diet will consist of products made in labs that closely resemble or are identical to animal-derived products. These products will be created from “future proteins” which are alternative proteins obtained using one of three technologies.
Plant-based proteins – from soy protein, peas, chickpeas, beans, and even seaweed, which can mimic the texture and taste of animal-derived products.
Cultivated meat – a technology that has gained momentum in recent years by growing stem, muscle, and fat cells of chicken or fish in bioreactors without the need to grow animals or kill them.
Fermentation – a combination of well-known processes for fermenting food products, such as yogurt or wine production, with technological innovations that allow the use of microorganisms or animal-derived proteins, for example, to produce milk that is completely identical to animal-derived milk.
Main growth factors: the threat of hunger and environmental awareness
The food market is the largest market globally, with around 7.8 billion people who are regular consumers. In 2019, consumers in the United States alone spent over $1.7 trillion in supermarkets and grocery stores. As a rough estimate, Americans typically allocate about 13% of their disposable income towards food.
The food industry is driven by evolving consumer demands, which are always in flux. Presently, individuals in developed countries are increasingly concerned about the environmental impact, health benefits, and freshness of the food they consume. They are willing to pay a premium for technological advancements that cater to these needs. This represents the primary force driving development in the food industry.
To produce cow’s milk, cows are no longer needed, and for breast milk, the mother’s breast is enough.
The dairy products and breast milk substitutes market is experiencing rapid growth, with demand consistently on the rise. As demand for dairy products increases, the supply of such products inevitably decreases.
Presently, the global market for dairy products is valued at around 650 billion dollars per annum, and it is projected to double by 2024. The global market for breast milk substitutes, on the other hand, is currently valued at 50 billion dollars per year, and it is expected to reach 98 billion dollars by 2025.
Increasing the number of cows is not feasible due to its adverse environmental impact, and it is also not possible to surpass a certain milk yield limit for existing cows.
Biomilk has created a method that involves replicating cells that generate cow and breast milk along with all of their major components such as fats and proteins, which are usually sourced from a living organism.
To generate lab-grown cow’s milk, we only need mammary gland cells. After obtaining these cells, we cultivate them in the laboratory. This is similarly true for mother’s breast cells, which we can repeatedly reproduce to obtain breast milk outside of the mother’s body.
And a little more about investors’ appetites
The global food technology industry is experiencing a surge in investment every year. According to PitchBook, investments in the industry were less than $0.1 billion in 2008 but reached around $7 billion in 2019, and in the first three quarters of 2020, it rose to $8.37 billion.
In Europe, food industry companies have grown significantly more than the traditional food production and supermarket sector over the past five years. Additionally, the pandemic year of 2020 was a crucial turning point for foodtech, as it witnessed remarkable growth in company development and venture investments.
Risks
The technology sector, commonly referred to as “-tech,” is typically viewed as more risky due to a higher level of uncertainty and “overheating.” However, with innovation and accelerated profit growth, investments in these companies have the potential for increased profitability.
Investors must analyze whether current trends in the food industry will remain long-term factors or disappear once the COVID-19 situation changes. Constant analysis and quick reaction are essential.
Although the consumer segment of foodtech appears slightly overheated, particularly in the delivery sphere, people have already experienced the convenience of online ordering and food delivery, indicating that the development of this area is likely to continue. However, it is important to note that foodtech encompasses more than just delivery.
The global need to develop alternative sources of protein will continue to be driven by factors such as a growing population’s consumption of protein, a poor environment, and increasing awareness of food and humane consumption, both before and after the pandemic.
How can a private investor earn on food innovations?
Many promising foodtech companies are in their early stages of development and are not yet publicly traded. However, established players in the food industry recognize the potential of innovative developments and observe how consumer preferences are shifting toward healthier and more environmentally friendly products.
Leading companies such as Campbell Soup, Chobani, Kellogg, Kraft Heinz, Nestlé, PepsiCo, and Tyson Foods are establishing innovation centers and collaborating with existing incubators to support niche brands and enable their growth. Their primary objective is to gain a leading position in the market of innovative food products by acquiring small, promising companies, purchasing new technologies, and implementing them into their own production processes as quickly as possible. Typically, investments in these companies are long-term rather than speculative.
The following is a partial list of major players in the food industry who are closely monitoring trends and investing in high-tech innovations.
Tyson Foods (TSN)
Tyson Foods (TSN) is the largest meat producer in the United States and was one of the first major companies to venture into meat substitutes. In 2019, the company introduced a new line of products called Raised & Rooted that are based on plant protein. The product line includes plant-based nuggets, burgers, and sausages, and according to the company, Raised & Rooted is now available in over 10,000 retail locations in the US, with plans to expand into Europe in 2021.
In 2016, Tyson Foods launched a venture fund that invests in companies developing “breakthrough technologies, business models, and products to provide sustainable food for the world’s growing population,” as stated on the Tyson Foods website.
General Mills (GIS)
General Mills (GIS) is a US-based company that manufactures a variety of food products, including soups, desserts, fruit snacks, diet bars, as well as organic items such as chilled yogurts, frozen vegetables, and cereals.
In 2019, General Mills declared its intentions to invest in agriculture across 1 million acres of farmland in its supply chain by the year 2030. These investments are intended to improve soil health, reduce pesticide usage, prevent water pollution, and enhance wild ecosystems.
Kellogg (K)
Kellogg (K) is a US-based corporation that specializes in producing ready-to-eat cereals and convenience foods. In 1999, the company acquired Morningstar Farms, a brand that focuses on producing vegan products, particularly plant-based meat like burgers, chicken substitutes, and sausages. This business generated over $400 million for Kellogg in 2020.
Conagra Brands (CAG)
Conagra Brands (CAG) is a prominent producer of groceries, snacks, and frozen foods in North America, which actively integrates meat replacement innovations into its production. Six years ago, Conagra acquired Gardein, which recently introduced the world’s first vegetable-based meat soup collection with five different flavors, each containing between 10 to 15 grams of protein.
Hain Celestial (HAIN)
Hain Celestial (HAIN) is a company that specializes in producing natural food products and environmentally-friendly drinks. Its products are sold in the United States, Europe, and India, and the company owns over 20 different brands. These brands include Yves Veggie Cuisine, Terra Chips, Live Clean, Almond Dream, and Better Bean. Yves Veggie Cuisine’s plant-based meat products do not contain any artificial colors or flavors, and their burgers have a low fat content of only 3-4 grams.
Remember
- Key long-term factors driving foodtech development in recent years are population growth, environmental crisis, and changing dietary habits such as health and veganism.
- Constant monitoring of the foodtech landscape and quick adaptation to changes are essential, similar to any other technology sector.
- While COVID-19 has been a powerful catalyst for the food industry, not all the trends it brought to foodtech will last in the long run.
- Food delivery services have seen tremendous growth during the pandemic, and startups in this area received the highest investment in 2020. This sector is expected to continue developing, albeit at a slower pace.
- Alternative protein and cultivated meat are the hottest sectors in the food industry after food delivery services. However, many promising startups in this area are still emerging.
- Traditional food industry giants are striving to take the lead in foodtech by establishing innovation centers, collaborating with existing incubators, supporting niche brands, and eventually integrating technologies into their own production. These companies offer long-term investment opportunities rather than speculative ones and are accessible to private investors.
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