At the 2019 Consumer Electronics Show, thousands of gadgets were displayed. However, the product that received the highest marks was not made of silicon and didn’t run on electricity.
It was a hamburger.
Turns out that the win is a metaphor for growing food companies in tech. Impossible Foods was the inventor of the meatless burger and Digital Trends voted it Top Tech of CES 2019. The company also introduced its second-generation recipe. It is now available alongside other techie products, such as a TV with a roll-up feature and an Alexa-enabled toilet.
However, tech companies have become more commonplace than ever before. Investors who are willing to invest capital in food and tech companies find the enormous opportunity in food attractive. However, investors have had to reconsider their investment in virtual kitchens and meal kit delivery services.
Greg Golkin is managing partner of the Kitchen Fund. The Kitchen Fund invests in brands like Sweetgreen, Cava and other restaurants. “Every human needs to eat at least three meals per week.”
According to the Department of Agriculture (USA), Americans spent $1.62 trillion annually on food and beverages in grocery stores and other away-from-home goods in 2017. According to the Bureau of Labor Statistics for 2017, the average American spent more on food than other necessities such as insurance or health care.
Venture capitalists recognize the opportunity. According to PitchBook (which collects funding data), venture funding for U.S.-based tech companies has increased from just $60 million in 2008 up to over $1Billion in 2015. According to CBInsights Research, the number unique investors, which includes VCs as well as private equity funds has doubled, from 223 in 2015, to 459 by 2017.
Golkin stated that “technology isn’t its own industry anymore. It’s part of every industry.” “So it’s natural that tech investors will find that intersection.”
Tech investors have become increasingly attracted to food companies, who are more skilled in appealing to them.
“Food was always a technology, it’s just that it wasn’t branded like a tech,” Impossible Foods COO David Lee explained in a phone interview with CES.
Lee, who has worked as an executive at Del Monte Foods for many years, stated that the industry was “driven by large strategic actors who were looking to maintain an incremental competitive advantage.”
This photo illustrates a meatless Impossible Slider sitting at a table in a White Castle restaurant on April 12, 2018 in Queens. White Castle’s meatless hamburgers cost $1.99. They are roughly twice as large than the regular sliders. The patties, which are made primarily from wheat protein and potato, were the first plant based burgers to be sold in an American quick service restaurant.
What is the worst bet?
Food investments sometimes fail to deliver the promise they once promised. Investors are looking for alternative future food investment options. Many VC-funded “virtual cooking” companies, such as Maple, Sprig and, most recently, Munchery, have gone out of business in recent years. Blue Apron, which was the first meal-kit company to enter the public market, suffered serious setbacks. It fell below a dollar per shares a year and half later. The company launched at $10 per shares with a market valuation of nearly $2 Billion on its first trading day in June 2017. The company’s market value fell to $18 million in December when it was trading below $1 per shares for the first day.
Greycroft co-founder Ian Sigalow, a partner in Greycroft was an investor when Plated was being established. He said that it was because of the “dramatically over-investment on behalf of entrepreneurs and venture capitalists”, as well as the steep learning curve required by customers to adapt to a regular delivery of ingredients while still being able to make the meal.
Plated knows this and is trying to create alternatives to get to a wider audience. Albertson’s purchased Plated. Since then, it has been trying out premade meals at the store. Josh Hix, co-founder, stated that the company is working on a second version to cater to those who don’t have the time or the routine that a meal kit can provide. CNBC has learned that Hix, the CEO, recently left.
Investors are now turning their attention to fast-growing sectors like delivery apps or meat alternatives.
Spencer Krug, RiverPark Ventures’ principal, said that although meal kits may have suffered in the eyes of many investors, there are certain pockets of the industry that are growing. Krug is an investor in food and tech companies. Delivery, for instance, “is still in its early days” he stated.
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 $3.5Bn from venture capitalists for food and grocery delivery services in approximately the first 10 month of 2018, The Wall Street Journal reported on October, based upon PitchBook data. UberEats has also been a player in the space, and the company has been proud of its rapid growth. UberEats is currently available in 165 locations and has reported that the company was profitable in 40 of those cities.
Impossible Foods’ vegetarian Burger is one of the most popular meat alternatives. MarketsandMarkets reports that the meat substitutes market reached $6.43 Billion by 2023. It was valued at an estimated $4.63Billion in 2018. Beyond Meat is another plant-based burger producer and could be the first company to make it to the public market in the IPO race.
A moral imperative
One reason tech investors love food may have more in common with their consciences than their wallets. It is possible that you remember a time where social platforms were promising positive social change. Privacy scandals, addiction to tech and other factors have made it difficult for pure tech companies to make a positive impact.
Food on the contrary, however, has a clear and undisputed value.
CNBC interviewed entrepreneurs as well as investors to learn their motivations.
There is an urgent need to find solutions that will alleviate hunger in the world and preserve the environment. In October, the United Nation’s Intergovernmental Panel on Climate Change issued a landmark report stating that the world has just 12 months to make significant improvements to global energy infrastructures before major climate crises (including famine) occur.
Josh Tetrick is co-founder of JUST and CEO. JUST makes vegan eggs, and engineering lab-grown meat.
Dig Inn, which is a fast casual restaurant that serves delicious, healthy food, uses data in its kitchens to make its dishes, but moves faster than its peers. The company is committed in sourcing local ingredients as well as being responsible for the environment.
“I believe that investors and business people are becoming more vocal about their desire to do something. Adam Eskin is the founder and CEO of Eskin.