Why Did IKEA Invest in AeroFarms and What is Next For This New Agrifood Tech Investor?

In October, New Jersey indoor farming group AeroFarms announced that is had closed its Series D round on $40 million with a new, eye-catching investor in Swedish furniture giant IKEA Group.

The investment is part and parcel of an initiative at IKEA, also famous for bringing Swedish food to a global audience, to reimagine its food program with sustainability as the driving force, helmed by managing director of IKEA Food Services Michael la Cour.

IKEA’s iconic meatballs and packaged food products are headed for a shake-up, says la Cour, so we caught up with him to find out what’s in store and how startups might play a role. So far, this year, IKEA has participated in the AeroFarms Series D (through its entity IKEA Group) and the company has also invited Israeli fruit fly farm and insect protein startup Flying SpArk to join IKEA’s  first boot camp and startup accelerator in September. IKEA is also a shareholder in Swedish plant-based meat and dairy alternative food manufacturer BoFood (through IKEA Greentech).

You said at the Sustainology Summit that we can expect radical change to the IKEA food program, which sounds to me like nothing is off the table. Is that right?

That’s absolutely right. At IKEA, we’re interested in everything our customers are interested in. And if you look at the food business, I think it’s undergoing a radical change, isn’t it? I think you see a lot of interesting movement in the food business from a retail perspective — new ideas that are popping up, cross-collaborations from celebrity chefs to the more mass-based food industry. I  think it would be absolutely foolish to exclude anything at this point.

That’s the way we’ve approached the furniture side as well, and how we work with innovation. It’s by always trying to think with ambition, and being at the forefront of things, and collaboration is the absolute key in this, and that’s what we’re going to apply to the food business, as well.

With that in mind, how are you prioritizing the changes you plan to make? Are you using sustainability and environmental issues as your priorities, or are you using your own food sales as your guide?

Health and sustainability throughout the value chain is what guides us. It should be evident in the range we offer. It should be evident in how we develop things, and it should be evident in how we ultimately source things, as well. Now, this is, of course, a journey. We’re in the early stages of it, but it’s those things that sort of become our priority in everything that we do.

I think the IKEA Group investment in AeroFarms, is one such example on how to, in early stages, invest in vertical farming that would significantly change the environmental impact, let’s say, of how we would get fresh produce to a store in the future. I think even Flying SpArk, as well, is such one example.

It may be early days for mass consumption of fruit flies as a protein, but it’s in these early days that I believe companies like ourselves with 660 million customers every year through our food program need to step in.

Is investing in early-stage companies the way you plan on interacting with startups in the future?

Yeah, absolutely. The startup IKEA Greentech invested in recently, BoFood in Sweden, is the first pilot. I think as we learn, we will start to understand at what stage of a startup is most suitable for working with us and how to define, in the early stages, the scalability opportunities. But again, when it comes to sustainability and health, we firmly believe that startups and mid-sized companies are the way forward for us.

We’ve also, for the first time, tried to sort of act like an incubator and see where that leads, so it’s a test and trial, if you will, for us as well, on how to incorporate that into a bigger machine more seamlessly, without having to go in and acquire and so on, but utilizing the resources we have, the investment capabilities and funding. That’s what we bring to it and they bring the innovation, the spirit, and the great ideas.

How deep do you expect or plan these relationships to go? Do you intend to, or can you imagine eventually being a customer or an acquirer?

Yes. I think actually we can operate on that whole scale, but I would always aim for a healthy split on that. I think there is a business opportunity in being a company that can facilitate startups, the corporation will launch products in the store directly. That scalability within a short timeline is our number one priority. At the same time, I also believe very much in pairing up with startups, tech companies, and backward in our supply chain, which we are currently restructuring.

Back to AeroFarms, there are a lot of companies out there who make consumer hydroponic grow units that are the size of a wine fridge. And there are also companies out there making restaurant and retail installations using that technology. Why did you choose to go for a seller of food, and not a seller of growing systems?

Well, I think it’s more a matter of just what came first, really. IKEA actually launched a home cultivation product that enables you to do this in your own home.

Now, when it comes to the installation in the stores, we do have actual discussions on whether we can do it. The thing is that with the enormous flow of customers that we have in an average store, we have to find the practical way of doing this.

We would not do it only for show, but try to find a structure where it would actually work.

What is IKEA doing on the problem of food waste?

When it comes to food waste, we identified some years back that with 660 billion customers, of course, we can make a major impact. When you think about the business in general, there are a lot of things we can do, not just from a food perspective, but we sell food containers, and we actually sell appliances.

I think the overall UN goal is 50% reduction of food waste by 2030, and we’ve tried to be more ambitious and reduce all our waste in our restaurants and bistros by 50% by 2020, knowing that some of the restaurants operate in more immature markets concerning food waste handling.

To help us with that, we have engaged with [UK startup] Winnow and LeanPath. Basically, it’s software that helps us to identify what we’re throwing away. It describes what we’re throwing away, it helps the awareness of our workers tremendously, and it’s also already in some of the stores, brought us down to very close to our goal.

Was food waste what brought you around to being interested in Flying SpArk?

Put it like this: food waste of course is an essential area to address, not only because it’s actually an unnecessary waste of 30% of all calories produced, but there is a need to feed a lot more people in the future, and that also means that you need to actually look for alternative proteins to what you have today. When we add the process of applications, I think it was some 1,000 companies, not food companies only by any means, but it was about 1,000 companies that applied to IKEA to be part of the boot camp initiative. This was the one that stood out from an alternative protein perspective.

The startup Flying SpArk applied, and they caught our eyes with the product proposal. It wasn’t the first thing that came to my mind when we talk alternative proteins. I’ve seen, like most people, the different grasshoppers and what you see out there, but this was a new take.

Is your interest in alternative proteins driving you toward a more plant-based menu? Are meatballs in danger?

I think what we see is that the direction of health and sustainability to me does not mean that we diverge completely from meat. For me, it means we start moving towards a much wider and much more exciting offering of plant-based products.

So what are the areas that you’re most interested in for the next year? What are you looking at right now?

Yeah. I cannot really reveal what we’re looking at right now, but I can tell you in general terms what we’re interested in. I think meat alternatives is a major area that we are very, very interested in. There are of course already a few bigger players in the market.

I think there is both space and need for more than that. I do believe that the area of meat replacements, meat substitutes, is the area that we need to develop. Meat consumption has such a major footprint when it comes to CO2 gas emissions. We need to find alternatives that are still delicious, appealing, and that we can get in at price points that customers will by nature choose because they’re just as good if not better. So I see a huge need there to get players in and get supply up. The demand is there I believe, but the supply is what we need to get up very, very quickly. That is for me the absolute major movement that I would like to move and engage with in the short-term.