Editor’s Note: Ivan Farneti is a founding partner at the European early-stage foodtech investor Five Seasons Ventures. Saskia Hoebee is a former analyst at Rabobank who joined Five Seasons this March as a VC associate.
The Covid-19 pandemic has drawn focus onto the inherent risks of global supply chains. A ‘new normal’ of restricted travel and trade is causing high profile disruptions and bottlenecks. And there may be more of those to come. That said, our food systems are swiftly reacting and adapting. As governments across the world rightly see food as essential, much of the flow of raw materials, ingredients, and finished goods are still getting through production facilities to retailers and onto household tables.
Now and in the months ahead, many parts of the food supply chain can recalibrate further. Even before the crisis, food capacity has had to cope with peaks and troughs of demand, a phenomenon we see with each Christmas season surge, or with seasonal harvesting of fruits and vegetables. This may be far more acute and lasting than Christmas bulk buying. But there are already signs of promise that fundamental parts of the distribution chain have so far still stepped up in response.
Other parts, like the food services industry, became unavailable overnight. Aside from causing a glut in supplies that were once destined for catering, the closure of restaurants and hotels will inflict deep and lasting damage. But it will also spur new forms of restaurant technologies. Standing to benefit will be companies offering new ways to drive down food waste; automate kitchens; guarantee traceability; improve hygiene practices; and enable online delivery.
Online grocers are having their moment
The online delivery of unprepared food is also having a golden moment. Looking at Europe, for instance, a tremendous shift in demand has occurred in the space of two months where billions of euros shifted from the food services channel to retail and direct to consumer delivery models. Within one quarter, companies that leverage digital technology to deliver directly to consumers found themselves far ahead of their own near-term projections. Some saw volumes and revenues soar by anything from +25% to over +100% month-on-month. Forced inside, consumers throughout Europe learned to explore new websites and mobile apps to fill online shopping carts. Trips to the grocery have been supplanted by online deliveries of anything from fresh fruits and vegetables, to canned food and biscuits. Technology is linking millions of customer’s orders to the warehouses, to production schedules, to the dark-kitchens, to the dispatching tablets, and GPS navigation systems, and ultimately to your door.
Under today's unique circumstances, AgFunder is re-opening Fund III for a limited time to enable investors to join our mission and invest alongside us as LPs in a second close. Learn more here.
Those online customers will be there to stay, and that is only one half of the story. Traditional online advertisers (travel, leisure, sport, etc) were forced to cut their ad spending overnight. So online inventory became available at cheaper cost. People started consuming more online content at home than ever, which multiplied available attention. This causes customer acquisition costs to shrink. For many foodtech companies, all marketing costs are dropping further as direct searches for food options started to hit organically. Every week in March and April had a Black Monday in demand. No need to spend on marketing, as consumers become more food conscious.
Direct to a Covid-wary consumer
Foodtech companies with D2C models get their customer data in real-time and react quickly. Staffing levels, shift management, inventory refills, and customer service capacity — all this can be provisioned effectively based on data and software tools from teams that have been efficiently working remotely. This increased quantity of consumer data will foster retention. They’ll be well placed to deliver further services and convenience to customers after the lockdown.
It will be interesting to analyse the behaviour and differences between the ‘Covid cohorts’ and the ones that preceded the lockdown. That’s a piece for another day. But for now, one thing is sure: from this huge number of first-time online customers, a lot will stick around and will not go back to the way they purchased their food before. And most of this is powered by digital technology applied to the food industry.
As active investors in foodtech companies, we have some first-hand experience and data to back our observations here. These five points are drawn from some of our own portfolio companies and a few others we connect within the European foodtech ecosystem:
- Italy is rarely in the rankings of technology adoption. But it was the European country most severely affected by the virus and the response in adoption of food e-commerce and delivery – out of necessity – has been dramatic. Companies like our portfolio company Cortilia more than doubled their business. In other countries, companies like FarmDrop (UK), Farmy (Switzerland) and LaFourche (France) have followed a similar growth curve as have many eGrocery companies all over the world. They were also performing important social functions — offering hospital workers and elderly people priority and free delivery.
- Health and Wellness product companies have been prioritized by consumers, especially those touting products to boost immune systems and metabolic health. Ultra-convenient food options have surfed this wave and seen a sharp uprise. YFood Labs in Germany (another portfolio company of ours) and Huel in the UK continued to chalk up record sales as people stocked up on weeks of their healthy, convenient, and shelf-stable products. Dairy alternative Oatly also saw a huge surge in demand in the early days of the pandemic.
- In the search for longer shelf life products, the plant-based meat alternative category has caught even more wind. It’s of no surprise that brands like our portfolio company THIS in the UK and Heura in Spain have seen their retail sales rise sharply. In the US, the leading brands Beyond Meat and Impossible Foods both reported increasing demand too.
- Clearly, pets need to eat too. As they become more like members of the family, this humanization trend leads to more (or higher) attention. Hence companies like Butternut Box (another portfolio company), with personalised pet food subscription services continue thriving and delivering.
- Last but not least, as people currently consume more meals at home, they are reconnecting with home cooking and baking. Sales of staples like flour have gone through the roof as many consumers have had more time on their hands to explore baking at home. Companies like Just Spices, again a portfolio company, have experienced surging demand as their products assist the home chefs to deliver a pleasing eating experience.
The rise of mobile phones and mobile internet helped the technology industry and venture investors out of the post-dot com crisis. The business models of the gig-economy led the way out of the 2008 crisis. We are still in the midst of this current pandemic, but it may well be that food and Food Tech could provide the best opportunities to entrepreneurs and investors to come out of this one. And to do so with both commercial success and strong social impact. That is why we see foodtech as a vital part of any new normal.