Selling Food Can Be A Startup Industry
Instacart CEO: A Bet on Groceries [Source: https://www.youtube.com/watch?v=f_9lX3tz1aM]
Have you heard of Instacart, Peapod or even AmazonFresh? These feisty enterprises are trying to change the way you buy what goes in your mouth. Indeed, some savvy venture capitalists think of food retail as an industry with startup potential. For example, the research firm CB Insights reports that VC investment in digitally-based food retailers rose to US$ 1 billion in 2014 from US$ 288 million the year before. Interest among hungry investors continues to grow.
So just what are food startups? These are extremely sophisticated technologists who happen to be owners of small businesses (small farms, really - just a few acres here and there). They form farming cooperatives in some cases and they are well-versed in growing and selling food. They are using IT tools to go against the grain. Plus, financial guidance from their VC investors doesn't hurt, either. This is an enormous change from the way things have been done. For decades, to succeed in food retail, you had to go the hypermarket route. Everything was about enormous scale (farms consisting of hundreds of thousands of acres or livestock slaughterhouses that went through thousands of animals a day) and razor-thin margins.
But armed with predictive analytics and Big Data, small-town farmers and roadside vegetable retailers can tap into smaller markets, such as ones that are geared toward fruits grown without herbicides, and animals raised without growth hormones and antibiotics. Indeed, consumer trends are changing: eating healthy is big business. That's why organics, non-GMO foods, buying local, farm-to-table, and even next-day delivery of specialty foods are all growing in popularity. Technology can help consumers make those informed buying decisions and buy from farms that often work only a few acres of land. These small farms aren't just benefiting from this technological revolution - they themselves are creating a revolution!
As the globe eats smarter, businesses are growing up around the trend of delivering 'smarter' and more sustainably-grown foods. The specialty online publication Food Tech Connect recently reported that between the beginning of 2013 and the end of 2014, nearly 50 investment funds were launched around the world with the aim of investing in food and agriculture. These investors know that the farmer and food retailer of today is a digitally-knowledgeable businessman who can hook his equipment into databases via sensors to know when his crops will yield and how to price them accordingly.
With all that VC investment, there's a distinct need for smarter food production and the possibilities that technology creates. Farmers are connected into weather satellites that predict when it's going to rain and when it's not: is it time to drill for an aquifer beneath the earth to water your crops? And it's not just crops. Farmers who raise livestock can now choose to feed their animals a pill-sized sensor that tells them the overall health of the animal and more specifics - such as whether a chicken is about to lay eggs (and how many).
Investors sense a boom in how food is grown and how it's sold. If anything, in some markets, coffee aficionados will pay premium prices for coffee brewed from beans that have been grown on small farms and without pesticides. In that regard, agriculture and food retailing is undergoing the same sort of transformation that the manufacturing industry (now in stage 'Industry 4.0') underwent a decade ago. The same sensors and predictive IT that made small and specialty manufacturers able to compete with the Fortune 500 firms is the same kind of technology that allows a specialty farmer compete with the giants of agriculture.
Make no mistake: The world's population boom is not going to let up in the next century. So we all need the scale that the agricultural conglomerates and the hypermarkets of the world provide us. They're the vast global corporations that will feed the next generation of humans on this planet. But there is another market - many specialty markets, in fact - that never could have existed even a decade ago because the IT didn't exist.
My vision for the not-too-distant future: 'Smart farming' cannot only offer specialty food products to a growing marketplace. It is leading to smart food retailing. In North America alone, high-end supermarkets like Whole Foods are re-writing the rules of what it takes to sell food to a digitally connected consumer base. They have proven that many customers are willing to pay more for, say, salmon that is caught in streams in the wild rather than raised in big tubs of chemically-treated water. They will pay more for so-called artisan bread and bakery products than loaves baked by conglomerates in batches of tens of thousands. The old way of running a supermarket was to sell food at razor thin margins. What helped was that additives could lengthen the shelf life of many foods so that retailers would not see their inventory go stale overnight.
The new generation of specialty food retailers is tapping into consumer sentiments and offering recipes that its returning customer base wants (based on its purchasing decisions). Welcome to 'Food 2.0.' A hungry planet is also an increasingly savvy planet when it comes to the kind of food it demands and buys.