The food and agriculture industries are shifting from traditional practices and business to a whole new world of innovative ingredients, new farming technologies, and above all, sustainable and environmentally aware processes and practices. In this article, you’ll find the five key trends shaping the food industry in Europe, as well as an analysis of the role they may play in defining the future of food.
Agtech, next-generation foods, food service, food delivery, and food waste are areas that represent multiple parts of the food value chain, from production to consumption, and are also the fields in which startups are developing new technologies that are changing the game. Prior to looking into each individually, we'll first take a look at the investment landscape of the industry: which startups are raising the most money and why?
A tremendous shift from 2019 to 2021
The food industry will never be the same after 2020. The pandemic intensified pressure on the food and agriculture industries. The challenges the industry faces are different from those faced before COVID-19 hit: limited resources, ensuring food safety on a global scale, food waste, or climate change.
Two billion people across the world still don’t have access to safe, nutritious, and sufficient food, with the pandemic pushing 270 million people to the risk of starvation. The pandemic has shown us how fragile our food systems can be and how technology can play a role in strengthening them.
We’re in fact witnessing a double-sided shift: On one hand, production practices are changing to meet the new standards of quality and environmental protection; on the other hand, new consumer behaviors are shaping the new products and technologies that are becoming standard practice. As a result, what was relevant five to ten years ago, could be completely disrupted by emerging technologies and innovative trends in today's food and agriculture industry.
Investment activities have not stopped. Global investments in the Foodtech ecosystem have grown a staggering 137% between 2017 and 2020, with a 69% increase in Europe alone. At a global level, startups are raising more capital, with $26.1B raised in 2020 only. This marks a 15.5% increase since the previous year.
Upstream trends include agriculture biotechnology, farm management, farm robotics & equipment, novel farming, agribusiness marketplaces, innovative foods; whilst downstream trends focus on food services & delivery, online restaurants & meal kits, e-grocery, and restaurant marketplaces. For the first time, upstream investments in 2020 surpassed the value of downstream investments; this is in part by the extraordinary leap into the development of Innovative Foods, which doubled to $2.3B. This shift marks a defining moment in the investment landscape across the value chain, where previously the most disruptive technologies were concentrated on agriculture and delivery, now there is a focus on transformation, which represents the middle of the value chain (consumer-packaged goods innovation, cloud kitchens, and future foods). These are shaking up the industry, with a 245% increase in investments from 2019 to 2020. This brief explanation is already enough to show us that there are imminent, disruptive, technologies coming from all sides at great speeds. It's time to experiment, investigate and define what our future of food will be.
European Food and Agriculture Startups
In 2020, European Foodtech startups raised €2.7B, the same as in 2019. We're currently witnessing the move towards the third wave of Foodtech: early-stage startups betting on long-term trends in the food industry are raising more money. This third wave of Foodtech is exciting, as startups are more diversified and constantly entering new spheres of technology, such as Alternative Proteins, Cloud Kitchens, or Robotics.
The European landscape is a key region for unicorns, behind the home to Foodtech unicorns which are now worth a combined €92B. European Foodtech unicorns have grown into large players that can compete at the international level. These mature startups mainly represent the first and second waves of Foodtech, though. The third generation of unicorns is now entering an extremely dynamic scene, with increasing momentum and support from investors and VCs.
Some of the biggest highlights from the European food landscape in 2020 are:
A 12% increase in deals, with an outstanding 178% increase in the Alternative Proteins space.
An increase in ticket sizes showing greater confidence from the investments in the future of food.
There are still some challenges to overcome as we saw the overall European share of food investments drop from 15% to 12%, where the U.S. still leads by a wide margin followed closely by Asia (namely China and India).
Europe is not the biggest player in the Foodtech scene, however, the race is on for the world's first primary production unicorn (of which many are currently being raised in Europe); no one can say for sure what the next five years will bring.
The Trends in the European Food Industry
The first key trend in the European food industry is agtech: technological advancement in agriculture.
In this field, disruptive solutions can span anywhere from improving farm management, yield, and quality (using drones and sensors for example), to next-generation farming and Urban Farming to reduce the distance between production and consumption.
From 2019 to 2020, investments in the agtech categories increased, with 64% of the Agtech investments made in AgBiotech.
The Agtech Startups Landscape
The second-largest share of investments went towards urban and novel farms, where the race is on to find the most successful urban farm model. In Europe, 120 startups compete, but the German Infarm is still ahead of the pack, choosing to take a decentralized approach to farming, by distributing the "farm" throughout the city into supermarkets and stores. Alternatively, there is the transformative approach of startups, like Plenty, where urban warehouses are transformed into farms. The challenges still remain in the processes of scaling and internationalization. Firstly, how will startups, like Ynsect and InnovaFeed, grow their animal feed businesses outside of Europe? Secondly, how will consumers react to startups transitioning from animal feed towards ingredients for human consumption?
Agtech innovations are emerging and growing in every category, and the European landscape in this field is stable and promising. Strategic partnerships between public entities, universities & research institutes, and large corporates are extremely important to continue placing pressure on the need for research and development into the innovation of agricultural practices for the production of food.
A second fast-rising trend in the food industry in Europe is focused on the production of new ingredients, so-called "Future Foods'', the next generation of goods we'll consume. This is marked by a stunning increase in investments compared to the past five years; 70% of the €566M raised in Next-Generation Foods in 2020 was raised by alternative protein startups.
The Next-Generation Foods Startup Landscape
The most successful sub-categories are plant-based startups (Oatly, Meatless Farm), precision fermentation (Formo) and biomass, and other long-term alternatives such as cellular agriculture (MosaMeat), and conversion of CO2 into protein (Solar Foods).
With the introduction of alternative proteins and new ingredients also comes a debate on how to name such plant-based foods and lab-grown alternatives. Creating new ingredients and food products will require clear explanations to consumers on why their product is good for their health, budget, and environmental impact; this may be a tricky challenge for both large and small food and agri-companies.
Next-Generation Foods provide us with an indication of what the future of food will look like; however, the ecosystem is still growing and requires a greater emphasis and focus on the short and long-term objectives. Public sector investments, like the European Union's Green Deal, can definitely play a role in helping to shape the future of food. With the EU pushing for a circular economy and carbon neutrality by 2050, it's up to every player in the food and agriculture industry to adapt to these new strategies and contribute towards the solutions.
Over the past years, innovation in the foodservice space has focused on how the hospitality industry (mainly hotels, cafes, and restaurants) operates. However, this industry’s emerging trends are splintering the traditional restaurant concepts we're all familiar with and pushing for a new design. Startups in this field are actively working to improve (or disrupt) food services, with the use of robots and cloud kitchens, for example.
Food Service innovations have mainly focused on payment services, reservation platforms, catering and management (including all operations from online presence to customer feedback), supply chain management, and more.
The Food Service Startup Landscape
Last year saw a huge surge in investments in the food service sector specifically towards the concept of cloud kitchens. Cloud kitchens are an interesting overlay between the real estate sector and the use of a kitchen as a service - these are brick and mortar locations renovated and equipped to be rented out to restaurant operators. These new ventures cover not only the professional materials of a kitchen but also provide advice, software, and other services to their tenants. In 2020, 67% of the €460M invested in food services went towards investments into cloud kitchens. With ever more pop-up restaurants and the increased risk of opening a restaurant becoming more of a challenge for entrepreneurs, these cloud kitchens could be a huge puzzle piece towards the definition of a new marketplace in food service.
Another trend trembling in Food Service is the full digitization of the entire value chain. A great example is the startup Choco, which aims to provide a wholesale digital platform for restaurants and suppliers to manage their orders. A second example is Swile, a startup with a digital solution to payment cards for employees to pay for their lunches. Full digitization has pushed the ecosystem beyond innovation in just payment services and has also heavily supported these new innovations like cloud kitchens.
Karma Kitchens, a cloud kitchen in the United Kingdom, raised the biggest investment of 2020 with €291M, whilst Swile followed with the second-biggest deal of €70M. The next year is expected to bring a big sweep of investments into cloud kitchens. The concept attracts big ticket sizes because it covers investment into the company and real estate investment.
Delivery is an increasingly invaluable trend in the food industry. It used to be the biggest driver of the Foodtech ecosystem, however, it has notably decreased due to many ventures going public or planning their IPOs. The year of the pandemic saw a shift from restaurant to grocery tech. Many restaurant delivery startups are pivoting to the use of dark stores (traditional retailers converted into fulfillment centers) and there are lots of new players aiming to disrupt the current ecosystem altogether. These are extremely interesting as there are a wide variety of approaches taken — consumers are given an increasingly large number of options to choose from for their specific occasion.
The Startups in the Food Delivery Landscape
The grocery marketplace now covers all kinds of delivery services, and more keep popping up all over the world. Examples include dark store deliveries (Gorillas), restaurant delivery developing dark stores (Deliveroo), meal kits (Guosto and HelloFresh), farm to home (Crisp), anti-waste retailers (PieterPot), new retailers (Picnic), and finally, Instacart-like retailers (Everli).
The COVID-19 pandemic also pushed the birth or revival of many of these business models.
For example, the meal kits and dark store delivery services, that are now ready to scale. Our consumption habits and practices have changed, so the delivery marketplace has little choice but to adapt to these changes. The question for the upcoming years is to what extent these food delivery services will dominate the food marketplaces as more mature startups, like Picnic and Everli, show interest in making their first moves towards internationalization. Furthermore, there is an interesting shift moving from Food Delivery to e-Grocery, as convenience became a necessity; it will be interesting to see how these businesses will evolve over the coming period as we exit lockdowns all over the world and emerge into a changing world of grocery shopping.
Food Waste Management
For years, food waste has been one of the greatest challenges of the food industry. We can no longer ignore the efforts moving towards sustainability and resource efficiency, where food waste only adds to the problem. Food waste can come from a multitude of inadequacies of the supply chain, including overproduction, lack of visibility, and inefficient inventory management. The move towards biodegradable and recyclable packaging is fully underway, however, circularity and closing the gap altogether has become an even more enticing concept. It's an interesting discussion as it aims to redefine the way we think and work with supply chains. The United Nations Food and Agriculture Organization has made a strong distinction between food loss and food waste: food loss is that which is spilled or spoiled before reaching its final product or retailers, and food waste is that which is left to spoil or discarded by retailers or consumers. Several bottlenecks contribute to this problem, and the most striking is supermarkets selling products with expiry dates; an extraordinary 85% of food waste is caused by fresh food that expires before it's sold to the consumer.
The Food Waste Management Startup Landscape
Startups in the field of food waste management focus on improving waste in the production or consumption stages, but it's difficult to tackle both at the same time.
For example, Wasteless developed algorithms that apply dynamic pricing models to mark down the price of food products that are close to the expiry date. This data-oriented approach helps supermarkets reduce their losses and incentivizes consumers to buy the cheaper products that are close to being wasted.
On the production side, an emerging trend is that of upcycling foods. Food producers can add value to by-products or surplus ingredients that would have otherwise been wasted. An example of this is Renewal Mill, a startup making okara flour from the pulp leftovers of soymilk, a byproduct of soymilk production. Too Good To Go is another representation of bringing value to surplus food that would otherwise be thrown away. This app, which has expanded into 12 countries, is bridging the gap between consumer and producer, making it clear that both should play a role in managing food waste.
These incentives can be extremely powerful as they ensure that the accountability of this problem is spread along the entire value chain, and not bound only to one side. Such initiatives, however, cannot act alone in the food waste industry as they only tackle the final stages of the food value chain. Instead, a multitude of approaches is required to eliminate food waste throughout every piece of the chain, from production all the way to consumption, holding every player accountable. We need to change the perspective, to show that waste actually can have value, all we have to do is see it and create it.
Looking Into the Future of Food Trends in Europe
Many questions are still unanswered, and in many ways, societal or cultural shifts are required, before alternative proteins can hit the mainstream on a global scale, for example.
One can clearly consider it a challenge but the future of the food industry is in all of our hands — to a full disruption into new, sustainable, ways of producing, manufacturing, consuming, and waste managing up and down the entire value chain.
ARTICLE WRITTEN BY CAROLINA FERREIRA DA SILVA & POEY LAM
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