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2019 Food Tech State-of-the-Industry ReportFood Tech Landscape 2019Brita Rosenheim & Better Food VenturesBrita Rosenheim, Partner at Better Food Ventures, has released her Food TechIndustry Landscape, and state-of-the-industry analysis (below), with the goalof helping operators, entrepreneurs and investors in the food system tounderstand the quickly evolving themes and trends currently impacting the foodtech industry.I have been tracking the food tech ecosystem for the past decade, and alongthe way have seen many business models and fads come and go, from daily dealsand local loyalty schemes, to meal kits and the on-demand convenience economy,to the ever elusive promise of personalization via some version of “Pandorafor Food”.Reflecting on the profound changes and growth that have occurred within theecosystem over that time frame, I’ve decided to make significant adjustmentsto the annual Food Tech & Media Landscape to reflect today’s new realities. Inthe most recent year we have seen previously hot sectors cool (like e-commercemeal delivery and guided cooking); new sectors take shape (like personalizednutrition and voice-driven platforms); and many B2B platforms that are leadingto, among other things, new cross-sector “enabling technology” plays.Here’s a brief primer on the latest Food Tech & Media Landscape before I diginto my key takeaways below:· This is a heatmap, not a comprehensive catalog: While clearly notexhaustive, this map is meant to illustrate the layers and variety oftechnology solutions, early stage to mature, both consumer-facing and B2Btechnologies. Food tech is a tremendous global opportunity, however in orderto narrow the perspective (and eyestrain!) I have only included technologieswith a US customer/user-base.· “Food Tech” here means food distribution through end consumption: Dependingon which hat you wear, and where you sit within the ecosystem, “Food Tech” canmean many things. Whereas my colleague Seana Day publishes an AgTechLandscape, which maps seed through supply chain technologies, this landscapemeets her in the “Messy Middle” with traceability/sustainability platforms,and then moves further downstream to food/bev product innovation, media,marketing, and the many varied paths towards end consumption.· Focus is on IT-driven, primarily VC-funded technologies: While VC funding isnot a requirement to scale, it is often an enabler of growth, and thisLandscape primarily highlights innovative startups and higher-growth companiesthat are enabling the food ecosystem via technology. Which means, althoughstill part of the Landscape’s title and framework, there is a significantdecrease of media categories versus previous versions of the map, reflectingthe broader shift and struggles of the media industry with few avenues forcontent monetization. Separately, given that food ecommerce is no longer nicheand is now integral to the strategy of most brands, the ecommerce lens hasbeen shifted to focus on technology solutions and platforms withinfresh/grocery and meal delivery.· The new doubledecker format helps to simultaneously frame the evolution ofthe consumer consumption journey from in-home to out-of-home, while alsohighlighting enabling B2B technologies that span multiple sectors and/orcategories: The top portion of the Landscape is organized left to right by acustomer’s final location of engagement/consumption in an effort to categorizethe variety of technology and media players shaping how consumers discover,cook, order, consume, and enjoy food experiences today. The horizontal band atthe bottom breaks out a number of “Enabling Technologies”, recognizing that agrowing number of B2B food tech companies are connecting multiple partners tocreate a more robust food system.· Hardware is (mostly) unplugged from this landscape: You will note thisLandscape does not carve out dedicated categories focused on robotics,automation and IoT devices, despite the recent momentum. This is intentional,as the increasingly crowded food-related hardware space warrants its owndizzying landscape analysis. For example, The Spoon recently created athoughtful Food Robotics Market Map that addresses a number of hardware-drivensectors. I will say that, in general, many of the VC-backed hardware deviceshave not really scaled to success and we should expect more downroundfinancings, consolidations and acquisitions in the near term.And now, onto my thoughts and analysis on the recent shifts in the food techecosystem:IS CONNECTED CONTENT PANNING OUT?Alongside next-gen IoT cooking innovations, over the past couple of years wehave seen a number of tech-savvy recipe content publishers leveragingtechnology platforms in order to transform content into guided andconversational cooking offerings.However, despite the tremendous breakthroughs entrepreneurs have made toaugment an in-home cooking experience that is more convenient, enjoyable,personalized or nutritious, this “connected content” category has largelyremained in the “nice to have” business model stage (versus “need to have”).To date, neither corporations nor consumers have been willing to foot the billfor recurring revenue around additional capabilities and insights.As of yet, the connected kitchen ecosystem that was supposed to be a bridge tonew business models like product/content subscriptions, ecommerce, advertisingor SaaS data plays, has simply not yet panned out the way most entrepreneurshad hoped.While everyone believes there is value in the data from smart devices, to datenot many have been willing to pay for it. That said, a recent announcement byDiscovery (via The Food Network) and Amazon (via Alexa) shows that the dreamis still alive, as the two companies plan to launch a live action subscriptionservice (at $7/month) to provide cooking instructions, recipes and connectedgrocery services (via Amazon, Instacart and Peapod) in select markets thisOctober.‘PERSONALIZED NUTRITION’ SHOULDN’T REQUIRE PRECISION OUTCOMESWhile “personalized nutrition” is a big buzzword these days with CPGs(including Mars, Kraft Heinz, and Nestle) using the term to boost theirinnovation cred, a bulk of the funding and acquisition activity in the spacehas actually been around nutraceutical/vitamin companies (likely due tohealthy ecommerce recurring revenue models) rather than diet/food-driventechnology platforms.One issue which has hindered many startups in this category is that there arecurrently few straightforward business models outside of ecommerce orsubscriptions, and retention has proved to be quite challenging. The B2B SaaSmarket has recently begun to develop and remains promising, however to date,many of the technology platforms, whether direct to consumer or B2B, justhaven’t scaled.Beyond business model challenges, I believe a key issue within this sector isthat many companies are trying to personalize with the goal of chasing aprecision outcome that is just not possible. Normalized human behavior,especially when it comes to food, is simply not precise. Many companies havebuilt technologies that require 1) an engaged user base, 2) active tracking ofspecific food/health behavior, and/or 3) accurate self-reporting – which,respectfully, are often fleeting, imprecise and inaccurate.There are absolutely times that a prescriptive approach is helpful in order tokeep health goals on track, or to manage chronic illnesses, but much like themany, many (many) “Pandora for food” concepts I have seen over the past 10years – all of which promised to tell me precisely which recipe, dish,restaurant, drink or product I would undoubtedly love – I believe it is amistake to build upon the premise that there is one (or few) right answers,when in reality, there are countless iterations of success.Thus, the next generation of personalized nutrition platforms should 1) beversatile, adaptable and seamless enough to only warrant passive engagement;nudging the consumer towards healthier decisions, 2) re-envision how tominimize inputs (if any) of food/health behavior (outside of on-boarding andupdates), and 3) eliminate the need for self-reporting.On this front, in the near term, we are seeing an uptick of momentum in B2Bplatforms that are setting a data foundation and/or nutritional lens in orderto enable various players throughout the food ecosystem to provide enhancedand personalized health experiences. For example, Diet ID has partnered withSunBasket to gather insights on customers’ dietary patterns and seamlesslyhelp recommend meals that align with their goals. Edamam recently partneredwith restaurant/catering companies like Juice Generation and ZeroCater toeasily integrate nutrition and dietary info across all menus and dishes.Lighter Nutrition, has recently partnered with Mass General Hospital (amongothers) to provide an enterprise platform for health care providers to be ableto customize meal plans and grocery shopping for their patients.As I mentioned during a talk at Groceryshop 2019, I think foodretailers/grocers are in a particularly unique position to impact healthychoices. Wellness is a clear strategy as grocers look to differentiate in anincreasingly commoditized sector, and thus while the national chains have morebudget for these initiatives, it is all the more important for small/midsizegrocers to compete. Regional grocer Heinen’s is ahead of the game, as theyhired a chief medical officer and chief dietitian years ago, but they recentlykicked it up a notch with the recent announcement highlighting their own Fxplatform for personalized diet plans. For grocers without their own chiefmedical officer, there are startups like FoodMaestro and Spoon Guru, whichpartner with grocers to layer health data into the shopping experience.In summary, the personalized nutrition technology space shows huge potentialin the long-run and while it is showing some momentum in the short-term, thereare still fundamental challenges to “personalized nutrition” platforms thatwill likely take this sector more time to mature.VOICE AND BOTS OFFER A NEW AVENUE OF ENGAGEMENTRestaurants, brands, retailers and advertisers have increasingly started tothink in terms of conversations (rather than one-time transactions or adplacements) in order to maintain consumer engagement and engender lifetimevalue.In addition to McDonald’s recent acquisition of drive thru AI-voice platform,Apprente, the last couple of years have been witness to a surge of AI-drivenconversational platforms for the food industry. From automated brandcommunication to voice-driven platforms focused on nutrition, grocery, coffee,online ordering, drive thrus, and even Back-of-House solutions focused onrestaurant bar inventory, there are numerous use cases to ditch the typing (orphone, pen and paper!) and streamline via conversational technologies.THE PRIMACY OF FIRST-PARTY DATA: DATA ANALYTICS COMPANIES ARE GETTING BOUGHTBY THEIR WOULD-BE CLIENTSCounter to the more traditional network effect approach where clients ofsoftware companies benefit from leveraging their data by blending it with thatof their competitors, an interesting recent trend has emerged where a handfulof early stage AI-and data-analytics startups within the food, retail andrestaurant sectors were acquired early on by a customer in order to bring dataand insights in-house.This highlights the ever increasing primacy of first-party data as acompetitive differentiator. Recent examples include McDonald’s purchases ofDynamic Yield, Walmart’s acquisition of Aspectiva and even Instacart’sacquisition of MightySignal.THE CONVERGENCE OF “OMNI-CHANNEL MEALS”There has been an overall convergence of in-home food channels that one mightcall “omni-channel” consumer food delivery as consumers are making less of adistinction between delivery of groceries, prepared meals, meal kits,e-commerce CPG purchases and restaurant delivery.When Amazon acquired Whole Foods two years ago, I hypothesized that theAmazon/Whole Foods combination would be a threat to both brands and localrestaurants. I believed that the competition from a more streamlined grocerycategory capable of delivering its own in-store prepared food, private brandedproducts and meal kits ( a “grocerant” platform) combined with Amazon’slogistics, would be a threat to local restaurants. However, to date, it hasnot played out that way – which in part shows how hard it really is to executeon a successful food program.PRIVATE EQUITY’S GAZE SHIFTS FROM RESTAURANTS TO RESTAURANT TECHAs private equity activity continues to sizzle in the restaurant sector, weare seeing private equity players begin to enter the restaurant tech categoryvia rollups and mergers of incumbents. That said, while you would think someof these investors are looking for synergies or operational efficiencies amongtheir restaurant portfolio, there is actually little overlap between therestaurant and restaurant tech private equity investors stepping into thespace (save for Danny Meyer’s Enlightened Hospitality).Some recent private equity entrants to the space include Marlin’s merger ofFourth and HotSchedules, Vista Equity Partners and Enlightened HospitalityInvestments cash infusion into Gather, and Great Hill’s $65 million investmentinto Paytronix last year.The food tech and restaurant tech sectors haven’t quite caught up to thebroader financing ecosystem, however, as Pitchbook notes that PE-ledacquisitions accounted for almost 40% of North American M&A volume in 1H 2019(up from a historical average of <30%).RESTAURANT DELIVERY CONTINUES USING “GO BIG OR GO HOME” PLAYBOOKWe continue to see a huge wave of continued consolidation in regionalrestaurant delivery networks as the national players need to keep scaling inorder to lower per- customer costs in the technology, marketing,infrastructure and customer support realms. Nationally, Caviar’s recent $410million acquisition by DoorDash was notable given there were no buyers when itwas being shopped three years ago (reportedly they were asking for $100million), but fast forward to 2019 and Square was able to sell it for asignificant premium.Softbank, a major investor in DoorDash, is famously known to be a believer inthe market-grab (i.e. “go big or go home”) philosophy and likely used that asjustification for paying the premium over Square’s acquisition price. It isquestionable whether Caviar’s business performance alone could have justifiedpaying that premium. Time will tell whether the combination of DoorDash andCaviar will provide enough market momentum to get both companies to stopbleeding cash.FOOD TECH SERVES LUNCH FOR CORPORATESThe convenience economy is no passing fad. And while we have seen many fooddelivery companies unable to “go big” already “go home” through shutdowns andfiresales, it has also paved the way for new, and capital efficient approachesto personalized food distribution. Within this, corporate meals have been aparticularly bright spot.The fundamental challenge of most food delivery companies has been to make theeconomics work to deliver one meal to one person/family across differentplaces and times. In contrast, as the entrepreneurs behind the 40+ venture-funded corporate lunch startups have figured out, group dining can actuallydeliver profitable margins. As such, there have been new crops of competitorsentering the fray on a regular basis; 35% of these VC-funded concepts werefounded in only the past 5 years.But as we discussed on the “Future of Corporate Lunch” panel at SKS 2018,there are actually a plethora of tech-enabled competitors vying for thebusiness opportunity of the lunchtime worker – ranging from quick servicebrands like Sweetgreen, who is using the recent cash infusion to supportcorporate delivery platform Outpost, to last mile delivery services fromrestaurants and dark kitchens, to pre-made meal solutions from retailers,grocers and D2C ecommerce players. And don’t rule out in-office smart vending,IoT, robots, or of course, the incumbent institutional dining providers.As an aside, the same volume-driven economic motivator is also bolstering anincreased focus on college towns and campuses, especially since they candeliver population density outside of major markets. Besides college foodmarketplace Tapingo, which was acquired by Grubhub in 2018 $150 million, youwill find a number of other college-focused food platforms in the Landscapeincluding Kiwi Campus, Snackpass, and Hooked. Even Sally the salad-makingrobot is heading off to college!While the economics of corporate lunch delivery can be solid, we have not yetseen even the beginning of the national rollups in this space. As mostcorporate and catering startups are still regional (even if the regions arelarge or span multiple parts of the country), I predict this will be acompelling area of consolidation in short time.WITH THIRD-PARTY TECH “PARTNERS” LIKE THESE DO RESTAURANTS NEED ENEMIES?As we initially discussed in our 2018 Restaurant Tech Ecosystem report, it’stough to be a restaurant or hospitality operator today. We’ve increasinglyseen a myriad of issues cannibalizing operators’ margins, including risingrents and labor costs, as well as the onslaught of third-partyordering/delivery services. And simultaneously, operators are being bombardedby a nonstop offering of emerging technologies which are promising front-of-house (FOH) and back-on-house (BOH) efficiencies.Currently, one of the most talked about threats to restaurants’ incomestatements are from third-party ordering/delivery technology “partners” thatare skimming significant margins from restaurant operators for off-premiseorders (both take-out and delivery).These third-party marketplace partners are selling restaurants the chance toincrease reach and volume through delivery and larger platforms, arguing thatthe additional incremental sales volume is pure margin due to significantfixed costs in the restaurant model. But that lens is too simplistic, as off-premise sales include additional indirect and hard to measure costs, and manyoperators are actually reporting negative margins on third-party delivery(“3PD”). For more depth on this topic you should read the medium post by theCEO of customer engagement platform Thanx, in his comprehensive takedown onthe massive disruption facing restaurants today.Beyond P&L implications, there is also a data gap with many third-partymarketplaces, as many of these partners are looking to capture the customerdata for their own platform’s success. When they are unwilling to share evenbasic data on the restaurant’s own customers, the 3PDs are showing their handin that they view these restaurant customers as their own customer base.THE BIFURCATION OF RESTAURANT CUSTOMER LOYALTY: THIRD-PARTY ORDERING/DELIVERYMARKETPLACES ARE POISED TO TAKE OVER AS UNIVERSAL LOYALTY PLATFORMSOne of the early trends I tracked in local tech was the digital reinvention ofthe punch/stamp loyalty card – with startups promising one universal loyaltyaccount to replace them all, by using gamification, check-ins, pushnotifications, digital wallets and the lure of a network of deals at aconsumer’s fingertips.Many startups built a business plan around becoming the universal loyaltynetwork, spending time (and capital) to build a consumer-facing brand in orderto simultaneously woo local merchants with their impressive user base. Inyears past this was an overflowing category in the Landscape, however thelogos have dramatically slimmed as most of those startups have since eitherbeen acqui-hired, pivoted out of the food/restaurant sector or simply failed.Escaping the deadpool, Fivestars is a notable exception, having continued tosuccessfully scale via numerous merchant verticals and geographies.That doesn’t mean loyalty schemes have disappeared, in fact, white label (i.e.merchant-branded, not tech-company-branded) solutions are thriving, and youwill see that the Landscape category focused on B2B restaurant solutions forCX (Customer Experience), Marketing and CRM (Customer Relationship Management)is bursting at the seams. I predict this category will continue to grow innext year’s iteration of the Landscape.A key reason for the struggles of the first crop of loyalty startups was thata many of the founders and technologists lacked local merchant/restaurantexperience, and struggled to create compelling win-win solutions as they triedto solve for the operational complexities related to running a long-tail, two-sided marketplace. It is a hard business to scale, and ultimately, without thenetwork effect, the value exchange was simply not compelling enough for users(or merchants) to remain engaged.However, there is another lesson to be learned here that can be applied to howwe think about the third-party ordering/delivery scene. Many of the loyaltystartups were ultimately competing against their own customers (the merchants)for branding and mind share, which by default did not create a win-win modelto best serve the interests and priorities of restaurants/merchants. Thistension is again showing up with third-party ordering/delivery marketplaces,but rather than just competing for mind share, the leading third-partypartners seem to be increasingly setting their sights on owning the customer’sentire journey. Grubhub’s recent launch of a loyalty program supports thisthesis.In a relatively short time, due to the ease, variety and scale offered viamarketplace apps, the customer’s loyalty journey has transformed, nowbifurcating to either: 1) direct ordering from the restaurant (online or in-person), or 2) loyalty to one or many ordering/delivery platforms. Thus thefuture success of many restaurants depends on handing power back to theoperators, which is why there is such a healthy market for white-labelordering & delivery, and automated customer engagement platforms.——————I’ve enjoyed watching the Food Tech sector grow over the last decade, but amcertain we will see even more meaningful growth in the decade to come. AtBetter Food Ventures, we believe technology will prove to be the singlebiggest catalyst to solving critical problems across the global foodecosystem, and we are particularly encouraged by the continued growth of tech-driven innovations and frameworks across the food sector.The Food Tech & Media Landscape will continue to change as the industrymatures, and as such, we depend on the wisdom of the participants in thespace. I welcome your thoughts and reactions and look forward to followingthis sector together in the coming years. You can download the map here.This post was originally published by Brita Rosenheim at The Spoon.