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How Food Startups Leverage Technology to Compete Against the Giants
Everything about the way we eat is changing. No time to make dinner? A few swipes within an app and 20 minutes later, you’ll receive a professionally-cooked, piping-hot meal delivered to your home. Need a restaurant recommendation? Chances are, you’ll do a quick search within your favorite services and settle for nothing less than a four-star rated eatery.
But more than that, people care a great deal more about what they eat, than in the past. The concept of organic and natural foods was barely in existence twenty years ago, and yet the organic food market has grown from $1 billion in 1990 to close to $30 billion today. A 2012 Harris Poll by the Vegetarian Resource Group found nearly half of Americans eat at least one non-meat meal per week, up from 40 percent back in 2007. We care more about nutrition labels and in fact, we’ll soon be seeing nutrition information on vending machines. This interest goes beyond just reading labels and into food discovery.
We’re becoming much more adventurous eaters. Americans are increasingly familiar with umami and sriracha which has essentially become a household name. Highly coveted inventions like cronuts and ramen burgers are often in the headlines. Food trucks are developing whole new tastes based on fusion, and TV shows are creating excitement over culinary arts.
The result of the evolution in what and how we eat has paved the way for food startups, and these startups are leveraging technology to build, ship products, and iterate faster.
Consider that today’s leading companies have built their business on data and these data allow companies to develop new products to better engage their users. Facebook uses our behavior to enable better targeting for advertisers. LinkedIn uses our work history to make recruiting easier. Netflix uses our viewing history to give us recommendations for shows that they think we’ll like. The list is endless.
This fast cycle of iteration has become standard in the consumer web; however, this level of data could only be dreamt about in the food business and many other industries. Instead, the way new foods have typically been created is through consumer research, market testing, and phased rollouts.
All of this has contributed to the placement of over 42,000 items in your neighborhood supermarket and why so many new product introductions fail. Shelves are stocked with so many options that most consumers are faced with a paradox of having too many choices. Often times, many promising products are scrapped long before they see the shelf because of the costs and time investment required to launch anything truly innovative.
Where large companies have struggled, startups are finding quicker and cheaper ways to meet consumer needs. Some are effectively cutting out the middle men by getting into the kitchen and handling the supply chain from cooking to delivery, or by being their own distributors rather than relying on a third party. Not only are these companies leveraging a direct-to-consumer business model, but they are also mining their data to offer continuous improvements to their consumers’ experience.
Unlike most web companies, these food startups must operate a supply chain to move physical products. With their technological foundation, they are able to build a more efficient supply chain that allows them to scale with growth and ultimately compete with the incumbents.
Venture capitalists are taking note of this opportunity and in the second quarter of this year alone food companies have raised $89 million. Within the first nine months of 2013, VCs invested nearly $800 million in food technology companies.
“Food companies, with their technological foundation, are able to build a more efficient supply chain that allows them to scale with growth and ultimately compete with the incumbents.”
Investors realize that the sheer size of the food market can sustain many large businesses, which can’t be said for many other consumer markets. Additionally, many investors believe that incumbent food companies will have a hard time competing with upstarts because of how much infrastructure and process--and as a result, red tape--big food companies have created to deliver products on a mass scale.
While VC interest in disrupting the food industry could change (even in the near term), recent investment solves one of the major challenges in starting a food tech company: having enough capital to purchase equipment, inventory and staffing to provide the runway for growth.
There is a perfect storm brewing in the food industry: consumers are demanding different and new products at a faster rate while traditional food companies are struggling to adapt. With capital available for startup companies able to leverage data and technology in new ways, we should expect a lot to change in the way we experience food in the near future.
Monica Popescu, Coca-Cola HBC Business Systems Solutions - SC/Quality Solutions Manager, Coca-Cola HBC and Zoltan Syposs, Ph.D., Coca-Cola HBC QSE Director, Honorary Associate Professor University of Szent Istvan / Food Science Department Hungary