• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Skip to navigation
Close Ad

The Spoon

Daily news and analysis about the food tech revolution

  • Home
  • News
    • Alternative Protein
    • Business of Food
    • Connected Kitchen
    • COVID-19
    • Delivery & Commerce
    • Foodtech
    • Food Waste
    • Future of Drink
    • Future Food
    • Future of Grocery
    • Podcasts
    • Startups
    • Restaurant Tech
    • Robotics, AI & Data
  • Spoon Plus Central
  • Events
  • Newsletter
  • Connect
    • Send us a Tip
    • Spoon Newsletters
    • Slack
    • RSS
    • The Spoon Food Tech Survey Panel
  • Advertise
  • About
    • Staff
  • Become a Member
The Spoon
  • Home
  • News
    • Alternative Protein
    • Business of Food
    • Connected Kitchen
    • Foodtech
    • Food Waste
    • Future Food
    • Future of Grocery
    • Restaurant Tech
    • Robotics, AI & Data
  • Spoon Plus Central
  • Newsletter
  • Events
  • Jobs
  • Slack
  • Advertise
  • About
  • Become a Member

Brita Rosenheim

December 14, 2020

Connecting Demand to Supply: 2021 Food Supply Chain Tech Outlook

This is a guest post written by Seana Day and Brita Rosenheim, Partners at Culterra Capital, an advisory firm focused exclusively on tech-driven innovation across the food system. You can also find their 2020 Farm Tech and Food Tech Industry Landscapes and analysis at Culterra Capital.

We have been covering the Food Tech and AgTech sectors for the past decade, yet COVID-19 thrust the food supply chain into the spotlight as we could have never anticipated. Against the backdrop of the current pandemic, as well as nearly $500 billion in annual food waste occurring from food harvest to distribution and retail globally, it was time for a dive deep into the technology that will shape the food supply chain in 2021 and beyond. 

For those also following the tech-driven food sector it is no surprise that, to-date, most investment and innovation fanfare have been focused on the food system end-points of AgTech and Food Tech. However after our recent odyssey into the Food Supply Chain Tech category, it is quite clear to us that there is a tremendous, untapped opportunity for vertical-specific technology companies which are focused on serving the unique needs of the food supply chain.

It is with this sense of urgency and optimism about new frontiers of innovation, agility and investment that we launch Culterra Capital’s inaugural 2021 Food Supply Chain Tech Landscape:

Click image to enlarge.

For the purposes of this analysis we have highlighted a handful of predictions for the year to come, as well as emerging themes and key innovation trends that we believe will continue to impact the four supply chain pillars (Supply, Production, Logistics/Distribution, Demand).

While we cover a number of digitalization-driven opportunities for food system participants to strengthen their resilience, profitability and agility, we will reserve deeper dives into the sector-specific drivers and practical adoption obstacles in later reports. But first, a brief primer on navigating the landscape before we dig into our key takeaways below:

How to Navigate the 2021 Food Supply Chain Tech Landscape

  • “Food Supply Chain Tech” here generally refers to the technology enabling the processes and movement that occur between the farm gate and the loading dock/back door of the grocery retailer/food service provider. 
  • This is a heatmap, not a comprehensive catalog: While clearly not exhaustive, this map is meant to illustrate the layers and variety of technology solutions, early stage to mature, and primarily enterprise or B2B-focused. We have generally filtered the companies based on their food and ag customer base, and while mainly US-focused, have included a handful of global companies. Our FarmTech (inside the farm gate) and Food Tech (retail/food service/D2C) landscapes cover the other end points of the food system.  
  • IT-Driven Focus: The landscape focuses predominantly on digital technology-related companies, and although hardware is (mostly) unplugged from this landscape, there is a strong recognition that hardware is an essential part of the technology landscape, especially as it relates to key trends around Industry 4.0 and networked equipment.

In order for us to drive down and understand the many, extraordinarily complex functions involved in the food supply chain, we have organized the market around four key pillars of activity: 

  1. First Mile (Supply)
  2. Production / Food Processing (primary and secondary)
  3. Distribution and Logistics
  4. Retail / Food Service / D2C (Demand)

Across the bottom of the landscape, we included value chain players which integrate across multiple pillars.  

Is Data Automation Bringing Sexy Back?

The overall food and ag industries are among the lowest penetration of digitalization relative to every other sector of the global economy. And while it is well understood across the food industry that modernization and investment in data infrastructure represent a necessary and essential first step, the challenge of “going paperless” is still a real hurdle.

Yes, we understand that “going paperless” is less sexy than, perhaps, micro-fulfillment robotics. But increased workflow and data automation solutions in the food supply chain holds significant power to help the food supply chain leapfrog into digitalization.

Data automation leverages ML/AI to digitize and automate document processing and manual back office processes like managing vendors, suppliers, contracts, key communications, appointments, and so on. Because of the highly fragmented nature and sprawling ecosystems, data automation brings critical resource management, accuracy and most importantly, an underlying digital foundation to the food supply chain. 

Examples of workflow and data automation solutions focused on the food sector include Proagrica, Big Wheelbarrow, and Wholesail. 

A digital foundation is also a key enabler of business innovation for participants up and down the Food and Ag system, like data-driven demand prediction. For example, today our food system is fundamentally supply-driven. Crops or livestock are harvested at a point in the season, and the producer is a price taker. Producers have long sought to overcome this risk / reward imbalance by vertically integrating, and we continue to see that from all sides whether it is Kroger or Walmart integrating their dairy supply chain, or Driscoll and Naturipe branded berries.

Those players who have access to demand data from the retailers, consumers and foodservice outlets, and can control several steps in the supply chain, can better understand when and where to sell, as well as how to maximize their profit through demand insights. 

Similarly, with better demand data flowing into the distribution, logistics and production pillars, companies can better manage over / underproduction and reduce waste, while also improving the utilization of their own assets (equipment, labor, utilities, storage, etc.). 

MOM Knows Best?

Mostly overlooked by venture capital investors, there has been a dearth of significant outside investment in food production and manufacturing business tools, like Manufacturing Operations Management (MOM) software, which represents a collection of systems for managing end-to-end manufacturing processes and automation. The core MOM subsystems include: 

  • MRP (Material Requirements Planning):  packaging, raw material planning, procurement scheduling, etc.;
  • MES (Manufacturing Execution Systems): used to track and document the transformation of raw materials to finished goods; and
  • Other categories of Enterprise Asset Management which fall into this broader manufacturing tech category. 

Largely the domain of established and legacy software companies, vertical, food-focused MOM and Enterprise Resource Planning (ERP) systems are becoming increasingly recognized for their potential to supply foundational, batch-level data for AI/ML-driven analytics, more nimble food production processes, greater workflow automation, optimization of procurement, and so on.  

At the same time, the broader technology landscape is shifting from a traditional manufacturing automation stack (ERP/MOM) to a IIoT stack (Industrial Internet of Things) which leverages a combination of app development, platform cloud, connectivity, and hardware. This intelligent manufacturing stack will be central to unlocking the promise of a more agile, visible and collaborative food supply chain.  

In looking ahead, it is important for tech innovators to understand both the complexity and opportunity stemming from ERP/MOM/IIoT stacks, as the critical data captured in these subsystems has multiple beneficiaries and is also poised to enable business model innovation across the value chain, from ag producers, to manufacturers, distributors and beyond. 

As an example, it is generally a challenge for ag producers to track and trace raw materials once they hit the processor (both primary and secondary). In food value streams like protein (animal) processing, automation and batch processing are hard to achieve given the nature of tracking disassembly (“primary” – one carcass that turns in hundreds of cuts or many SKUs) vs. assembly (“secondary” – a dozen ingredients combined into one product or SKU). 

However, increasingly sophisticated and connected MOM systems are beginning to deliver batch-level tracking which makes verification of farming practices (regenerative, non-GMO, organic, etc), genetics / genealogy or origin claims easier to authenticate.  

This is one of many examples that reinforces our belief that domain-specific manufacturing software and systems for the food and beverage sector are essential. The level of tracking complexity and data integration can be dizzying, but there are a handful of innovative companies that are building solid, scalable businesses such as Dairy.com, ParityFactory, Wherefour, and Food ID, among others in the space. 

The Cold Chain is Heating Up

As noted in The Spoon’s coverage, the pandemic shifted a large number of people to online grocery shopping, and many of those new online shoppers will continue to shop online. Notably, this surge in digital grocery orders also included more online fresh / perishables purchases, both in retail environments as well as direct to consumer (D2C). This growth is expected to continue even as grocery shoppers migrate back to in-store shopping. For context, e-commerce grocery is now expected to account for at least 21.5% of US grocery sales by 2025, (up from a pre-Covid prediction of 13.5%). 

We believe this increased demand will catalyze cold chain suppliers and 3PLs to meaningfully bolster their digital infrastructure and investment in tech solutions, as we have seen with high flyers like Lineage Logistics. They will feel greater pressure to adapt to the dynamic demands of buyers, such as faster speed of delivery, decreased waste, real-time inventory visibility and traceability of products. 

These objectives are not possible without integration and interoperability solutions which create the linkages necessary to overcome the massive amounts of existing siloed data. These solutions layer on top of existing supply chain planning, execution and equipment control systems, integrating them to further optimize for analysis and real time planning / visibility across various parts of the supply chain. 

Without harmonized data, the cold chain can’t truly unlock efficiency or capacity, nor adequately respond to supply-demand volatility. Tightly linked systems to share this data can have a significant impact on the shelf life of perishable products (reducing waste), the assurance of quality (product, producer or marketplace differentiation), and support agility in demand-driven forecasting. Examples of startups focused on providing innovative solutions in this sector include AgroFresh’s Fresh Cloud, Backbone AI, and Afresh.

Looking Ahead to 2021 

The food supply chain differs in some respects from our traditional understanding of Food Tech and AgTech because it encompasses industries with relatively well-established players and technologies, many of which are horizontal software (with a multi-industry offering) and logistics companies. Due to this, as well as the highly-regulated and labor intensive nature of the supply chain, historically it has been a more difficult industry for nimble start-ups to penetrate. 

Today, we see the majority of participants across the food supply chain setting the table with foundational data and digitizing basic workflows. This is the essential first step. Basic digitalization, strengthening collaboration tools, automating some data sharing, and looking for ways to streamline labor will be key themes in 2021.

To be sure, COVID-19 revealed accelerating demand for tech ready to scale (vs. new innovation). Yet that is not the end of the story. We see most of the exciting food supply tech innovation springing up around the perimeters of the landscape, particularly from analytics and strategy plays within First Mile (Supply) and Retail / Food Service / D2C (Demand).

For start-ups, those that can differentiate themselves with proprietary, unique data cleansing tools have an important edge. As we know from AgTech and Food Tech, this is one of the principal activities that many innovative companies spend vast amounts of time working on. The same holds here in the Food Supply Chain.

———-

Seana Day and Brita Rosenheim are Partners at Culterra Capital, and Venture Partners at Better Food Ventures, each with 20+ years of investment, M&A, and strategy experience within the food, ag and tech verticals. Their analysis on the Agtech and Food Tech sectors are regularly used by participants in the space to understand the quickly evolving landscape.

June 21, 2020

Investing into the Future of Restaurant Tech:  Navigating the “New Normal”

This is a guest post written by Brita Rosenheim, Partner at Better Food Ventures.

“Normal” noun: the usual, …typical state or condition.

As we have all experienced during this pandemic, we know that nothing has been “usual” or “typical”, particularly for restaurants as they have had to fight and innovate just to survive these last few months. The “new normal” is about change. To thrive in this fluid environment restaurant operators will need to accelerate pre-COVID digital trends, embrace new notions of what constitutes a restaurant, and look to technology to strengthen their brand and relationship with customers. 

Convenience reigns supreme: The shift to take-out/delivery will reshape the basic premise of many restaurants

Well before COVID-related shutdowns, the increasing customer demands for convenience had already fueled a major shift from dine-in to take out/delivery. In 2019, we reached the tipping point where off-premise sales (drive-thru, takeout, delivery, catering) represented a majority of U.S. restaurant revenues. Now, intensified by a decimated restaurant industry and an uncertain socially-distanced future, the growth of off-premise will only continue.

As restaurant operators increasingly respond to our “new normal”, we have seen many full-service restaurant concepts testing a more “fast casual” off-premise approach, with increased tech-focused integration, minimized employee/customer exposure, and a lot of creativity to inject hospitality into socially-distanced interactions.

The bottom line is that the restaurant experience – from QSR to Fine Dining – will increasingly no longer be confined to the four walls of a restaurant. We have reached an urgent point where the basic premise of dine-in restaurants must evolve in order to generate the sales volume and margins to remain financially viable. 

The Evolution of the Digital-Forward Restaurant: Integration is Key

Digitization alone will not save the restaurant industry, but it is becoming economically and operationally imperative to upgrade IT systems for more seamless integration across all digital channels. And with digital channels (online, mobile, app, and kiosk) representing only ~10% of total U.S. restaurant sales (for both on-premise and off-premise combined, pre-COVID), there is still tremendous opportunity to upgrade.

For example, integrating a restaurant’s digital channels provides the opportunity to increase first-party data capture, create operational efficiencies, target higher margin customers, better upsell and customer incentivisation, while also letting operators make better decisions based on the underlying connected data. 

That’s not to say digitization guarantees success. Adding new digital channels can also create operational bottlenecks, silo’d data, or added complexity/margin erosion via third party providers. In order to mitigate some of these key risks, operators are increasingly integrating digital ordering/delivery within the POS system, and driving orders via white label platforms. As most operators are now aware of, third-party aggregator platforms own the customer data through their platforms (not the restaurants), underscoring the importance for restaurants to integrate ordering/delivery through their own branded websites/apps.

Beyond updating the underlying IT-infrastructure, the new digital-forward restaurant experience also requires physical changes in both back- and front-of-house layouts to address congestion, capacity constraints and the added complexity of accommodating mobile customers and delivery workers. 

Physical characteristics of the new generation of restaurants will likely be smaller footprints, limited/no seating, separate larger areas and clear signage for digital/off-premise orders, as well as increased off-premise commissary/ghost kitchen prep for multi-unit operators. The customer experience will further be supported by dedicated employees for digital orders, increased mobile / kiosk order options, as well as touchless/frictionless ordering/pick-up methods using URLs, QR codes, or NFC tags.

Digitizing the Guest Relationship: Omnichannel loyalty will be a critical lifeline within a sea of aggregators and marketplaces

Hospitality and guest relationships are key reasons why many operators are in this business. However, it has become increasingly hard for them to own and manage a direct customer relationship. This is primarily due to content aggregators and ordering/delivery marketplaces steadily growing control over most restaurant/food reviews and direct ordering/delivery relationships.

Thus a strong, omnichannel loyalty platform is one of the last avenues for operators to own their customer base. Loyalty should be a critical area of investment, and successful operators will optimize their tech strategy to capture as much digital data as possible. 

During this new era of decreased order volumes and disconnected customer journeys, data-driven omnichannel loyalty will help operators uphold the brand, funnel customers into more profitable digital channels, and ultimately drive a richer relationship with customers by connecting all the dots across all touchpoints and interactions.

Automation and Tech-Driven Interactions: Will the Robots Take Over?

In short, no. We have seen the recent struggles of scalability by a number of fully robotic food solutions, due to the fact that labor/cost savings are rarely realized due to the complexity and cost of the technologies. 

However, in contrast to fully robotic food solutions, I do believe that this “new normal” will make specific task automation, voice assistance, and computer vision increasingly vital and prevalent across the industry. Adoption rates won’t skyrocket overnight, but they are absolutely escalating.

As restaurant operators seek to reduce employee/customer contact and offset workforce challenges, while looking to increase operational efficiencies, speed of service and quality control, they will look for technology partnerships to leverage robotics, automation, computer vision, and voice technologies. 

Some of my favorite solutions in this category include: precision preparation/cooking, smart IoT Kitchen Display Systems (KDS), voice- or computer-vision-driven inventory analysis, natural language drive-thru/phone ordering platforms, cashierless checkout, and food waste management technologies. Bolstered by the pre-COVID off-premise trends, “Smart Vending” is also on the rise; be sure to check out the recently published Smart Vending Machine Market Report by The Spoon.

Moving the Needle on Adoption: What’s Next? 

The net effect of the “new normal” is that it has yet to unleash any completely new, innovative concepts in restaurant technology. Instead we are seeing– or are likely to see– the accelerated adoption of innovations that existed pre-COVID that move restaurant concepts beyond their traditional four walls, and closer to the real digitization necessary to sustain financial viability in our shared new reality.  

——————

At Better Food Ventures, we believe technology will prove to be the single biggest catalyst to solving critical problems across the global food ecosystem, and we are particularly encouraged by the continued growth of tech-driven innovations and frameworks across the food sector. We welcome your thoughts and reactions, and look forward to following this sector together in the coming years.

September 29, 2019

From Voicebots and Loyalty to Data and Delivery: What Are the Next Big Hits (and Misses) in Food Tech?

This is a guest post written by Brita Rosenheim, Partner at Better Food Ventures. This Food Tech Industry Landscape and state-of-the-industry analysis are intended to help operators, entrepreneurs and investors in the food system to understand the quickly evolving themes and trends currently impacting the food tech industry. You can meet Brita at Smart Kitchen Summit on Oct 7-8th.

I have been tracking the food tech ecosystem for the past decade, and along the way have seen many business models and fads come and go, from daily deals and local loyalty schemes, to meal kits and the on-demand convenience economy, to the ever elusive promise of personalization via some version of “Pandora for Food”. 

Reflecting on the profound changes and growth that have occurred within the ecosystem over that time frame, I’ve decided to make significant adjustments to the annual Food Tech & Media Landscape to reflect today’s new realities. In the most recent year we have seen previously hot sectors cool (like e-commerce meal delivery and guided cooking); new sectors take shape (like personalized nutrition and voice-driven platforms); and many B2B platforms that are leading to, among other things, new cross-sector “enabling technology” plays. 

Here’s a brief primer on the latest Food Tech & Media Landscape before I dig into my key takeaways below:

  • This is a heatmap, not a comprehensive catalog: While clearly not exhaustive, this map is meant to illustrate the layers and variety of technology solutions, early stage to mature, both consumer-facing and B2B technologies. Food tech is a tremendous global opportunity, however in order to narrow the perspective (and eyestrain!) I have only included technologies with a US customer/user-base.
  • “Food Tech” here means food distribution through end consumption: Depending on which hat you wear, and where you sit within the ecosystem, “Food Tech” can mean many things. Whereas my colleague Seana Day publishes an AgTech Landscape, which maps seed through supply chain technologies, this landscape meets 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 is not a requirement to scale, it is often an enabler of growth, and this Landscape primarily highlights innovative startups and higher-growth companies that are enabling the food ecosystem via technology. Which means, although still part of the Landscape’s title and framework, there is a significant decrease of media categories versus previous versions of the map, reflecting the broader shift and struggles of the media industry with few avenues for content monetization. Separately, given that food ecommerce is no longer niche and is now integral to the strategy of most brands, the ecommerce lens has been shifted to focus on technology solutions and platforms within fresh/grocery and meal delivery.
  • The new doubledecker format helps to simultaneously frame the evolution of the consumer consumption journey from in-home to out-of-home, while also highlighting enabling B2B technologies that span multiple sectors and/or categories: The top portion of the Landscape is organized left to right by a customer’s final location of engagement/consumption in an effort to categorize the variety of technology and media players shaping how consumers discover, cook, order, consume, and enjoy food experiences today. The horizontal band at the bottom breaks out a number of “Enabling Technologies”, recognizing that a growing number of B2B food tech companies are connecting multiple partners to create a more robust food system.
  • Hardware is (mostly) unplugged from this landscape:  You will note this Landscape 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 own dizzying landscape analysis. For example, The Spoon recently created a thoughtful Food Robotics Market Map that addresses a number of hardware-driven sectors. I will say that, in general, many of the VC-backed hardware devices have not really scaled to success and we should expect more downround financings, consolidations and acquisitions in the near term. 

And now, onto my thoughts and analysis on the recent shifts in the food tech ecosystem:

IS CONNECTED CONTENT PANNING OUT? 

Alongside next-gen IoT cooking innovations, over the past couple of years we have seen a number of tech-savvy recipe content publishers leveraging technology platforms in order to transform content into guided and conversational cooking offerings.

However, despite the tremendous breakthroughs entrepreneurs have made to augment an in-home cooking experience that is more convenient, enjoyable, personalized or nutritious,  this “connected content” category has largely remained in the “nice to have” business model stage (versus “need to have”).  To date, neither corporations nor consumers have been willing to foot the bill for recurring revenue around additional capabilities and insights.

As of yet, the connected kitchen ecosystem that was supposed to be a bridge to new business models like product/content subscriptions, ecommerce, advertising or SaaS data plays, has simply not yet panned out the way most entrepreneurs had hoped.

While everyone believes there is value in the data from smart devices, to date not many have been willing to pay for it. That said, a recent announcement by Discovery (via The Food Network) and Amazon (via Alexa) shows that the dream is still alive, as the two companies plan to launch a live action subscription service (at $7/month) to provide cooking instructions, recipes and connected grocery services (via Amazon, Instacart and Peapod) in select markets this October.

‘PERSONALIZED NUTRITION’ SHOULDN’T REQUIRE PRECISION OUTCOMES

While “personalized nutrition” is a big buzzword these days with CPGs (including Mars, Kraft Heinz, and Nestle) using the term to boost their innovation cred, a bulk of the funding and acquisition activity in the space has actually been around nutraceutical/vitamin companies (likely due to healthy ecommerce recurring revenue models) rather than diet/food-driven technology platforms. 

One issue which has hindered many startups in this category is that there are currently few straightforward business models outside of ecommerce or subscriptions, and retention has proved to be quite challenging. The B2B SaaS market has recently begun to develop and remains promising, however to date, many of the technology platforms, whether direct to consumer or B2B, just haven’t scaled.

Beyond business model challenges, I believe a key issue within this sector is that many companies are trying to personalize with the goal of chasing a precision outcome that is just not possible. Normalized human behavior, especially when it comes to food, is simply not precise. Many companies have built technologies that require 1) an engaged user base, 2) active tracking of specific 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 to keep health goals on track, or to manage chronic illnesses, but much like the many, many (many) “Pandora for food” concepts I have seen over the past 10 years – all of which promised to tell me precisely which recipe, dish, restaurant, drink or product I would undoubtedly love – I believe it is a mistake 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) be versatile, adaptable and seamless enough to only warrant passive engagement; nudging the consumer towards healthier decisions, 2) re-envision how to minimize inputs (if any) of food/health behavior (outside of on-boarding and updates), and 3) eliminate the need for self-reporting. 

On this front, in the near term, we are seeing an uptick of momentum in B2B platforms that are setting a data foundation and/or nutritional lens in order to enable various players throughout the food ecosystem to provide enhanced and personalized health experiences. For example, Diet ID has partnered with SunBasket to gather insights on customers’ dietary patterns and seamlessly help recommend meals that align with their goals. Edamam recently partnered with restaurant/catering companies like Juice Generation and ZeroCater to easily integrate nutrition and dietary info across all menus and dishes. Lighter Nutrition, has recently partnered with Mass General Hospital (among others) to provide an enterprise platform for health care providers to be able to customize meal plans and grocery shopping for their patients. 

As I mentioned during a talk at Groceryshop 2019, I think food retailers/grocers are in a particularly unique position to impact healthy choices. Wellness is a clear strategy as grocers look to differentiate in an increasingly commoditized sector, and thus while the national chains have more budget for these initiatives, it is all the more important for small/midsize grocers to compete. Regional grocer Heinen’s is ahead of the game, as they hired a chief medical officer and chief dietitian years ago, but they recently kicked it up a notch with the recent announcement highlighting their own Fx platform for personalized diet plans. For grocers without their own chief medical officer, there are startups like FoodMaestro and Spoon Guru, which partner with grocers to layer health data into the shopping experience. 

In summary, the personalized nutrition technology space shows huge potential in the long-run and while it is showing some momentum in the short-term, there are still fundamental challenges to “personalized nutrition” platforms that will likely take this sector more time to mature.   

VOICE AND BOTS OFFER A NEW AVENUE OF ENGAGEMENT

Restaurants, brands, retailers and advertisers have increasingly started to think in terms of conversations (rather than one-time transactions or ad placements) in order to maintain consumer engagement and engender lifetime value. 

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-driven conversational platforms for the food industry. From automated brand communication to voice-driven platforms focused on nutrition, grocery, coffee, online ordering, drive thrus, and even Back-of-House solutions focused on restaurant bar inventory, there are numerous use cases to ditch the typing (or phone, pen and paper!) and streamline via conversational technologies.

THE PRIMACY OF FIRST-PARTY DATA: DATA ANALYTICS COMPANIES ARE GETTING BOUGHT BY THEIR WOULD-BE CLIENTS

Counter to the more traditional network effect approach where clients of software companies benefit from leveraging their data by blending it with that of their competitors, an interesting recent trend has emerged where a handful of early stage AI-and data-analytics startups within the food, retail and restaurant sectors were acquired early on by a customer in order to bring data and insights in-house. 

This highlights the ever increasing primacy of first-party data as a competitive differentiator. Recent examples include McDonald’s purchases of Dynamic Yield, Walmart’s acquisition of Aspectiva and even Instacart’s acquisition of MightySignal.

THE CONVERGENCE OF “OMNI-CHANNEL MEALS” 

There has been an overall convergence of in-home food channels that one might call “omni-channel” consumer food delivery as consumers are making less of a distinction 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 the Amazon/Whole Foods combination would be a threat to both brands and local restaurants. I believed that the competition from a more streamlined grocery category capable of delivering its own in-store prepared food, private branded products and meal kits ( a “grocerant” platform) combined with Amazon’s logistics, would be a threat to local restaurants. However, to date, it has not played out that way – which in part shows how hard it really is to execute on a successful food program.  

PRIVATE EQUITY’S GAZE SHIFTS FROM RESTAURANTS TO RESTAURANT TECH 

As private equity activity continues to sizzle in the restaurant sector, we are seeing private equity players begin to enter the restaurant tech category via rollups and mergers of incumbents. That said, while you would think some of these investors are looking for synergies or operational efficiencies among their restaurant portfolio, there is actually little overlap between the restaurant and restaurant tech private equity investors stepping into the space (save for Danny Meyer’s Enlightened Hospitality).   

Some recent private equity entrants to the space include Marlin’s merger of Fourth and HotSchedules, Vista Equity Partners and Enlightened Hospitality Investments cash infusion into Gather, and Great Hill’s $65 million investment into Paytronix last year. 

The food tech and restaurant tech sectors haven’t quite caught up to the broader financing ecosystem, however, as Pitchbook notes that PE-led acquisitions 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” PLAYBOOK

We continue to see a huge wave of continued consolidation in regional restaurant delivery networks as the national players need to keep scaling in order to lower per- customer costs in the technology, marketing, infrastructure and customer support realms. Nationally, Caviar’s recent $410 million acquisition by DoorDash was notable given there were no buyers when it was being shopped three years ago (reportedly they were asking for $100 million), but fast forward to 2019 and Square was able to sell it for a significant premium. 

Softbank, a major investor in DoorDash, is famously known to be a believer in the market-grab (i.e. “go big or go home”) philosophy and likely used that as justification for paying the premium over Square’s acquisition price. It is questionable whether Caviar’s business performance alone could have justified paying that premium. Time will tell whether the combination of DoorDash and Caviar will provide enough market momentum to get both companies to stop bleeding cash.   

FOOD TECH SERVES LUNCH FOR CORPORATES

The convenience economy is no passing fad. And while we have seen many food delivery companies unable to “go big” already “go home” through shutdowns and firesales, it has also paved the way for new, and capital efficient approaches to personalized food distribution. Within this, corporate meals have been a particularly bright spot.   

The fundamental challenge of most food delivery companies has been to make the economics work to deliver one meal to one person/family across different places and times. In contrast, as the entrepreneurs behind the 40+ venture-funded corporate lunch startups have figured out, group dining can actually deliver profitable margins. As such, there have been new crops of competitors entering the fray on a regular basis; 35% of these VC-funded concepts were founded 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 the business opportunity of the lunchtime worker – ranging from quick service brands like Sweetgreen, who is using the recent cash infusion to support corporate delivery platform Outpost, to last mile delivery services from restaurants 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 an increased focus on college towns and campuses, especially since they can deliver population density outside of major markets. Besides college food marketplace Tapingo, which was acquired by Grubhub in 2018 $150 million, you will find a number of other college-focused food platforms in the Landscape including Kiwi Campus, Snackpass, and Hooked. Even Sally the salad-making robot is heading off to college!

While the economics of corporate lunch delivery can be solid, we have not yet seen even the beginning of the national rollups in this space. As most corporate and catering startups are still regional (even if the regions are large or span multiple parts of the country), I predict this will be a compelling 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’s tough to be a restaurant or hospitality operator today. We’ve increasingly seen a myriad of issues cannibalizing operators’ margins, including rising rents and labor costs, as well as the onslaught of third-party ordering/delivery services. And simultaneously, operators are being bombarded by 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’ income statements are from third-party ordering/delivery technology “partners” that are skimming significant margins from restaurant operators for off-premise orders (both take-out and delivery). 

These third-party marketplace partners are selling restaurants the chance to increase reach and volume through delivery and larger platforms, arguing that the additional incremental sales volume is pure margin due to significant fixed costs in the restaurant model. But that lens is too simplistic, as off-premise sales include additional indirect and hard to measure costs, and many operators are actually reporting negative margins on third-party delivery (“3PD”). For more depth on this topic you should read the medium post by the CEO of customer engagement platform Thanx, in his comprehensive takedown on the massive disruption facing restaurants today.

Beyond P&L implications, there is also a data gap with many third-party marketplaces, as many of these partners are looking to capture the customer data for their own platform’s success. When they are unwilling to share even basic data on the restaurant’s own customers, the 3PDs are showing their hand in that they view these restaurant customers as their own customer base.  

THE BIFURCATION OF RESTAURANT CUSTOMER LOYALTY: THIRD-PARTY ORDERING/DELIVERY MARKETPLACES ARE POISED TO TAKE OVER AS UNIVERSAL LOYALTY PLATFORMS

One of the early trends I tracked in local tech was the digital reinvention of the punch/stamp loyalty card – with startups promising one universal loyalty account to replace them all, by using gamification, check-ins, push notifications, digital wallets and the lure of a network of deals at a consumer’s fingertips. 

Many startups built a business plan around becoming the universal loyalty network, spending time (and capital) to build a consumer-facing brand in order to simultaneously woo local merchants with their impressive user base. In years past this was an overflowing category in the Landscape, however the logos have dramatically slimmed as most of those startups have since either been acqui-hired, pivoted out of the food/restaurant sector or simply failed. Escaping the deadpool, Fivestars is a notable exception, having continued to successfully 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 you will see that the Landscape category focused on B2B restaurant solutions for CX (Customer Experience), Marketing and CRM (Customer Relationship Management) is bursting at the seams. I predict this category will continue to grow in next year’s iteration of the Landscape.

A key reason for the struggles of the first crop of loyalty startups was that a many of the founders and technologists lacked local merchant/restaurant experience, and struggled to create compelling win-win solutions as they tried to solve for the operational complexities related to running a long-tail, two-sided marketplace. It is a hard business to scale, and ultimately, without the network 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 how we think about the third-party ordering/delivery scene. Many of the loyalty startups were ultimately competing against their own customers (the merchants) for branding and mind share, which by default did not create a win-win model to best serve the interests and priorities of restaurants/merchants. This tension is again showing up with third-party ordering/delivery marketplaces, but rather than just competing for mind share, the leading third-party partners seem to be increasingly setting their sights on owning the customer’s entire journey. Grubhub’s recent launch of a loyalty program supports this thesis.

In a relatively short time, due to the ease, variety and scale offered via marketplace apps, the customer’s loyalty journey has transformed, now bifurcating to either: 1) direct ordering from the restaurant (online or in-person), or 2) loyalty to one or many ordering/delivery platforms. Thus the future success of many restaurants depends on handing power back to the operators, which is why there is such a healthy market for white-label ordering & delivery, and automated customer engagement platforms.

——————

I’ve enjoyed watching the Food Tech sector grow over the last decade, but am certain we will see even more meaningful growth in the decade to come. At Better Food Ventures, we believe technology will prove to be the single biggest catalyst to solving critical problems across the global food ecosystem, 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 industry matures, and as such, we depend on the wisdom of the participants in the space. I welcome your thoughts and reactions and look forward to following this sector together in the coming years. You can download the map here.

Primary Sidebar

Footer

  • About
  • Sponsor the Spoon
  • The Spoon Events
  • Spoon Plus

© 2016–2021 The Spoon. All rights reserved.

  • Facebook
  • Instagram
  • LinkedIn
  • RSS
  • Twitter
  • YouTube