- Plant-centric alternatives to meat and dairy accounted for one-third of total investment in food and beverage startups in 2018, according to a new report by Ryan Williams, the finance lead at Rise Brewing Co., and published on Food + Tech Connect.
- Impossible Foods — which got a single $114 million investment — and Ancient Nutrition — which raised $108 million — got the largest checks. The average investment was $7.3 million, and the median was $2.4 million. Notable categories receiving investments included alternative products — with a focus on CBD and keto — and salty snacks.
- There was less M&A last year — 59 deals closed in 2018 compared to 65 deals in 2017.
As consumer preferences change, so do investments. While trends like plant-based continue to see strong growth and new funds, others like CBD are beginning to emerge and garner the attention of investors who are putting their money where consumers' mouths are.
Investors have put more than $17 billion into U.S. plant-based and cell-based meat companies in the past 10 years — $13 billion of that in 2017 and 2018, according to two reports from The Good Food Institute. That's 17% growth, adding up to more than $3.7 billion in retail sales, according to Nielsen data. The explosive growth has translated into big bucks. According to this report, alternative protein companies snapped up 13% of all CPG investment funding this past year. Plant-based dairy is also seeing meteoric growth and captured another 14% of the total investments made in 2018.
These investments are unsurprising given that 60% of U.S. consumers report cutting back on meat-based products and 55% say it is a permanent change. This trend is transforming into a mainstream way of eating. As plant-based becomes more of a mainstream diet, startup investment may slow down and acquisitions may pick up. Of the 19 acquisitions of plant-based companies since 2009, 10 occurred in the last two years.
But investors have already found other categories that are ripe for industry disruption. The largest of these up-and-coming areas is products featuring CBD. Although it captured only 4% of overall CPG investment, there are quite a few startup companies attracting interest. And the growth is projected to continue. A new Rabobank report found CBD has been entering food and beverage products — beer, coffee, cocktails, jelly beans and others — at an "astounding pace."
According to this latest study, that pace translates to $52.3 million in investments last year. And that's likely to translate to more consumer dollars. A report from BDS Analytics projected spending on products with cannabinoids to be $4.1 billion by 2022 — more than double the $1.5 billion last year. Although the path to legality is still up in the air, more big companies will likely be closely watching these startups for future investments and potential M&A.
Keto is another trend receiving significant investment. Since 2017, Google searches for the term have nearly quintupled and the food world has responded accordingly. However, keto is arguably more of a diet fad than a long term trend, making it risky for investment. Startups known for their keto-friendly products could be looking to branch out. Last year, butter-infused coffee maker Bulletproof received the lion’s share of investment in the category, with $40 million. However, it's moving away from solely keto products, diversifying into the supplements category.
Salty snacks is another growth category worth watching. Last year, all investments in that category were for non-potato-based snacks, which underscores consumers’ departure from chips as their top snack option. At $27.7 million of funding in 2018, it is clear that snacks are taking a bigger bite out of the market share as busy, hungry consumers search for ways to conveniently nourish themselves on the go.
Looking forward, snacks, CBD and plant-based products will likely be the categories where larger CPGs will begin looking for growth. Although CPG giants are generally slower to move than their startup counterparts, there are already signs of change. Mondelez told CNBC recently that CBD could be part of future snack innovations, and Unilever-owned Ben & Jerry's made a solid commitment to a CBD ice cream flavor as soon as it is legal through the Food and Drug Administration. Many companies, including Tyson and Nestlé, have chosen to invest in plant-based meat alternatives — or create their own — as consumers continue to clamor for options.
This year, there have already been new, innovative brands trying to break into these hot categories. Whether they make it through will depend on if they can capture the attention of those with deep pockets who are always looking for a product that can redefine a category.