Claire Schlemme started Renewal Mill — a company that upcycles byproducts, like okara, into ingredients — to find more sustainable food waste solutions.
And last year she got noticed in a big way. Her company took the top spot at the IFTNEXT Food Disruption Challenge, a competition to help emerging food companies make networking connections and gain more visibility.
"There was a lot of the beginnings of relationships that came out of that for us, particularly at some large companies that might have otherwise been hard to kind of penetrate into," she said. "Larger companies don't want to miss out on what some of those findings are that the startups are able to uncover."
Competitions like IFTNEXT are becoming more common and influencing the future of the industry. Big food companies are increasingly launching accelerator and incubator programs as well as providing grant opportunities. The industry is looking to these smaller companies to pivot the direction of the food landscape and predict trends. Brands that have recently won these awards and the companies that deal them out told Food Dive that startups are already tackling big issues by launching healthier ingredients, innovative technology and sustainable solutions.
"Larger companies don't want to miss out on what some of those findings are that the startups are able to uncover."
CEO of Renewal Mill
CB Insights found investor interest in CPG food and beverage startups is growing, with food giants leveraging startups as a means for R&D and even turning to more venture capital firms with M&A in the space.
Natan Reddy, a senior intelligence analyst at CB Insights, told Food Dive there has been a major shift in the last few years with more food companies and CPG companies developing venture arms and mentoring opportunities for innovative startups. But, he said, the benefits of these partnerships vary — especially for big companies.
"What do they get out of it? That's probably very situationally dependent, but it gives them an idea of how oftentimes younger millennials are thinking and how to connect with customers in maybe ways that they haven't before," Reddy said.
These programs indicate that big companies have a growing interest in the upcoming trends emerging in the food category — which startups are the first to pick up on, he said.
Filling gaps in the marketplace
In recent years, different major manufacturers, industry groups and organizations have awarded more grants and mentoring opportunities to startups. But one of the original movers in the space was Food-X.
Peter Bodenheimer, program director of Food-X, told Food Dive that when it started in 2014, it was the only accelerator focused on the food system. Now there are more than a dozen. Food-X is an accelerator program that invests $110,000 in startups in exchange for 8% equity stake.
"Our job is to help people, help these founders build their business, ...figure out what they're good at and where they're weak and help them so that when good luck comes along, they're in a position to capitalize on that, and that when bad luck comes along, they can survive it," he said.
Bodenheimer said consumer demands continue to change. They aren't always being met by bigger companies because they don’t act fast enough, so programs like Food-X help highlight the next big thing and provide a space for funding new companies, he said.
"That's opened up this opportunity for startups to step in and now we're seeing the maturation of that. And that's where I think you're seeing more M&A in the space," he said. "(Startups) can listen to the consumer and develop a more direct relationship than a big company can. They can be nimble, they can move quickly and they can deliver to the market what people are asking for."
"(Startups) can listen to the consumer and develop a more direct relationship than a big company can. They can be nimble, they can move quickly, and they can deliver to the market what people are asking for."
Program director, Food-X
Startups have seen growth and success after the program. Molli, a Mexican food startup that was a part of Food-X’s spring 2016 cohort, has since disrupted the space, grown in popularity and expanded distribution.
The application for 2019 Food-X submissions recently closed. The company usually gets about 500. Bodenheimer said he was hoping to see companies in trending segments apply — including innovative technology for the food industry, sustainable proteins and packaging, waste reduction and the intersection of food and medicine.
Erin O’Connell, the program manager of knowledge and learning at IFT, said IFTNEXT’s Food Disruption Challenge looks to reward companies that solve a problem or fill a gap in the marketplace because those are innovations that greatly impact the industry. O’Connell said it was a tough competition last year when Renewal Mill won the $25,000 grand prize.
Last year's finalists tapped into trends that are dominating in the industry today. As sustainability has become less optional for food and beverage manufacturers, companies have turned to vertical farming and more environmentally friendly packaging. Inductive Intelligence, which developed technology to make it possible to safely heat foods and drinks in disposable packaging with a wireless phone battery charging device, and Nebullam, a food technology company that developed a new vertical farming system, were both finalists and have brought innovation to those big trends.
O’Connell said that smaller companies are able to take risks and experiment with a more condensed marketplace that could be more challenging for larger companies to pursue.
"We are really looking for companies that have innovative new products or technologies that enhance the science of food and has potential to disrupt the industry with their innovation," O’Connell told Food Dive. "Startups are uniquely positioned to foster innovation."
Big Food wants in
Major CPG companies have been finding ways to foster creativity and capitalize on smaller companies through incubator and accelerator programs. A growing number of large food and beverage companies are investing in venture capital arms and these programs to bring those ideas under their roof.
Last year, Kraft Heinz decided to join in by investing in up-and-coming companies with the launch of Springboard, which looks to partner with disruptive brands.
David VanHimbergen, head of Springboard, told Food Dive the company looks to develop brands with authentic propositions and motivated founders within four segments shaping the future of the food and beverage space: natural and organic, specialty and craft, health and performance and experiential brands.
"We believe they are shaping the future of the food and beverage space," VanHimbergen said. "Our Springboard Incubator program has been designed to be a best-in-class program to nurture, scale and accelerate growth of the next generation of food and beverage brands, while staying close to entrepreneurs, new ideas and consumer trends."
"We believe they are shaping the future of the food and beverage space."
Head of Springboard
The first group of startups in the incubator last year included antioxidant beverage line Poppilu, avocado sauce startup Kumana, Quevos egg white chips and Cleveland Kraut sauerkraut.
Sergio Eleuterio, who was head of the Springboard program when it started, told Food Dive last year why Kraft Heinz was interested in these companies. Poppilu was created by a mother who wanted a better-for-you lemonade for her daughter — and incorporated the superfruit aroniaberry. Kumana taps into the trendy avocado, and Eleuterio said Kraft Heinz worked with them to help develop their product and marketing. Cleveland Kraut, which aligns with the fermented and probiotics trend, is a more natural take on sauerkraut, and Kraft Heinz did a lot with their branding and packaging.
As for Quevos, Eleuterio said he was initially skeptical about the product, since it's a chip made from egg whites. But, he said, they taste great and Kraft Heinz helped them build their "superfan" base.
"They’re going all the way to Cross Fitters and gyms, filling the need," he said. "Everyone wants to snack, but it’s all starch-based or it’s all nut-based."
Eleuterio said that there's a lot that the smaller brands can teach the big players. Springboard, he said, is a learning opportunity.
"We said, 'We want to buy into this area in the future of food. There are amazing startups and founders and products out there. Let’s build an incubator program so that we can help them develop, but at the same time, get those learnings, codify them, reapply them to the mother ship and build playbooks,' " Eleuterio said. "We learned a lot from them."
The J.M. Smucker Company and investor startup studio Rev1 Ventures also announced a partnership last year to invest in emerging brands and technologies. The companies have not yet announced their startup partners.
Tom Walker, CEO of Rev1 Ventures, told Food Dive in an email that startups can glean market feedback and validate their product and value for Smucker. The partnership will allow Smucker to support startups with joint development, licensing, more investment and even the potential for acquisitions, he said.
"Our collaboration enables Smucker to tap into emerging technologies and startups that are transforming the food industry across several focus areas, including ingredient and process technology, snacking, commodity and supply chain, and more," Walker said.
Tina Floyd, senior vice president and general manager of consumer foods at Smucker, said the startups partnered with in this initiative will help the company's efforts to introduce more effective and efficient ways to meet the evolving needs of consumers.
"The food industry has evolved based on consumers’ changing preferences and behaviors and this has necessitated new thinking and innovative solutions."
Senior vice president and general manager of consumer foods, The J.M. Smucker Company
"The food industry has evolved based on consumers’ changing preferences and behaviors and this has necessitated new thinking and innovative solutions," she told Food Dive in an email. "We see promising opportunities to collaborate with emerging brands by pairing their ability to focus on smaller, more niche needs with our operational scale to bring fresh ideas to consumers in a meaningful way."
How startups use these opportunities
Chobani Food Incubator is intended for CPG startups that don’t want to give up equity, but want to scale their companies and get mentorship relationships from the yogurt company's employees in operations, finance, sales and marketing.
WildWay, a better-for-you breakfast and snack food company based in San Antonio, Texas, was selected as one of Chobani’s startups last year. Kyle Koehler, the co-founder of WildWay, told Food Dive the program helped him network with Chobani and other small companies.
Winning startups often end up foreshadowing the biggest trends in the industry because they connect with consumers on a more individual level. He said better-for-you foods and transparency around what is in products are trends that will continue to grow this year.
"One big thing that's becoming more and more prominent with foods is that people are just being a lot more cognizant of what they put in their bodies," he said. "Trends come and rise and fall all the time. But I think the trend around just people wanting to eat real food is a change that's going to be around for a very long time and just going to be stronger. People want to know what they're eating, but also want to know where it comes from."
Schlemme, CEO of Renewal Mill and winner of IFTNEXT last year, said startups are the testing ground for these big companies because the smaller companies move quickly and then benefit from the resources and investments of big brands.
From ingredients to function to product type to packaging, startups and grant winners force big companies to make changes in their own business. Schlemme said her company and the other finalists brought innovation and passion that the bigger companies are lacking in the industry.
"There's just so many different ways that people are trying to solve challenges in the food system, and trying to bring an original business model to disrupt what's currently there, and bring some originality and newness, freshness and innovation into the field," she said.