Packaged Food: A healthy business for 2022

“How do you push for systemic change in the food system?” A question we regularly ask to stakeholders we’ve met as part of the Fresh Ventures builder program.  An answer is you create a market for it. Make sure there is a demand for that change. As I am diving into the flaws of our food system, I have become particularly interested in demand.

We consumers have no time today . We're all busy. Working our jobs, spending quality time with our children, seeing our friends, finding time to exercise, maybe thinking about professionalizing that hobby, and hopefully getting those 8 hours of sleep. Yet we still need to eat. So sometimes we order, more often we turn to consumer packaged goods. Throw some spaghetti in the water, open a jar of Bertolli tomato & basil sauce, a package of grated cheese and off we go.

In my last post I explored business ideas in aquaculture tech. This week I’m turning towards the Consumer Packaged Good (CPG) industry, more specifically the better-for-you (BFY) food segment. Yes, it's an actual food category. Quite new, but used nowadays to report on types of food that are… well… better-for-you.

The category broadly includes products that are generally perceived to be healthier. Selecting those ingredients wisely. Food to help us eat more nutritiously.

The category encompasses endless options for ingredients differentiators. Fat, salt and sugar alternatives. Gluten-free. Starch. Soy. Whole grains. Novel proteins. Fatty acids. Sterols. Low-glycaemic. Fiber. They all have a role to play in the BFY category.

In the post below, I will try to convince you that there are many opportunities to build a successful small BFY food brand business, sourcing wisely local quality ingredients. With considerable bonus points - the company can have a positive social and environmental impact.

1. BFY food is mainstream, keeps growing and it's good business.

The wellness market is booming, and that includes a renewed focus on nutrition. Consumers want food to reach their wellness goals, and they want it to taste good.

Research and Markets estimates the global Health and Wellness Foods Market will reach $1.1 Trillion  in 2027, the BFY Food Segment will represent almost a third of that.

This growing trend is illustrated by McKingsey who reports that consumers will spend more on healthy, local and environmentally friendly food products:

The market is already huge, and it's also good business. Another report by the Hudson institute points at the fact that the BFY food category performs better financially. Comparing companies with mixed portfolios of traditional and BFY foods, they point out that most of the sales and profit margin growth are driven by the BFY foods.

BFY brands can inevitably benefit from this market pull, they are growing faster than their counterparts and they perform financially well.

2. Small brands are gaining traction

Starting a new business means you’ll start small. So it’s interesting to look at what small food companies are up to.

First, small- to mid-size food companies are beginning to realise that in choosing ingredients wisely, they create a platform of differentiation. And that strategy is paying off.

Big food players lost $12B to small brands and private labels in 2020, points out a new research from IRI. A trend that has been set for the last past few years already:

McKingsey attributes this success to small brands successfully delivering on new consumer values. A brand that is special, different, authentic and that can help them meet wellness goals.

And the consumer is choosing increasingly more for them.

3. The hidden cost of traditional packaged food.

CPG food products capitalized on improved mass-production methods. Mass production created cheap ingredients in large volumes. It is no surprise that we find back only a few ingredients in our packaged foods in all kinds of texture and shapes. Palm, soybean, rapeseed and sunflower oil. Together they contribute to 87% of global oil consumption, while wheat, corn & rice make up for 51% of the world caloric intake.

Let's go back 70 years in time when mass production was born from the green revolution. Monoculture became a standard. Highly efficient through crop specific knowledge, machinery, and distribution channels.  High volumes, high yields of the same crop, which resulted in the commoditization of crops.

Proof is that Europe is today highly specialized in just 11 crops, including wheat, corn, rice, soybean. More diversified farms exist, but monoculture still is the standard.

But the practical downside of monoculture is that raising a single crop increases the risk of disease and pest outbreak. The thing is different types of plants in the same field attract different kinds of insects that feed on each other and naturally control pests. With monocultures, that natural defense is lost.

Diseases develop easily as the same crop is planted on large surfaces. It gets worse if the same crop is planted year after year. In turn, the soil gets depleted of the same nutrient year over year without being given a chance to regenerate. Weeds love poor, unbalanced soil which gives them a beautiful potential to thrive and take over the cash crop.

We solved that issue by pouring synthetic fertilizers, herbicides, and pesticides, and used GMOs seeds that could tolerate such harsh treatments.

That solved the problem but left us today with massive issues of nutrient runoff eutrophying the waters and oceans, a broken natural nitrogen cycle, a soil depleted of life and a rapid loss of biodiversity.

In 70 years' time, another side effect happened. Beyond GMOs, we selected the crop varieties that would provide the most yield or other agronomic characteristics. Like shape or color. This resulted in a decline in the content of vitamins, minerals, or nutrients since the second world war. And this has been widely acknowledged. Two paths from there. Either we ignore our nutrient deficiencies and run the risk of health issues, or we turn to expensive supplements.

I think BFY foods can be the sparkle for change. Sure, when processed they might not hold as many nutrients as raw products. Sure, they won't solve our flawed system overnight.  But by requesting diverse healthier ingredients than mainstream crops, they can lead the way.

4. Do well by doing good

Our business idea would thus capitalize on the growth of the BFY food segment and at the same time open the demand for more diversified crops.

More concretely,  I am exploring the possibility of replacing grains by vegetables as main ingredients in packaged food, using nuts and/ or heritage or heirloom crops (i.e. the open pollinated crops’ seed that have been around for over 50 years), which often are more nutritious and can help in rebuilding biodiversity. And plenty of brands are already successfully executing this strategy.

Flourish, a product line of BFY brands' healthy snacks effectively capitalize on that value proposition by bringing several beans flour and vegetables in their chips formula.

Plant based milk started as soy dominant but is diversifying. Innovators are using oats, almonds, nuts, cashew, coconut and gaining shelf space.

MAD foods is tapping in the coffee alternatives with wellness ingredients including fungi ingredients such as cordyceps, chaga, and reishi.

Wellme, a shanghai based startup is making yogurt with chickpea and pea proteins as a base, packed with a range of probiotics and prebiotics. This to meet Chinese consumers’ demand for nutritious, immunity-boosting foods.

Gold&Green is a vegan meat brand made from oats and legumes.

There are so many examples. But there could be so much more to satisfy the market's needs and to create a systemic change.

5. Giants are on the hunt

Leading food brands are eager to acquire local, sustainable, BFY smaller brands. That means for the ones that want to create a brand, grow it and exit, there are numerous possibilities.

Why? Because Big Food has tried to introduce products to attract health-oriented consumers, but with little success. “Big companies don’t innovate well,” says Geoff Haydon, a director of an investment bank reporting periodically on M&A trends in food & beverage. “They are set up to create the cheapest products. They don’t have the patience to nurture a product until sales are significant enough to make a difference.”

Instead, large food and beverage companies have set out to devour their smaller, faster-growing counterparts. Through channeling these products through their massive distribution systems, they enjoy the growth and profitability those smaller brands offer.

For instance Unilever acquired Pukka, an organic herbal tea business ethically sourcing ingredients. Pukka’s health and wellness philosophy centers around benefitting people, plants and planet.

Kraft Heintz acquired Primal Kitchen, a young BYF brand focused on condiment and sauces for $200M. Primal Kitchen delivers products free of diary, gluten, grains and soy with a focus on avocado oil.

Pepsico acquired BFY brands, the maker of Popcorners snacks and Flourish for an undisclosed amount.

Portuguese conglomerate Sonae acquires UK Gosh food for $89M. Gosh! prides itself from only using recognizable ingredients such as beetroot, chickpeas, courgette, mushroom, sweet potato and carrots.

Giants are hungry for innovations and their M&A activities are speaking for themselves.

Where to get from there

The business case for building an innovative small BFY brand is promising. The market is pulling. BFY brands perform financially well. BFY brands promise a better nutritional value. BFY brands can choose to have a positive impact on the environment and create a demand for systemic change. Big food won't lead the change, but will happily pursue and further grow it when the market demands it.

I am very excited about the intersection of those two promises: healthier people and healthier planet. And if you've been waiting for that idea...that perfect idea. Consider BFY brands and the impact they can have. You can make a real difference.

Stay tuned for more impactful challenges to solve and business ideas.