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Date Keyword Category
Friday, 29 January 2016
In Defense of Food (Technology)
There was a time back in the ’90s when I read my little maroon Zagat for hours as an after-work pastime. I am a hopeless devotee of my favorite L.A. doughnut (Stan’s apple fritter). And I currently have a startup’s organic meal-replacement shake ready to be tested on my desk.

Knowing that I’m not alone in this obsession, I have been perplexed recently that food tech has been an ongoing target of skeptics.

Naysayers have been eager to question the scalability and staying power of on-demand meal solutions like Munchery, or to lambast meal replacements like Soylent as the worst thing to happen to dining since Spam. (Note: I am not an investor in Munchery, Soylent … or Spam.) Just as unnecessary is the insistence on discussing these new food companies as if they are meant to be perfect substitutes without acknowledging that this is a market that has one of the most complex supply chains (lending to partnerships) and is not a winner-take-all market.

Food is a multi-trillion-dollar global industry going through the earliest phases of a seismic shift around consumption patterns and supply-chain dynamics — all problems that lend themselves to technology-driven solutions. Investing in the future of food is possibly one of the most important investment opportunities of our time, given its ability to impact societal issues, including obesity and poverty. Food is also essential to who we are as humans, not just for survival but for the emotional connection to life itself. It’s right there next to breathing and sex at the bottom of Maslow’s hierarchy of needs.

So why the haters?

Food is hard to get right, both as a business (brand, operations and margins) and as a category (dissecting target markets is harder as every human on the planet is theoretically a consumer). The landscape is naturally noisy, as many companies look the same from 10,000 feet.

Having looked at countless food-tech businesses over the years (I acquired and acted as GM of Urbanspoon while at IAC), I see four consistent models in today’s landscape:

(Note: I am focusing on companies that produce food products, not those that just deliver them.)

1. Fulfillment-Tech (Munchery, Sprig): Here, technology initially focuses on aggregating demand while utilizing mobile to service consumers and manage logistics out of a centralized kitchen. Typically, food tastes good, and the best aspire to great over time. For many consumers in this category, ingredient quality and flavor are either on par or secondary priorities to convenience (at least in the early years). At $15 to $20 all-in per meal, this remains an expensive option for most people outside of Silicon Valley. It’s also worth noting that pure fulfillment-tech in food is increasingly likely to be powered by emerging logistics juggernauts like Uber, Instacart, Postmates and DoorDash … that is, until some company inevitably figures out how to predict hunger and match that against calendar entries to auto-order lunch where appropriate.

2. Extreme/Alternative Fulfillment-Tech (Soylent): Technology in this category focuses on the formulation of the food. Products of this type optimize for extreme convenience and cost effectiveness. (For example, Soylent plans to get to $5 per day over time for an all-Soylent diet.) Beyond lifehacking coders, Soylent seems like a potentially positive alternative for the 1 percent of the population that McDonald’s serves every day. Soylent-type products could make the biggest impact as an accessible food source in impoverished countries and areas struck by disaster. I would expect to see more alternatives emerge here, with different formulations and brand positioning.

3. Positive Value Cycle (Josephine, MyTable): In this camp, the experience is all about building and supporting higher-order values that are delivered by the dining experience. Here, technology often focuses on the platform to support, train and build a community of both chefs and consumer evangelists, as well as logistics. This is a category where consumers will often inconvenience themselves to align their food consumption patterns with a certain set of values, such as community, ingredient quality and preferred lifestyle adherence.

4. Positive Value Cycle + Fulfillment-Tech (Blue Apron, HelloFresh, Plated, Din): These are the companies that can create a positive brand value around their food experience and also create efficient and convenient distribution methods that appeal to the broadest audiences. Blue Apron and gang do this by helping busy people who like to cook feel good about themselves while also feeding themselves and their families. But these good feelings are what drive the long-term brand addiction.
This last category is where I think the biggest winners ultimately sit over the long run, and the best of categories 1, 2 and 3 will migrate here after they have carved out a strong position around one of the initial value props above. Because today Blue Apron et al deliver feel-good cooking options conveniently, they may earn the right to also send other types of food and beverages. And because Munchery delivers consistent, ready-to-eat product via same-day ordering, they may earn the right to also deliver ingredients to cook a meal. If Soylent becomes your go-to meal replacement when you are rushing off to the office, you might just order a full-time supply of cost-effective, nutritionally balanced snacks that help you eat better throughout your day.

Of course, many of today’s businesses may not survive. As I said before, operating a business in food-tech is hard. In fact, it is possibly the hardest of the e-commerce categories. Not only do food innovators face all the usual e-commerce user-experience challenges, but they also have the challenges associated with taste (everyone is allowed to be an expert), cold-chain management (ever worry about how long your food sits in an Uber backseat?) and presentation/UX of the food product itself (packaging, plating or containering, as it may be).
Companies that build a skill set across food quality, end user products and operations/quality control — while also focusing on a positive value cycle — have a chance to become a true consumer staple. These companies will leverage mobile, data and distributed workforces to move beyond “want-it-now-ism” to create large, sustainable brands. For these companies, user behavior (and thus unit economics) should mirror the best of addictive substances. Compared to the best e-commerce categories, food can have lower working capital demands, minimal inventory risk and insanely good repeat-user behavior. And the food tech company that figures out how to get high-nutrition, high-value food products to the underserved will literally change the world for the better.

Food-tech may seem like a novelty today. But make no mistake, the companies that create brand value around these new technologies today will grow up to be the Whole Foods, Chipotles, Weight Watchers and SoulCycles of tomorrow, building profitable models that evolve beyond their venture-subsidized beginnings.

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