The following is an op-ed by Kelly Belcher, head of climate tech at J.P. Morgan Commercial Banking.
The food tech sector has never been more vast and exciting, with new innovations emerging to help decarbonize, stabilize and optimize the efficiency of our food system. Deal activity has been relatively consistent over the past six quarters, with VC investment in the sector totaling $2.5 billion in Q2 2024, according to Pitchbook. However, the flow of investments remain subject to early performance, consumer preferences and the continuing impact of climate events.
Kelly Belcher, head of climate tech at J.P. Morgan.
Permission granted by JP Morgan
In certain pockets of the food tech space, deals are flowing toward alternatives to high-demand ingredients. One example is new alternatives to cocoa and coffee, which have caught the eye of investors and consumers alike. The two crops are facing growing global demand and threatened supply due to worsening weather patterns and chronic underinvestment in farms, according to J.P. Morgan research. The recent success of alternatives provides valuable insights into the current state of the food tech sector, and how thinking differently about your company and consumers can provide a pathway to strategic financing and sustainable growth.
Thinking Outside the Shopping Cart
On the road to large-scale adoption, many companies find that getting their product into the hands of consumers cost-effectively can be a major challenge. Some companies are finding creative ways to broaden their target audience and prove out consistent demand, which in turn has helped attract funding. Adopting a dual mentality toward B2B and B2C strategies is one way to help broaden your target base.
When Voyage Foods developed their first cocoa-free chocolate using sunflower and grape seed crops, they initially focused on direct-to-consumer sales, then expanded their B2C strategy via contracts with major retailers. The key to their recent growth has been expanding their B2C model and pursuing B2B opportunities in tandem. In 2023, Voyage began partnering with food service operators, and earlier this year they announced a new partnership with food distributor Cargill.
Voyage’s founder and CEO, Adam Maxwell, says their dual strategy has been crucial to their growth, stating that their consumer business is “helpful for telling the Voyage story to consumers and industry.” Earlier this year, the company announced a $52 million funding round, reaching a significant increase in capital as a result of the combined strategy. They have plans to continue growing their three platforms of cocoa-free chocolate, bean-free coffee and allergen-free spreads.
The lesson here? Implementing both B2C and B2B strategies could help you prove out long-term, diversified demand and attract the financing needed to streamline operations or pursue large contracts.
Meeting Consumers Where They Are
It’s no secret that consumer preferences are ever-changing and highly subjective. When it comes to alternative foods, taste, cost, familiarity and accessibility are all unique challenges to win over consumers and ensure sustained success. To help weather these cycles, hybrid products can help boost consumer familiarity and lower barriers to entry, in turn inspiring investor confidence in long-term alternative solutions.
Atomo’s beanless coffee, for example, uses date seeds, millet, sunflower seeds, guava, lemon, and other ingredients to recreate the coffee experience. While their coffee-free products offer compelling sustainability metrics, the company is thinking realistically about people’s current preferences and working to accommodate them. In June, Atomo launched a “Remix” product that combines their beanless blend with Arabica beans. This hybrid product is intended to help mitigate pressures on Arabica supply while easing consumers into beanless coffee, engaging a wider base with a product that performed well in focus groups.
The hope is that over time, hybrid products like these will be less resistant to market forces and more palatable to changing tastes, given the more diversified blend of ingredients. And as a bonus, the new formula will continue to draw awareness to and support investment in the incumbent coffee industry.
Sustainability and Taste
The food tech sector is at a moment of great opportunity. As alternatives to cocoa, coffee and other commodities gain traction, they provide an interesting look at how to effectively reach audiences and balance sustainability with current consumer tastes.
Achieving commercial scale will continue to be a challenge in this competitive and capital-intensive industry, and each company will face its own hurdles to overcome. But with the right framing, we can create opportunity for investment in both alternative and incumbent solutions. For food tech companies, achieving success will require thinking differently about reaching the right audiences and proving demand to financiers. And for these financiers, seeing–and investing in–the long-term potential of alternatives will ensure these companies have room to grow and prove themselves as worthy players in the future of food.
