Food & Beverage | Food & Beverage

The global Food and Beverage market is huge, growing, and constantly changing. In 2022, the animal protein, snacks, and alcohol markets were valued at around $1.4T each, with coffee and tea at an impressive $650B. Food and drink represent nutrition, pleasure, and health. They are a fundamental focus for our health and happiness centric funds.

Our earliest and strong forays into food have been alternative proteins. We have more than two dozen investments spanning vegetable and lab-based proteins and related technologies in both the US and Europe. While we see strong performance from these investments, our focus has shifted away from novel proteins themselves and toward manufacturing and cost reduction. We are open to new alternative proteins, but only if they are in some way spectacular — we feel the current generation of products has to work their way into the market before a new generation can emerge.

COFFEE & TEA
We see these universal drinks as being poised for disruption and so are increasing our focus here. One reason is global warming; Western consumers’ preferred yet climate-sensitive form of coffee bean, the Arabica, has become highly problematic. Rising temperatures make it difficult to grow, resulting in a supply shortage that’s struggling to keep up with global demand. Top producer Brazil has experienced a 20% yield reduction in the last 50 years, and projections indicate that by 2050, any land suitable for Arabica in Indonesia will have been entirely used up. That opens opportunities for new forms of coffee beans or even for beanless coffee from the lab. Similar trends are true for tea.

On the consumer side, Millennials are demanding more authenticity and transparency from their food and drink products, while Genz is demanding more novelty. This is drastically changing the way coffee is consumed. Cold coffee and tea drinks (in 2022, cold brew and iced coffee in coffee shops shot up by 27% and 11% respectively) are stepping to the fore, experimental new textures (bubble tea is now mainstream among teenagers), and all sorts of at-home preparations intrigue consumers. Beverage drinks put, health, wellness, and mindfulness at the heart of their buying, but still want a buzz from coffee and tea. So sparkling ready-to-drink tea is gaining significant traction, especially those with low or no sugar that still deliver on flavor. We plan to pay specific attention to:

New sourcing and origin stories: Robusta beans are the basis of Vietnamese Craft coffees, as well as South-East Asian preparations. We will also watch out for new Heirloom beans that offer similar but more climate-resilient characteristics and favorable flavor profiles.
“Bean-less coffee” made using cellular agriculture and microbial fermentation, recreating the experience using less water, land, transportation, and time.
Natural alternatives to sugar such as monk fruit, coconut sugar, and molasses.
Tech-based sweeteners like those using precision fermentation.
Lesser-known regional adaptogens and botanicals.
Pre/Pro/Post biotics that thrive in cold drinks.
Rising ingredients like chicory root fiber, arabinoxylan, and sea moss.

Exceptionally successful examples of these brands from our portfolio include Wild Wonder (sparkling tea with a deep and delightful cultural origin story); Copper Cow (Vietmenames-style at-home pour-overs with an up-front eco/ethically conscious mission statement and novel flavors co-developed with customers); and Cure (a powdered hydration formula based on highly effective science and clean, natural ingredients).

SNACKS
Snacks are powerful little moments of pleasure, and resonate strongly with our health and happiness thesis. They also, though, tend to fly against the current focus on natural and healthy food. So there is an innate tension here that we view as an opportunity for innovation.

Frankly, so far we haven’t seen the new breakout products we hoped for. We’ve reviewed countless snacking businesses at Joyance, but have not yet made a move to invest. But we’ll be patient; we remain attracted by the category and believe that it will come down to identifying top entrepreneurs who have forged together ingredients in novel ways and are able to perfectly execute on branding and demonstrate strong early traction in DTC and retail.

ALCOHOL
Western culture is experiencing a “Sober Curious” movement, resulting in sophisticated low- and no-alcohol alternatives with nuanced, versatile flavors evoking a sense of small-batch or craft-brewed beverages. We plan to increase our focus on these emerging alcohol products, but invest only sparingly. Our 2023 focus:

Wine: Production is crop-driven, and takes a long time. Considering the climate situation, wine production has become increasingly unpredictable and risky. Wine competitors and buyers are also notoriously irrational, so it’s tough to make money. At the same time, new generations of wine drinkers demand new tastes, form factors, packaging, and methods of delivery. We see the opportunity here, but only for brilliant entrepreneurs with domain experience who can get to market fast and furiously.
Beer: A universal beverage for relaxation and socialization, beer depends on increasingly challenged agricultural components. Younger consumers have increasingly turned to alcoholic seltzers as an alternative. Our interest here centers on new non-alcoholic alternatives that retain true beer flavor, as well as other carbonated ways to give consumers a gentle social buzz.
Spirits: People drink cocktails in part for their taste, but also as a social lubricant. The production of alcohol is a slow process that drives up the price and so moderates demand. Our focus is both on ways to speed the development of rich-tasting alcoholic products as well as flavorful non or lite alcohol alternatives that let young consumers enjoy the cocktail experience without the negative physical impacts of booze.

Across all these categories we need to see unique product characteristics, dramatically strong gross margins, and a clear path to market that has been at least initially demonstrated.

Do you have the recipe for a company with all these ingredients? Get in touch — we’d love to hear from you.

By Investment Partner Thibault Vanvincq