4 Innovative Food Startups That Will Disrupt the Industry in 2020
When was the last time you really stopped and took an audit of the food brands that are currently in your pantry, refrigerator and freezer? How many of them existed ten years ago? Why did you start buying those products in the first place?
Consumers have always had highly differentiated purchase criteria when selecting a preferred CPG product over a competitor. Despite that individuality, market share in most food categories has historically been concentrated within a set of incumbent portfolios, as consumers have accepted availability over personalization. While history is said to repeat itself, today’s consumers are bucking this trend by supporting smaller startup brands that provide a higher degree of perceived customization.
At the same time, the speed at which an entrepreneur can move from idea to sellable product has never been faster in the CPG industry. When combined with lowered marketing and distribution barriers to entry, it creates a perfect storm of innovation that can finally give consumers options that fulfill their complete lists of purchase criteria.
Below we analyze four notable food startups that will disrupt the industry in 2020 and beyond.
The Startup: SmartSweets
The Story: One of the most quintessential entrepreneurship stories is when a person notices a gap in the market for a product they want to buy, and instead of waiting for someone else to create it, they start their own business to fulfill that need. That is exactly what Tara Bosch did when she became frustrated shopping for a great-tasting, healthier candy option. From her time working at a supplement retailer, Tara knew there were plant-based natural sweeteners and fiber that could replace the sugar and corn syrup traditionally used by candy companies. During the summer of 2015, she bought a gummy bear mold off Amazon, and over the next year she started testing various candy recipes of her own.
In July 2016, SmartSweets officially launched, and Tara was able to get her original Fruity Gummy Bears into a small number of local Canadian grocery stores. Later that year, SmartSweets debuted at Bed Bath & Beyond registers across Canada. Building on that success, Tara was able to attract Whole Foods Canada and eventually Whole Foods U.S. As of November 2019, SmartSweets candy is available in 18,000 stores across the United States and Canada. In addition to the original Fruity Gummy Bears, the brand now offers Sour Gummy Bears, Peach Rings, Sweet Fish (modeled after Swedish Fish) and Sour Blast Buddies (modeled after Sour Patch Kids).
The Incumbents: Hershey’s, Mondelez International, Nestlé, Mars Incorporated and Haribo
Why Incumbents Should Be Worried: While its early retail support came from the specialty and natural grocery channels, SmartSweets is now available at Target and Kroger. This builds on the brand’s staggering growth in revenue, which is on track to more than triple from $11.69 million in 2018 to more than $50 million in 2019, according to Bosch. With similar growth trajectory in 2020, SmartSweets could be looking at an income statement that will exceed $100 million in annual sales.
What Big Food Can Learn: Understand that there is a growing opportunity in market fragments. Each incumbent’s candy portfolio likely already contains low-sugar variants of select top-selling products. Why does a startup like SmartSweets thrive amongst those offerings? These low-sugar variants with higher brand equity are often not given resources to be successful in the market. They are typically an afterthought because they don’t have the total sales volume or velocity of their full-sugar counterparts.
The Startup: Daily Harvest
The Story: As a busy professional, Rachel Drori would spend her weekends prepping meals for the upcoming week. Seeking a better solution, she tried the various meal subscription services, but she found them to still require too much effort for her schedule. Determined to consume healthy meals that were also ultra-convenient, Rachel began freezing pre-portioned bags of mixed fruits and vegetables that she would use to make nutrient-dense smoothies throughout the week. Once Rachel’s friends noticed her healthy meal “hack,” they asked her to start delivering smoothie ingredients to them too, and Daily Harvest was born. Rachel now serves more than 100,000 of her friends (customers) nationwide with Daily Harvest’s weekly and monthly subscription service, which has expanded to include soups, harvest bowls, chia parfaits and more.
The Incumbents: General Mills, Conagra Brands, Nestlé and Kraft-Heinz
Why Incumbents Should Be Worried: In its most recent round of funding, Daily Harvest raised more than $40 million from both seasoned venture funds and celebrities, such as restaurateur Bobby Flay, Olympic gold medalist Shaun White, and actress Haylie Duff. It has endless amounts of user-generated social content posted by happy customers who enjoy the flavorful recipes created by in-house chefs and nutritionists using ingredients that are picked at peak ripeness and frozen right at the farm to lock in nutrients.
What Big Food Can Learn: Frozen food has always been convenient, but with the right product and storytelling, it can also cater to today’s health-conscious consumers. The category has historically gotten a bad rap, but that’s because incumbents haven’t managed to control the narrative as they start offering their own “healthier” frozen meal options. Daily Harvest has done a great job explaining its supply chain differences and how frozen food can be healthy.
The Startup: Magic Spoon
The Story: Gabi Lewis and Greg Sewitz have been eating cereal since early childhood. For years, the two college buddies searched for a cereal with the same addictive taste as classic brands without the grains and sugar. Knowing other cereal-crazy adults must also be looking to swap their nostalgic favorites for healthier and great-tasting alternatives, they decided to create Magic Spoon. Magic Spoon cereals are grain-free, low-carb and high-protein and come in classic flavors such as Cocoa, Cinnamon, Fruity and Frosted. The packaging is colorful and draws on the animal mascots of children’s cereals. Magic Spoon cereal is currently only available on the company’s website. Customers can purchase a recurring monthly subscription or a single month’s supply.
The Incumbents: Kellogg’s, General Mills, PepsiCo (Quaker Oats) and Post Holdings
Why Incumbents Should Be Worried: Gabi and Greg started a previous business together called Exo, which makes high-protein bars with powdered crickets, and sold it to another player in the space. The pair therefore understands what it takes to grow and scale a CPG startup.
What Big Food Can Learn: Consumers still love cereal, but they might not love the current tradeoff between great-tasting and healthy. Traditional cereal incumbents have been struggling to normalize dropping sales. Many of them have adjusted ingredients or launched “healthier” versions of their products. However, these strategies have not addressed the core needs of the consumers who are looking to add more protein at breakfast.
The Startup: IWON Organics
The Story: As a lifelong fitness enthusiast and seasoned entrepreneur, Mark Samuel has consumed his share of high-protein snacks. After noticing his body was becoming intolerant of milk-based products, Mark decided to adjust his daily protein shake to only include plant-based protein sources. Armed with a noticeable energy increase, he next became interested in swapping out the milk-based high-protein snacks that he consumed, such as protein bars. Noticing the lack of plant-based options, especially in the salty and savory snacks category, Mark launched IWON Organics. The company’s first product was high-protein, plant-based chips made from 100% organic, non-GMO and natural ingredients. Today, IWON Organics’ product lineup includes high-protein, plant-based varieties of Puffs, Stix and O’s and can be purchased in over 6,000 global locations.
The Incumbents: PepsiCo (Frito-Lay), Kellogg’s, Campbell Soup Company and Conagra Brands
Why Incumbents Should Be Worried: IWON Organics is growing 300% year over year, with e-commerce sales growing an average of 30% month over month. While most of its early physical retail success came from nutritional supplement specialty retailers GNC and The Vitamin Shoppe, the company recently launched larger 5-ounce bags that put them in play in natural and conventional grocery retailers. Additionally, IWON has partnered with Tapatio to add the hot sauce’s flavor to popular products, helping attract mainstream consumer interest.
What Big Food Can Learn: Healthy salty snacks don’t always have to have boring, unimaginative flavors. Even though IWON Organics’ products are rooted in “better for you” properties, Mark decided that they also need to have robust flavors. Along with the above-mentioned partnership with Tapatio hot sauce, the company also offers flavors like Sweet Dijon, Red Pepper and Caramelized Onion.
OneSpace Can Help
Today, the idea that “eye level is buy level” is just as relevant online as it is offline. With more and more food startups entering the market, it has become increasingly difficult for incumbent brands to maintain prime placement on the digital shelf. OneSpace’s suite of tools and services helps CPG brands centralize, optimize and publish product content that wins top position in search results on multiple online retailers. Contact us to learn more.