From the Blog: Food & Beverage Startups: Cultivating Disruption

When startups talk about disruption, they’re almost always referring to tech. Apps, social media tools, and AR integration are typical disruptive terms in the startup space, but it doesn’t have to be that way. The food and beverage industry is a gargantuan market, and it’s oddly primed for disruption.

Innovations like high pressure processing (HPP), vertical farming, farm to table restaurants, and quality home food delivery services, are shaking up the way consumers buy food. Surprising changes are coming to the way we farm and distribute food and beverage in the U.S. Your F&B startup could be perfectly positioned to capitalize on this “niche” trillion dollar market, but only if you know how to compete in today’s changing marketplace.

The Illusion of Choice

According to CNBC, as few as four major companies own nearly 70% of the market in key food and beverage segments like “beer, soda, chocolate, and cereal.” This homogenization at the top has lead to two F&B trends playing out across the U.S.—acquisitions and startups.

When supplies and markets shrink—as they’ve been doing since 2014, larger companies “grow” by gobbling up competition—literally. This consolidation of commodities and distribution chains shores up investments, but also leads to a proliferation of F&B startups looking to fill the vacuum created by this “illusion of choice” amongst a handful of dominant nation-wide brands.

Our food production and distribution is at a crossroads. Major brands are buying up competition left and right, and startups are springing up to establish acquisition value or outright compete in new ways. What’s different today is that startups have never been better equipped to compete, and people are primed for a new kind of F&B company.

People Want Better Taste

There’s a reason that consumers are turning away from “traditional” food and beverage production (at least “traditional” in the sense that it’s been around the last couple of decades)—mass produced stuff tastes bad. Preference is an oversimplification for the explosion of F&B startups and small businesses, but hey, sometimes Occam's Razor cuts the sharpest.

The popularity of Blue Hill, and Blue Apron (coincidence?), and even the explosion of cocktail culture indicate a shift away from the Henry Ford model of food production companies have embraces for the last 40 years. People want better their food and drinks to taste—and they’re willing to pay for it. Food & beverage startups are uniquely situated to capitalize on this paradigm shift—but only if they’re ready to engage this army of motivated consumers.

The crux to convincing these new customers that they deserve better (aka “your product”) lies in experiential marketing.

Experiential Marketing

Experiential marketing is simply that—selling an experience. Food samples. Tasting events. Foodie Tours. Consumers need to experience food and drink to invest in it, and brands that engage consumers are seeing fantastic growth. Trader Joe’s does it. Heck, even a big box store like Costco understands the value of inviting customers to sample the goods. Costco practically built their business on experiential marketing, and I appreciate the heck out of those little paper cups stuffed with roasted red pepper chalupas cut into tiny pieces. And so do most people.

“There is always value in traditional above-the-line media and also digital and social media, but there is no replacing the value of experience,” argues Lee Applebaum, chief marketing officer of Patrón Spirits. People want to connect with a product. Look at events like Tales of the Cocktail, Portland Cocktail Week, or Camp Runamok. People don’t just want the cheapest available product—they want an experience tied to it.

Unconvinced? Interactions, a sampling service provider, saw a “300% increase in sales as a result of its wine samples.” People want to try before they buy, but what’s more interesting is the rate at which they actually do buy after experiencing a product. After experiencing a brand, According to the same report, “98% of consumers feel more inclined to purchase, 74% have a better opinion about a brand, and 70% become regular customers.” That’s incredible, and directly ties to another key pillar of a successful F&B startup—education.

Education is Key

Disruption can be confusing for consumers, especially when it comes to something that people take for granted—like food. However, the education phase of the buyer’s journey is one of the most influential stages for F&B startups to insert themselves in the conversation with consumers.

Now more than ever, people want information about how their food is grown, how they’re drinks are made, and even how good a product is for the environment, their community, their health, or other aspects like future sustainability. It’s a great time to be a nerd, and brands need to embrace this interest. Companies that invest in educating their potential customers through experiential marketing and education tools like animated explainer videos or company websites that peel back the curtain and highlight the production process establish a rapport and trust with consumers that big brands lack.

It’s this link, this trust, that can differentiate F&B startups, making them not just another voice in the crowd. Establish trust and brand loyalty through education and experience, and you not only consolidate loyal customers—you create brand reps that spread the virtues of your product.

Food Incubators and Minimal Viable Product

But F&B startup success isn’t just about new marketing strategies or innovation. Lowered production costs and the ability to create MVPs at scale are possibly the two biggest factors impacting food & beverage startups. In a recent interview on the Movers & Shakers podcast, Foodworks founder and CEO, Nick Devane commented on the importance of this MVP capability:

“One of the advantages of incubator kitchens is that you can now legally produce a basic product without having to get a lease or equipment or any of these other pieces. You can make a sort of minimum product and sell it to people and see what the reaction is at places like Smorgasburg, which is an outdoor weekend market. People are sort of able to run an MVP of a restaurant, and that's really fantastic.”

Unlike days of old, F&B startups no longer have to innovate using gigantic supplier chains and sluggish market testing models. Nimble rent by the month food production kitchens and market incubators like Foodworks, in Brooklyn provide not just the production capabilities to create fresh ideas in F&B, but also the space to test them and process feedback in days instead of months. Devane goes on to talk about the drastic lowering of operational costs, a typical barrier to entry in the F&B space:

“Twenty-five years ago you would have to spend maybe hundreds of thousands of dollars to really get the type of feedback, you can now get for a couple thousand and I think that's maybe the biggest value that we're providing to people. This is sort of lowering the barrier to being an entrepreneur. You’re now able to spend $3,000 to make that product. I hear people in the kitchen talk about ‘pivoting’ and ‘MVPs,’ and ‘capital raising’ and other operational insights that are gleamed from the type of software innovation we've seen over the last 25 years. An MVP mentality in the food and beverage space is super healthy.”

Listen to the full interview here:

Food & Beverage Startup Disruption

The way that we grow, distribute, and market our food and drinks is changing. Heck, it’s changed. Startups are the future of the food and beverage industry. Are you prepared to compete?