Covid-19 may have undermined many industries, but it has been a boon for start-ups in the emerging food technology space.

Companies using technology to improve the way food is produced, delivered and consumed – known as foodtechs – have seen demand for their services and products surge as consumer behaviour shifts amid lockdown restrictions.  

Venture capitalists are betting this trend will continue. In the first quarter of 2020, foodtech start-ups raised $5.3bn of VC funding, a 25.3% increase on the same period a year earlier, according to private capital data provider PitchBook.

While the food tech sector encompasses a raft of segments – including tech solutions for agriculture, food tracing and food supply – two areas have flourished during lockdown: food delivery services and bio-engineered food.

Their popularity has risen as consumers have become more accustomed to buying goods and services online – in common with digital healthcare – as well becoming more socially and environmentally conscious.

Delivery demand

Intermediaries and delivery services providers such as US-based UberEats, UK-based Deliveroo and Indonesia-based “super app” Gojek have seen demand surge.

In April, UberEats' food delivery app was downloaded more than 9.4 million times, an increase of almost a quarter from a year earlier, according to Sensor Tower data.

However, as restaurants closed in nationwide lockdowns some providers have met with challenges. Spain-based delivery app Glovo found that 70% of restaurants on its platform in Spain and Italy closed their doors in April.

Nonetheless, with more users and demand soaring, other providers have pushed ahead with internationalisation plans.

In April, Singapore-based app Grab opened a shared kitchen workspace in Yangon, Myanmar, adding to its portfolio of over 50 kitchens in Singapore, Thailand, Vietnam, Philippines and Indonesia.

Similarly in April, UK-based food delivery platform Deliveroo invested $1.6m to open a shared kitchen workplace for its restaurant partners in Quarry Bay, Hong Kong. 

The Deliveroo Editions space, which restaurants can use to prepare and deliver food on its platform without the need for new premises, is one of three sites the company plans to open in Hong Kong this year.

Half of the 20 food apps and marketplaces listed in PitchBook’s foodtech report published in May, announced crossborder investments between 2012 and 2019, according to greenfield investment monitor fDi Markets. 

Glovo was the most active greenfield investor, announcing 31 projects in the eight year period – this made it the third most active investor in fDi’s recent global map of VC-powered FDI.

India-based online food guide and restaurant directory Zomato, and UK-based food delivery platform Deliveroo were the second most active in the eight year period, announcing 19 and 17 greenfield projects, respectively.

The remaining seven food apps, which include Canada-based co-working ordering app Ritual and Finland-based delivery app Wolt, announced a further 33 greenfield FDI projects, according to fDi Markets.

Many supporting services for food delivery have also proliferated, including rentable kitchen space providers and ghost kitchens – or food preparation facilities for delivery-only meals.

Karma Kitchen, a UK-based start-up that provides rentable kitchen space, announced that it had raised £252m ($318m) on July 13. It plans to open several sites across Europe.

Challenges remain

However, despite ambitious expansion plans Deliveroo has found it difficult to reduce costs, announcing in April that it was cutting 367 staff and furloughing more than 2,500 employees.

Amazon’s bid to buy a 16% stake in Deliveroo was initially blocked in May 2019, but the UK competition and markets authority overturned the ruling in June, amid worries that the British delivery platform could collapse.

In a highly competitive landscape, many larger food delivery players have begun buying up rivals to increase market share and ramp up profitability in a notoriously low-margin business.

Uber announced plans in June to acquire food delivery rival Postmates, shortly after failing to buy another rival Grubhub. London-based Just Eat Takeaway eventually won the battle for GrubHub, acquiring it for an eye-watering $7.3bn.

Plant alternatives

Bio-engineered foods, which include plant-based meat and dairy products and meat produced directly from animal cells, is another fast-expanding foodtech segment.

"There is an increasing consumer base and demand for plant-based products, due to an interest in [doing] social and environmental good," said Alex Frederick, a senior analyst at PitchBook.

During the pandemic, retail sales growth of plant-based foods in the US has outpaced total food sales growth. Sales surged 90% in mid-March, according to wellness data provider Spins. 

Sweden-based producer of milk alternative drinks Oatly raised $200m on July 14, and plans to expand its operations in its current markets and open new production plants in Europe, the US and Asia.

“There is a whole new set of customers that care about sustainability and the provenance of their food and are willing to pay a margin for that,” said Joe Tabita, who has advised clients in the alternative meat market at his role at digital transformation consultancy Publicis Sapient.

Memphis Meats, a San Francisco-based company that produces meat directly from animal cells, raised $161m in venture capital funding in January. The cellular agriculture start-up plans to use this capital to build a production facility, hire more people and commercialise its products.

Overall investment into alternative protein products surged to $930m in the first quarter of this year, including a $500m funding round for US-based Impossible Foods and $250m IPO by Beyond Meat, according to data from the Good Food Institute.

In June, Beyond Meat announced plans to open a co-manufacturing plant in Zoeterwoude, Netherlands and it has acquired another manufacturing facility in the country.

In 2019, the global meat alternatives market was valued at $4.5bn and it is forecast to reach $7.1bn by 2025, according to data from Grand View Research.