EMERGING TRENDS

Food & Beverage

Trends 2019
Table of Contents

CONTENTS
NExTT framework 3

NECESSARY
Plant protein 5
Private labels 7
Direct-to-consumer distribution 10
Sugar reduction technologies 12
Alternative offline points of sale 14

EXPERIMENTAL
Pop-up retail 17
Voice commerce 19
Cannabis 21
Blockchain-based supply chains 23
Beauty-boosting foods 25
In-store robots 27
IoT-connected packaging 29

THREATENING
Lab-grown protein 31
Automated micro-fulfillment centers 34
E-commerce optimized packaging 36
Personalized food products 38

TRANSITORY
Environmental sustainability 40
Wellness-focused branding 42
Gluten-free 45
Meal kits 48

2
 NExTT FRAMEWORK

Food & Beverage Trends in 2019

TRANSITORY NECESSARY NExTT Framewo

High

Direct-to-
consumer
distribution

Emerging
Private label Sugar reduction
products technologies

Wellness-
focused Plant protein

food & be
branding
INDUSTRY ADOPTION

Environmental
Meal kits Alternative
sustainability
offline points
of sale
Gluten-free
products Products & ingredie
Pop-up
retail
E-commerce-
optimized
Lab-grown
packaging
Supply chain & logis
proteins

In-store
robots
Retail & marketing
NECESSARY NExTT Framework Beauty-
boosting
Voice
commerce
Automated
micro-
fulfillment
foods centers
Direct-to-
consumer Cannabis
distribution

Emerging trends in
Blockchain- Personalized food
el Sugar reduction based supply products
technologies chains IoT-
connected
Low

EXPERIMENTAL packaging THREATENING

food & beverage

Low MARKET STRENGTH High

Alternative
ffline points
of sale

Products & ingredients

E-commerce-
optimized
packaging
Supply chain & logistics

ed
Retail & marketing
nt
s

3
THREATENING
 NExTT Trends
Title of NExTT Framework
TRANSITORY NECESSARY
High

TRANSITORY NECESSARY
Advanced driver
assistance
Trends seeing adoption but Trends which are seeing wide-
Telematics Vehicle
where there is uncertainty spread industry and customer
connectivity On-demand
about market opportunity. implementation / adoption accessand
Lithium-ion
Next gen HD where market and applications
As Transitory trends becomemapping batteries AI processor
infotainment
more broadly understood, are understood. chips & software
On-board
INDUSTRY ADOPTION

they may reveal additional diagnostics For these trends, incumbents

AV sensors &
opportunities and markets. should have a clear,
sensor articulated
fusion
Mobile Digital
strategy and initiatives .
marketing dealership
Additive Industrial internet of
manufacturing things (IIoT)
Usage-based
insurance Industrial
D and design EXPERIMENTAL THREATENING
computer
Wearables and Alternative vision
Conceptual or early-stage
exoskeletons powertrain Large addressable market
trends with few Driver technology
functional forecasts and notable
aterial supply,
products and monitoring
which have not investment activity.
rts sourcing, Decentralized
Flexible Vehicle Online
seen widespread adoption. lightweighting aftermarket
d vehicle production
assembly
lines
The trend has been
parts
embraced
Experimental trends are already by early adopters and may
sembly Predictive
maintenance
spurring early media interest
Vehicle-to-everything be on the precipice of gaining
tech
and proof-of-concepts. widespread industry or
stribution, Car vending
Automobile
customer adoption.
machines
arketing & security Virtual
Low

showrooms
les Flying robotaxis Blockchain
EXPERIMENTAL verification THREATENING
termarket Low MARKET STRENGTH High
rvices and
hicle use
The NExTT framework’s 2 dimensions:

INDUSTRY ADOPTION (y-axis) MARKET STRENGTH (x-axis)

Signals include: Signals include:

momentum of startups market sizing earnings transcript

in the space forecasts commentary

quality and
competitive
number of
media attention intensity
investors & capital

customer adoption investments incumbent

(partnerships, customer in R&D deal making
licensing deals)

4
Necessary

PLANT PROTEIN
Corporates are beginning to embrace plant protein, and 2019 will see
the first plant protein company go public. Expect expansion of the
trend to new products including vitamins, coffee, and milk.

Plant protein has gained momentum over the past several years and will
be a necessary trend in 2019.

The CB Insights market sizing tool values the plant protein market at
$11B, and companies have already begun to look beyond plant-based
meat replacements to plant-based sushi, plant-based low-calorie
sweeteners, and more.

Traditional meat companies, most notably Tyson, have largely chosen to

promote plant protein rather than trying to compete against it. Tyson has
invested in Beyond Meat twice and aims to reframe itself as a protein
company rather than a meat company.

5
General Mills, through its venture fund 301 Inc., has been active in the
plant protein space since 2015, when it backed Beyond Meat. In 2018, its
investments included Urban Remedy, a vegan meal delivery service, and
Farmhouse Culture, which makes vegetable-based probiotic snacks.

In 2018, PepsiCo acquired plant protein startup Health Warrior and fruit
and vegetable snack maker Bare Foods; Nestle took a minority stake in
Wildscape, a frozen meal startup that uses “big chunks of vegetables”
(though it does include meat); and Impossible Foods, which makes plant-
based burgers, launched partnerships with White Castle, FatBurger, and
other meat-focused restaurant chains.

Many of these companies have already announced planned 2019 expansions:

• Beyond Meat, which uses pea protein to make beef and chicken
substitutes, has tapped bankers to help it go public in 2019. This
would be the first plant protein IPO — and the first IPO of a VC-
backed food startup in the US.

• Impossible Foods, which has so far only distributed through

restaurants, plans to expand into grocery stores. It’s also targeting
growth in Asia, after launching in Hong Kong in 2018.

• Food manufacturing companies will significantly ramp up

production of pea protein. Earlier this year, Cargill invested in PURIS,
North America’s largest producer of pea protein, and it now plans
to open a second US plant. Ingredient companies Archer Daniels
Midland and Farbest will also open a new pea protein plants, while
Roquette will expand atop its October 2018 acquisition of a pea
protein processing unit.

As the trend continues to gather momentum, food and beverage

companies in a range of categories will likely integrate plant protein into
their products. We may see new launches of vegan vitamins, or bottled
coffee drinks that use plant-based milks.

For more on the topic, check out our report on our meatless future.

6
PRIVATE LABELS
Broader struggles in the retail world are pushing retailers to invest
more in their own private labels, which they hope will increase margins
and strengthen shopper loyalty.

Retailers like Walmart, Target, and CVS are no longer just selling other
brands’ products. Now, they’re investing more heavily in their own private
labels, squeezing out the brands that stock their shelves.

Retailers and e-commerce marketplaces can use the data they’ve

gathered from selling other brands’ products over the years to design
their own private labels. Their position can also help them monitor online
and offline shopper behavior.

Amazon and other sites can track which shoppers are bargain-hunters,
frequent browsers, vegan enthusiasts, and more, based on their current
shopping behavior, then design products to target the segments they see
as most profitable.

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Retailers are rolling out their own private labels to increase margins
and fight against e-commerce giants like Amazon. Notable 2018
moves include:

• Albertsons’ O Organics private label hit $1B in sales. The company

is rolling out 1,400 new private-label products, more than double its
2017 rate.

• Kroger’s Simple Truth brand hit $2B in sales, and Kroger partnered
with Alibaba to sell its private labels in China.

• Target has rolled out new private-label brands including Made by

Design, a home furnishings brand, and Smartly, a low-priced home
care brand.

• Walmart rolled out new private-label brands this year, including a

wine brand. It also acquired D2C apparel brand Eloquii, following its
past acquisitions of Bonobos, Moosejaw, and Modcloth.

8
E-commerce platforms are jumping on the private labels trend. Amazon
now offers over 120 private-label brands. Smaller marketplaces like
Boxed and Thrive Market have also rolled out private labels.

These e-commerce retailers are well-positioned to spot gaps in the

market: online marketplaces can track the products that shoppers
search for but don’t find, analyze which categories have relatively less
competition, and find prices that could be undercut. They can also
better understand how people are using their products to optimize their
marketing messages.

Private labels represent an increasingly necessary driver of revenue

and shopper loyalty for retailers, but a growing threat to traditional
CPG brands.

9
DIRECT-TO-CONSUMER DISTRIBUTION
Food leaders have been slow to adopt direct-to-consumer distribution,
but that’s beginning to change.

Historically, CPG leaders like Coca-Cola, Kellogg’s, and General Mills

haven’t operated their own points of sale. But as they face increased
competition from private labels and D2C startups, that could start
to change.

Brands have traditionally relied on retailers — Walmart, Kroger, and

others — to sell their products. Amid the rise of e-commerce, they’ve
generally relied on Amazon rather than selling their products
themselves online.

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Even when food incumbents have launched new, “trendy” brands (such
as Kellogg’s recently launched probiotic cereal, Hi! Happy Inside), brands’
websites typically haven’t sold their own products.

Meanwhile, the retailers on which CPG leaders have traditionally relied

are investing heavily in private labels, becoming competitors rather than
partners. And nearly all investor-backed food startups offer direct-to-
consumer (D2C) purchasing options online.

By moving to direct-to-consumer, food companies could gain more

control over the presentation of their products, deepen their relationships
with shoppers, hedge against the growing private label threat, and collect
more and better shopper data.

Selling D2C continues to pose challenges for CPG incumbents, and this
will be an ongoing challenge in 2019. We expect food corporations to
continue to acquire startups with D2C distribution, as well as to work on
expanding their logistical infrastructure into other existing product lines.
These companies could also invest in startups with D2C distribution and
develop in-house D2C supply chains for new brands.

11
SUGAR REDUCTION TECHNOLOGIES
Food and beverage companies are taking advantage of new
technologies to reduce sugar in their products, meeting consumer
demand for healthier foods.

Companies in traditionally unhealthy categories are shifting their

portfolios away from candy and toward healthier snacks and protein.

Nestle sold off its US candy business in January, partially due to

competition from Hershey and Mars — but Hershey itself plans to
focus more heavily on snacking, while Mars has focused investments
on pet care.

But it’s not just about changing the product lineup. Corporations like
Nestle, Ferrero, Unilever, Mars, and Mondelez are also pledging to
reduce the sugar in their products. Advances in biotechnology and
new sweeteners gaining traction can help them do so.

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In 2019, we see particular momentum in:

• Stevia — Extracted from a plant, stevia sweetener is more than 200x

sweeter than sugar. Companies like Ingredion, Coca-Cola, and Tate &
Lyle have been researching and rolling out new molecular formulas
such as Reb M, Reb A, and Reb J.

• Monk fruit — Based on an Asian melon, monk fruit extract is over

150x sweeter than sugar. Startups like Rau Chocolate have begun
to use it, and in February 2018 Unilever rolled out monk fruit-
sweetened gelato.

• Mushrooms — Startup MycoTechnology, backed by Kellogg’s

venture fund, uses mushroom molecules to create bitter blockers.
Blocking bitterness helps foods taste sweeter and can allow sugar
reductions of more than 40%. MycoTechnology expanded into
Europe in late 2018, opening a new market for mushroom-based
sugar reduction technology.

• Empty space — Is the future of candy… less candy? Nestle worked

for years on a new sugar structure that is literally hollow — it still
tastes sweet to the tongue but has less caloric mass. It launched
its first porous sugar product, called Milkybar Wowsomes, in March
2018, and there may be more to come.

13
ALTERNATIVE OFFLINE POINTS OF SALE
With consumers less likely to visit centralized shopping locations,
brands need to go to the consumer and open points of sale in
new places.

It’s widely known that brick-and-mortar retail is struggling. Beyond

moving online, brands are seeking new offline channels for getting
products into shoppers’ hands as conveniently as possible.

They’re going to shoppers, rather than asking shoppers to go to them.

14
No matter how fast e-commerce delivery gets in 2019, the quickest way
to get a snack or drink will still be to grab it from a kiosk you pass by
during your daily routine.

In 2018, food producers launched dozens of partnerships with alternative

offline distribution channels that should bear fruit in 2019, including
partnerships in:

• Travel — Emirates Flight Catering launched a $40M joint venture

with Crop One, an indoor farming startup, to build the world’s largest
vertical farm in Dubai. The farm will supply Emirates passengers
with fresh produce.

• Ride-hailing — Startup Cargo, which installs mobile-operated kiosks

to sell packaged goods in ride-hailing cars, expanded significantly
throughout 2018. It officially partnered with Uber in the US and Grab
in Singapore, and stocks products from Mondelez, Kellogg’s, and
other leading corporates.

• Smart homes — While companies from Amazon to Walmart have

considered smart appliances that automatically reorder empty
products, this technology isn’t yet mainstream. As the technology
improves, and as companies’ desire for shopper data drives
them to try to move deeper into the home, we expect to see more
experimentation here in 2019.

And where are millennial shoppers with disposable income on a

daily basis?

They’re at the office.

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It’s cliché by now to joke about the ping pong tables and nap pods filling
Google’s halls (not to mention Amazon’s in-house dog park), but smaller
offices are also increasingly stocking their fridges with healthy snacks,
premium coffees, and other benefits.

These perks help employers attract workers. And now, real estate
management companies like WeWork are using perks to attract
employers themselves.

Recently, WeWork even launched its own retail channel, called

WeMRKT, that sells products from 10 CPG startups that work out of
WeWork offices.

A new crop of startups is also helping companies deliver CPG

products to offices, helping new brands get their foot in the door
and big companies test out new products and flavors in a
controlled environment.

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Experimental

POP-UP RETAIL
Pop-up retail continues to gain steam as a marketing tactic, customer
engagement driver, and data collection strategy for brands.

Selling directly to consumers doesn’t only take place online. Food leaders
including Kellogg’s, Coca-Cola, Unilever, and Nestle have all begun trying
to connect with shoppers directly in the brick-and-mortar world.

Some are acquiring retail chains to establish points of sale. Nestle acquired
Blue Bottle in 2017, and Coca-Cola acquired Costa Coffee in 2018.

Others are experimenting with pop-up stores. Pop-ups don’t necessarily

emphasize immediate product sales, but they tend to promote experiences.
Companies believe these temporary, experiential pop-ups create marketing
value, drive social media sharing, and encourage brand loyalty.

Cheetos, owned by PepsiCo, has opened several pop-up restaurants with

celebrity chef-designed menus that use Cheetos in every dish. Seatings
at the limited-time restaurants have booked up within hours of opening.

17
Direct-to-consumer CPG startup Brandless has opened pop-up stores
in LA and NYC, offering product showcases, tastings, a fair-trade coffee
bar, and more, while Kellogg’s opened an Instagram-friendly cereal cafe
in NYC. Pure Leaf, a tea brand created in a partnership between PepsiCo
and Unilever, also opened a pop-up cafe in NYC.

Direct-to-consumer beverage startup Dirty Lemon opened a cash-free

pop-up in New York City. Payment was based on the honor system,
where visitors were given a number to text to pay for the items they took
via mobile. The startup has discussed plans to re-allocate its digital
marketing budget toward brick-and-mortar pop-ups.

As companies face growing pressure to sell directly to consumers, we’ll

likely see more experimentation with pop-ups in 2019.

However, since these initiatives often come out of companies’ marketing

budgets, we may see quick pull-backs if companies’ financial
conditions change.

18
VOICE COMMERCE
Amazon continues to promote voice commerce, but shoppers have yet
to bite.

Nearly a quarter of Americans own smart speakers, according to

Nielsen, but very few of those Americans are using their smart speakers
to shop.

In mid-2018, a report from The Information found that only 2% of

Amazon Alexa users (roughly 1M people) have shopped for products
in 2018 using the voice interface. Of those, only 10% (10,000 people)
had positive enough experiences that they shopped on Alexa more
than once.

Despite challenges, voice commerce is likely to become mainstream in

CPG before it reaches apparel or other sectors, as people don’t feel as
much of a need to see basic packaged products, especially those they’ve
previously ordered, before buying them.

Amazon, the smart speaker leader in the US, aims to use CPG as a
stepping stone for spreading voice commerce. During the 2018 holiday
season, it offered CPG leaders special incentives if they designed ads
that encouraged viewers to shop by voice with Alexa.

Amazon is motivated to spread voice shopping, in order to collect

more shopper data and own a point-of-sale inside customers’ homes.
Ultimately, it could use voice to promote its own private-label products.

A recent Amazon patent describes how Alexa could sense whether

shoppers are sick based on their voices, and proactively suggest cold
medicine or chicken soup.

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Food leaders should, perhaps, be wary of using their own advertisements
to promote Amazon’s voice commerce system.

However, they should also prepare for a world in which voice commerce
is more mainstream.

In China, the smart speaker ecosystem has developed more quickly than
in the US, and Chinese conglomerate Alibaba is gaining global market
share. Since July 2017, Alibaba has sold more than 1M of its Tmall Genie
smart speakers, a shopping-focused speaker comparable to the Echo.
The company now plans to roll the speaker out to 100K Marriott hotel
rooms.

20
CANNABIS
As legalized cannabis spreads in North America, beer companies are
leading the way in investing in the growing trend.

The food industry has seen cannabis edibles, using both THC and the
non-psychoactive CBD, take off over the last decade.

Consumers in California purchased $180M worth of cannabis-infused

food and drinks last year, which amounted to 10% of the state’s total
marijuana sales. That percentage rose to 18% in February 2018,
according to a Green Market report.

And it’s not just California that’s seeing a growing edibles market.
Sales of pot-infused treats increased 121% in Washington state, where
recreational marijuana is legal, in 2016. And since Colorado first allowed
recreational marijuana use, sales have tripled from $17M in Q1’14 to
$53M in Q3’16.

Dixie Elixirs was one of the first companies to enter the market. The
Colorado-based company sells marijuana-infused products such as
truffles, chocolate bars, mints, juices, and many more.

Now, other companies are popping up as well, including Mirth Provisions

(cannabis-infused edibles and drinks), Auntie Dolores (cannabis
oil snacks), Defonce Chocolatier (a high-end chocolate company),
and Cheeba Chews (chocolate taffy), to name a few. Many of these
emphasize wellness and premium experiences in their branding.

21
Meanwhile, a number of leading beer and liquor producers have begun to
hedge against declines in alcohol consumption by investing in cannabis:

• Constellation Brands, the company behind Corona and other brands,

invested roughly $4B into cannabis producer Canopy Growth.

• Beer brand Lagunitas, owned by Heineken, launched THC- and CBD-

infused beverages.

• Molson Coors partnered with cannabis producer The

Hydropothecary Corporation to develop a standalone business
focused on non-alcoholic, cannabis-infused beverages.

However, since cannabis is not currently legal on a federal level, it’s still
risky for large, global companies to invest.

22
BLOCKCHAIN-BASED SUPPLY CHAINS
Each new food safety scare pushes food companies toward
blockchain-based supply chains, which promise greater transparency.

Walmart recently announced that it’s forcing all of its suppliers of leafy
greens to get on the blockchain by September 2019.

The announcement represents a major expansion of the blockchain

supply chain programs that Walmart has been piloting since late 2017.
Along with Unilever, Tyson, Nestle, and other food leaders, Walmart
belongs to The Food Trust, a blockchain partnership with IBM.

Food scares — like the E. coli outbreak spread through romaine

lettuce in late 2018 — have created more urgency around supply chain
transparency. It took the government several days to trace the source
of the recent outbreak, while blockchain can reduce that time to mere
seconds. Following the outbreak, the FDA hired Walmart’s vice president
of food safety to help them advocate for blockchain-based solutions.

Other initiatives that took hold in 2018 include Alibaba’s launch of a

blockchain-based food traceability platform to improve food safety
(similar to IBM’s platform in the US). Alibaba worked with PwC to launch
the program, and its first partners include New Zealand dairy giant
Fonterra and vitamin maker Blackmores. These companies will now sell
blockchain-verified products on Tmall in China.

Beer giant Anheuser Busch InBev partnered with Accenture, shipping

company APL, and logistics company Kuehne + Nagel to experiment
with tracking beer shipments via blockchain, while the FDA discussed the
possibility of implementing blockchain after the romaine lettuce recall.

23
Backed by industry leaders, we expect blockchain pilot programs to
expand in the food industry in 2019.

But blockchain isn’t a cure-all for supply chain safety issues. The
decentralized database offers a more efficient way to keep track
of products than other current methods, but people at each stage
of the supply chain still have to check products and provide safety
information honestly.

24
BEAUTY-BOOSTING FOODS
Foods and supplements that promise beauty benefits are on the rise,
but the trend may be mostly based on marketing.

Beauty supplement brands are popping up left and right, producing

everything from marine collagen to “brain dust.” Major retailers from
Sephora to Nordstrom to Anthropologie are betting on this trend, stocking
their shelves with products that promise “beauty from within.”

A range of food industry players have backed the trend. For example,
food and beverage investment firm CAVU Venture Partners funded
collagen supplement producer Vital Proteins in November 2017, citing
opportunity for growth in the collagen nutrition space.

25
Other food brands are adding collagen to products and emphasizing skin
health benefits, including butter coffee brand Bulletproof, bone broth
startup Kettle & Fire, and supplement startup Hum Nutrition, which works
with Urban Outfitters. Plant-based meal delivery company Sakara Life
sells collagen supplements in an online “clean boutique.”

We see numerous factors driving food brands and retailers into the
ingestible beauty space.

Beauty is booming, especially skin care sales. Beauty brands are

exploding across the globe right now, and skin care products are
particularly popular. According to NPD Group, skin care contributed to
45% of the beauty industry’s total gains in 2017.

Blurring lines between food and beauty. With an increase in beauty

products featuring natural and organic ingredients, interest in plant-
based products is sweeping across the food and beauty spaces.

Increased emphasis on gut health and the microbiome. Ingredients

like prebiotics and probiotics, which balance and promote healthy gut
bacteria, have been trending across beauty and food.

Millennials prioritize health and wellness. Millennials are spending more

on products and experiences promoting well-being and health. Beauty
ingestibles support this trend.

Savvy marketing. Many of the vitamins and supplements created by

beauty-from-within brands aren’t novel concepts. Marketing beauty-
enhancing wellness supplements combined with appealing packaging is
helping to fuel consumer interest in beauty-from-within products.

26
IN-STORE ROBOTS
In 2019, expect retailers to ramp up their investment in inventory
management robots, rather than robots that interact with consumers.

Have robots progressed to the point where retailers can trust them to
roam store floors alongside shoppers?

Some malls and stores have tested robot greeters, which can welcome
customers and answer basic questions. They can also feed shopper data
back to the retailers.

These robots add a novelty factor to stores, which can drive short-term
traffic. Most notably, SoftBank’s Pepper robot has greeted visitors in tens
of thousands of stores, hotels, and other businesses since 2015. In 2017,
SoftBank said Pepper was driving double-digit percentage increases in
foot traffic.

But we can already see the greeter robot novelty factor starting to fade. In
fact, by late 2018, only 15% of companies with SoftBank’s Pepper robots
planned to renew their contracts, according to Nikkei.

27
The real value for retailers likely comes from inventory
management robots.

For example, Walmart, in partnership with startup Bossa Nova Robotics,

has been testing shelf-scanning robots in 50+ stores. The robots will find
out-of-stock items, incorrect prices, and missing labels, using computer
vision to navigate the shop floor without bumping into people or carts.

Some of Bossa Nova’s US patents for shelf-scanning robots are

shown below.

If successful, these inventory management robots can help retailers

reduce out-of-stocks to increase sales, reduce labor costs, and collect
real-time data about the ways shoppers are interacting with the products
on the shelves.

Over the long term, automation has significant potential to make retail
operations more efficient and to boost margins for retailers.

Some restaurants have recently begun to pilot robot waitstaff as

well. Stella Artois (owned by AB InBev) piloted a robot bartender, and
Panasonic partnered with one of China’s leading restaurant chains,
Haidilao, to develop robot waiters.

However, robots that interact with human customers are, in some ways,
still a solution searching for a problem.

28
IOT-CONNECTED PACKAGING
Though still in its early stages, IoT packaging can help CPG brands
gather consumer data and automatically send refills when products
run out.

Packages don’t have to be passive; rather, they can be a valuable tool to

help brands gather data on consumers.

Social media can show companies who’s talking about their products. But
smart packages can let companies understand who’s actually using their
products — when, how frequently, and more.

And it’s not necessarily a one-way street; smart packages can also
benefit shoppers by reminding them to take their daily medication,
automatically ordering refills, alerting consumers about spoilage,
and more.

Alcohol giant Pernod Ricard recently endorsed the technology when

it piloted using connected bottles to track how people were drinking
its products.

29
Leading global packaging providers including Avery Dennison and
WestRock have begun to offer connected packaging solutions, saying
IoT packages deepen brands’ relationships with consumers while
collecting data. FedEx was also just granted a patent for a wireless
network and connected tags that could track package location.

Due to the high investment costs required to produce packaging at

scale, the leaders in IoT packaging will likely be incumbents, at least in
the near term.

However, the strategy is also attracting startups. Water.IO, for example,

provides Bayer and others with IoT caps that promise data collection for
brands and automatic replenishment for shoppers.

In some ways, IoT packaging could make things more convenient for
shoppers: people would no longer need to visit a store, or even a website,
in order to get refills on frequently-used products.

However, this could also raise privacy concerns, and shoppers may be
reluctant to give brands real-time data on their consumption.

30
Threatening

LAB-GROWN PROTEIN
As meat incumbents ramp up investment in lab-grown proteins,
expect the field to grow in 2019 — and for the first lab-grown dairy to
hit the shelves.

Since the first lab-grown hamburger was served to scientists in 2013 (at
the cost of $330K), the field has progressed significantly.

Startups and researchers have lowered the cost of lab-grown beef, as

well as unveiled samples of lab-grown fish (from Finless Foods) and
chicken & duck (from Memphis Meats). Leading meat producers Tyson
and Cargill have even backed startups in the sector.

These companies have lowered the costs of lab-grown meat, but have
not yet been able to produce it at commercial scale. The process
still relies on animal inputs that are expensive at scale and could
unsettle shoppers. For example, fetal blood is needed to provide the
infrastructure on which to grow the new meat cells.

To solve the problem, researchers are working on ways to use plant

material to recreate that cellular scaffolding and create a truly animal-
free method for growing meat in the lab. Once they succeed, commercial
growth will likely accelerate.

31
Besides the scientific challenges, lab-grown meat faces regulatory
hurdles. For example, what should it be called? How will it be inspected?
Who will finalize the regulations?

The USDA and FDA have both laid claim to the segment, and ownership
has not yet been clearly determined. Meanwhile, the US Cattlemen’s
Association petitioned the US government in early 2018 to restrict the
use of the word “meat” to products that come from animals.

While we may not see lab-grown meat on our plates in 2019, we’ll likely
see the field progress toward commercial launches over the following
1 – 3 years.

Future Meat Technologies, an Israeli startup recently backed by Tyson,

aims to produce products commercially by 2020, while Memphis Meats
is aiming for 2021. (Just, the clean protein startup formerly known as
Hampton Creek, pledged to make the first sale of lab-grown meat in late
2018, but hasn’t yet succeeded).

32
While much of the buzz goes to lab-grown meat, average consumers
may encounter other lab-grown proteins before they eat a lab-grown
steak or burger. Key proteins include:

• Collagen — Startup Geltor became the world’s first company

to ship a lab-grown protein ingredient in 2017, when it began
supplying lab-grown collagen to cosmetics manufacturers. Geltor
uses bioengineering and fermentation to create the animal-free
collagen, which is already used in certain beauty products and
could also be used in vegan foods. In October 2018, Geltor raised
an $18.2M Series A with participation from GELITA, a global
collagen manufacturer, as well as the venture arm of Archer
Daniels Midland (ADM).

• Dairy — ADM also recently established a joint venture with startup

Perfect Day to produce lab-grown dairy at commercial scale. Like
Geltor, Perfect Day uses a fermentation process to create animal-
free whey protein. ADM aims to bring Perfect Day’s system to
commercial scale and begin selling animal-free proteins to food
businesses in 2019.

• Fish — Finless Foods, a startup designing lab-grown bluefin tuna,

believes it can launch its first commercial product by late 2019
or early 2020. The startup’s first prototype cost roughly $19K per
pound — but since bluefin tuna normally costs more than chicken or
beef, Finless Foods believes its product can reach price parity with
natural bluefin tuna more quickly than a lab-grown chicken or beef
company. Since bluefin tuna are endangered in the wild, lab-grown
alternatives will also become more attractive.

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AUTOMATED MICRO-FULFILLMENT CENTERS
Grocery chains announced their first partnerships with automated
micro-fulfillment startups in 2018, setting the stage for further
development in 2019.

In fall 2018, grocery retailer Albertsons partnered with warehousing

robotics startup Takeoff Technologies to pilot a small urban fulfillment
center. It was the first partnership of its kind with a nationwide grocer.

Takeoff Technologies is betting on the rise of “micro-fulfillment.” The

model uses small, robot-powered warehouses to fulfill online orders.

Today, grocers tend to fulfill online orders in ways that could be improved
upon with micro-fulfillment centers:

Large, centralized distribution centers, often in suburban or rural areas.

In contrast, micro-fulfillment centers are located closer to shoppers,
so they can support faster deliveries. They’re also smaller, integrated
with robots, and can hold localized inventory optimized to the specific
area, so they can pick and pack orders more quickly than can humans in
centralized fulfillment centers.

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Using human workers, such as from Instacart, to pick and pack orders
in stores and deliver them to homes. These in-store pickers, however,
can create a worse in-store experience for other customers. They’re
also not as fast as robots grabbing products from compact micro-
fulfillment centers.

Albertsons isn’t alone in chasing the trend. Ahold Delhaize and

Sedano’s also partnered with Takeoff Technologies in late 2018, and
Israeli drugstore chain Super-Pharm and supermarket chain Rami Levy
partnered with Commonsense Robotics, another robotic micro-fulfillment
startup. Commonsense is also reportedly working with US grocery
retailers to open 5 micro-fulfillment installations in the US in 2019.

Kroger, which partnered with leading UK online grocer Ocado in

May 2018, aims to use Ocado’s technology to develop automated
warehouses. Due to Kroger’s prominent position in the grocery world
(it’s the second biggest US grocer after Walmart), the decisions it makes
regarding its relationship with Ocado could have an outsized impact on
the micro-fulfillment space

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E-COMMERCE OPTIMIZED PACKAGING
As sales move online, companies have begun to invest in new
packaging designs that making shipping more efficient.

Traditionally, CPG companies used packaging to stand out on store

shelves. With limited shelf real estate, packages have to draw shoppers’
eyes while crowding out competitors.

In some ways, packaging is less important for attracting new buyers

online. But shoppers still want a good packaging experience with
products ordered online — for themselves and for any social media
photos they might post. They want online purchases of fresh food to
arrive unspoiled and safe, and they also want less waste from boxes,
wrappers, or styrofoam.

Brands will have to think about how to take advantage of these new
opportunities and navigate these new constraints.

Many companies are changing the sizes of product containers to ship

goods more efficiently.

Retailers also aim to help — Amazon operates a “customer packaging

experience” team and has promoted easy-to-open, recyclable packaging
since 2008. For companies wary of relying too heavily on Amazon,
startups like Lumi ($9M raised) offer customizable, lightweight
packaging for D2C brands.

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At the same time, companies should consider taking packaging out of
their e-commerce websites.

Many food companies continue to display their products on e-commerce

sites in the same way they did in brick-and-mortar stores: inside
packages. But brands can make their products more appealing by
showing them unwrapped, or by using photos to show shoppers a
products’ natural ingredients or other unique features.

Startups like Daily Harvest and incumbents like Lean Cuisine have begun
to experiment with new ways to highlight their products online. As food
sales continue to shift online, food brands should prepare to get more
creative about how they present products in 2019.

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PERSONALIZED FOOD PRODUCTS
Personalization has been a much-discussed topic for years. But now,
we’re seeing the emergence of technology to actually support it.

True personalization is a tall order. To offer effective, personalized food

products, companies must first understand shoppers’ needs and the
products that address those problems. They must also produce these
personalized products at scale in a profitable manner, despite higher
manufacturing costs (especially tricky in the lower-margin food space).

Today, new tools like online surveys, big data, at-home DNA testing,
and machine vision can help companies better understand shopper
needs. Machine learning can help select the products best suited
to each shopper, while 3D printing and automated factories can
support production.

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To avoid having to invest in all this new technology, many food
companies are trying to make their products feel more personalized
without actually personalizing them. They’re branding products based
on specific lifestyles, or offering online quizzes that direct users toward
specific products.

One of the early players in truly personalized foods — Habit, a DNA-based

meal delivery service backed by Campbell’s — has struggled.

However, Nestle recently grabbed headlines by launching a DNA-based

personalized meal service in Japan. Between Nestle’s initiative and the
emergence of new, early-stage personalized food startups, we’ll likely
see more activity here in 2019.

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Transitory

ENVIRONMENTAL SUSTAINABILITY
Initiatives to support environmental sustainability are catching on, but
industry leaders need to figure out ways for these initiatives to help
their bottom lines.

In August 2018, beer giant AB InBev launched the 100 Accelerator,

a $1M startup accelerator program focused on sustainability. The
announcement, following AB InBev’s layout of its 2025 Sustainability
Goals earlier in the year, highlights the increased attention food giants
are paying to environmental impact.

Here are some sustainability strategies players in the food world are exploring.

Companies are turning food waste into “upcycled” products. This

gives companies the chance to create engaging origin stories for their
products, attract environmentally-conscious shoppers, and potentially
lower their production costs.

Condiment brand Sir Kensington’s, which was acquired by Unilever

in 2017, was somewhat of an early leader here: it offers egg-free
mayonnaise made with aquafaba, or waste from cooking chickpeas.

In 2018, Tyson launched Yappah, a line of protein crisps made with

upcycled ingredients, and AB InBev helped launch Canvas, a startup
using upcycled grain to make protein shakes. We’ve also seen continued
growth from Barnana, a startup selling snacks made with upcycled
bananas that’s now selling nationwide.

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Protective coatings are reducing food spoilage. Costco recently
partnered with Apeel, a biotech startup that offers an organic coating to
extend the shelf life of produce. So far, Apeel focuses on avocados and
citrus fruit, with the goal of reducing waste within grocery stores and
in shoppers’ kitchens. Apeel’s pilot program with grocery chain Harps
brought a 10% sales lift in avocados, and we expect Apeel’s technology,
and food waste reduction solutions overall, to spread throughout 2019.

Retailers are creating sustainable supply chains. News discussion

of sustainable retail supply chains has grown considerably (see chart
below). We’ve seen a range of initiatives: Walmart, for example, recently
announced its plans to eliminate all waste to landfills for its operations
in the US, Canada, Japan, and the UK by 2025, while waste reduction
startup Spoiler Alert has received investment from Maersk and
Campbell Soup.

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WELLNESS-FOCUSED BRANDING
Food brands can take advantage of the wellness trend by emphasizing
transparency, natural ingredients, and the mental and physical benefits
of their products.

Modern-day “wellness” refers to holistic healthy living characterized by

physical, mental, social, and spiritual well-being — and the buzzy trend is
gaining traction across multiple industries.

Several factors have driven growth in wellness.

Healthy lifestyles and intensive fitness routines became the new status
symbols following the 2008 recession.

People are also trying to take more control over their own health. US
healthcare costs are high, and many people doubt the efficacy of the
system or feel that the healthcare system encourages an over-reliance
on pharmaceuticals.

And through social media, brands and influencers can also turn
“wellness” into aspirational lifestyles.

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Many of the other trends in this report relate to wellness, including
plant protein, sugar reduction, probiotics, sustainability, and more. Our
Wellness Tech Market Map lays out the trends and sectors in the overall
wellness category.

To embrace the wellness trend, companies can do everything from

changing their products’ ingredients (including following other trends on
this list, like reducing sugar, using plant protein, or removing gluten) to
emphasizing mental health benefits.

For example, Kellogg’s just launched a new wellness-focused cereal

brand, called Hi! Happy Inside. The cereal includes prebiotics, probiotics,
non-GMO fruit, and fiber. On its website, Kellogg says the brand came
out of “two years researching the microbiome,” a strong focus of many
wellness companies.

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Other companies are moving into new, healthier product lines through
acquisitions — like PepsiCo’s acquisitions of Health Warrior and
SodaStream in 2018 — or through equity investments, such as General
Mills’ plant protein-focused 301 Inc. fund.

We also see retailers hopping on the wellness trend, opening new

distribution channels for wellness-focused food brands. Most notably,
Urban Outfitters has rolled out wellness centers in its Anthropologie and
Urban Outfitters stores, selling products from Hum Nutrition and other
serum and supplement brands.

For more about the growing wellness trend, check out our report on
wellness trends to watch in 2019 here, and 10 industries disrupted by
wellness here.

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GLUTEN-FREE
Gluten-free foods have become increasingly popular over the
past several years, but the trend is no longer a needle-mover for
big companies.

Consumer focus on gluten-free foods has grown over the past decade,
and at least 20% of US consumers say they try to avoid or reduce how
much gluten they eat.

Big food and beverage companies continue to release gluten-free

versions of everything from beer to brownies.

But, these companies are no longer touting their gluten-free initiatives

on earnings calls, as General Mills, Hain Celestial, McCormick, and other
players frequently did in 2014 – 2015.

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(We included the phrases “gluten” and “gluten-free” in our search, since
gluten is most commonly discussed in the context of gluten-free foods.)

General Mills, for example, brought up gluten-free efforts 22 times in

Q3’15, when it launched a major marketing effort around gluten-free
cheerios and discussed new gluten-free formulations for Lucky Charms,
Nesquik, and Chex. But the term only came up twice on its most recent
earnings call.

Why the drop-off?

New gluten-free product releases helped drive publicity a few years ago;
but, as consumer resistance to gluten has grown, companies may have
realized that in 2018 gluten-free offerings look more like table stakes
than like major marketing wins.

Furthermore, the gluten-free market may not be as large as many food

executives initially hoped.

According to the CB Insights database, the gluten-free market may hit

$5B globally by 2021.

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Even if Nestle, for example, captured this entire market, the gluten-free
sector would still represent under 6% of the company’s total sales.

Gluten-free has become a subset of the overall global wellness

trend that’s impacting food along with hospitality, real estate, office
management, and other industries. The opportunities in the wellness
space are much broader than any single ingredient.

For major companies, it’s important to have at least a few gluten-free

options within the main product categories. However, these product
launches no longer earn executives bragging rights in their boardrooms.

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MEAL KITS
Many meal kit startups have struggled or gone out of business, but
meal kits are finding new life as marketing tools for grocery chains.

The meal kit funding frenzy of 2017 has faded.

Meal kit startups pioneered the model of sending recipes and pre-
portioned ingredients directly to consumers on a subscription basis. In
2015, investors poured nearly half a billion dollars into the category.

However, these startups faced the high costs of building perishable food
supply chains, offering heavy discounts to new shoppers, packaging the
ingredients individually, and more.

Since 2015, these startups have faltered after trying to grow too quickly.
Many have struggled or gone out of business, including Chef’d, which
had raised $40M from Campbell Soup and others, and which offered
over 1,000 recipe choices. Blue Apron’s stock has fallen continuously
since IPO.

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It’s become increasingly clear that direct-to-consumer subscription
meal kits aren’t sustainable as a standalone business model (at least
at VC scale).

Instead, meal kits have emerged as a promising marketing tactic for

grocery retailers.

By stocking meal kits for different recipes at the front of the store,
grocers can make shopping more convenient.

Several grocers have acquired meal kit startups, including Kroger

acquiring Home Chef and Albertsons acquiring Plated. Others have
partnered with startups to sell kits in stores, including Walmart with
Gobble and Costco with Blue Apron (although Costco pulled Blue Apron’s
kits in advance of the 2018 holiday season). Some grocers, including
Kroger, have also developed their own meal kit lines.

Going forward, we’ll likely see meal kits integrated more deeply into
grocery stores and grocery websites — as a feature, not a full business.

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WHERE IS ALL THIS DATA FROM?

The CB Insights platform

has the underlying data
included in this report

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