We are the average of the 5 people we spend the most amount of time with.
The people around us influence our perspectives on what is possible, what is worth prioritizing, what is worth risking. Across the food supply chain, there are active discussions around the future of food, technology’s influence and new business models. It is growers actively seeking solutions to pre-emptively address food safety issues and better engage the USDA and FDA. It is chicken processors redefining themselves as protein providers. Food technologists going deep on blockchain to authenticate food. As organizations look to evolve, partnerships and the power of association play a pivotal role in curating efforts and crafting priorities.
As investors in the food space, we are actively engaged in conversations related to the future of industries; when we meet with incumbents in the space, the conversation often turns to “future-proofing” industries. Let’s take CPG as an example. Since the end of the Great Recession, CPG performance has diverged from the S&P 500 by 72%. Across the food supply chain, many incumbents with rich histories tracing back to the beginning of industrialization and population movements to urban centers – when, for the first time in history people did not live next to their primary food sources – are looking for new approaches to appeal to consumers. These businesses have defined the food system we know today, yet the question on many minds is: how do we effectively compete for the next 25, 50, 100 years in an environment where investor pressure is strong, markets are fickle and macro factors can sway (and wipe out) entire industries? After all, today’s market is significantly different from that of 50 years ago – from technology requirements to company valuation drivers.
Necessity is the mother of invention — so how do you keep up and get to where you want to go? Our Advisor, Walter Robb, poignantly states – the food industry is moving faster than ever before, and the market waits for no one. Bottom line: if you try to do it all yourself, it will be quite hard to keep up.
At S2G, I work with our team to engage with industry to drive innovation. We’ve seen a number of innovation models – from the formation of incubators and accelerators to the launch of Corporate Venture Funds (“CVCs”) and M&A strategies. There’s a broad range of activity currently being pursued and some interesting data points worth considering. One data point is that 50% of all venture deal value is associated with CVC. Established industry plays an active role in providing capital to emerging businesses. This capital enables the exploration of new ideas, validation of concepts, funding to build infrastructure and scale new ideas. While capital is important, there’s an influx in the market today and frankly, providing capital is not enough and corporates have more meaningful contributions to offer.
Another data point to consider is CVC participation improving outcomes for emerging businesses. A recent Pitchbook Report highlighted that emerging businesses “exited at a 38.5% higher rate (31.6%) and went bankrupt or out of business at a 47.5% lower rate (7.1%)” than those with no CVC investors. Corporate involvement improves outcomes – and while some support may come in the form of capital, I would argue the more valuable resources are deep domain expertise, market insight, channel access and the know-how to scale.
A number of interesting partnership models have emerged. At the most basic level, partnerships can unlock strategic insights related to trend spotting, market intelligence and even new technology / IP. In other instances, partnerships can be a symbiotic arrangement whereby joint development agreements can inform the R&D pipeline of both organizations and accelerate innovation. By informing development pipeline early on, these partnerships can also lay the groundwork for more effective M&A sourcing and successful integration of businesses post-acquisition. These concepts are not new, but what is different in today’s environment is the definition of who the right strategic partners are.
Select examples of these partnerships are listed below:
– Beyond Meat + Bunge = Earnings Surge: Bunge’s Venture Investment enabled the company to operate in the black – “nearly half of Bunge’s better-than-expected earnings came from its investment arm’s stake in the faux-meat company.” (LINK)
– Whole Foods + Instacart = Grocery Shopping in 2016: While this example has shifted since Amazon’s Acquisition of Whole Foods, Instacard enabled Whole Foods to offer customers delivery service overnight and more effectively compete within the market.
– CVS + Aetna = Healthcare Retail: “CVS Health and Aetna have the opportunity to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness…. Together, we will help address the challenges our health care system is facing, and we’ll be able to offer better care and convenience at a lower cost for patients and payors.” (LINK)
– Pinterest + Target = New eCommerce Frontier: “Finding the Perfect Product Is As Easy As Taking a Pic, Thanks to This New Target + Pinterest Collab” (LINK)
– Punchbowl Social + Cracker Barrel = Experiential Growth: “The [non-controlling] investment in Punch Bowl Social allows Cracker Barrel to enter a new and expanding experiential food and beverage segment, providing another growth vehicle to deliver shareholder value. Additionally, the strategic relationship provides Punch Bowl Social with additional resources to drive continued growth.” (LINK)
– Alibaba + Data = Financial Services: A derivative product of Alibaba’s marketplace platform was a tremendous amount of data which served as the foundation for ANT financial services, a lending business which services small and mid-size businesses in denominations previously not common. Interestingly, ANT is positioning itself as a “Strategic Partner” to traditional Financial Service, rather than a competitor.
– NASA + Private Sector = Moon / Mars: “NASA centers will partner with the companies, which range from small businesses with fewer than a dozen employees to large aerospace organizations, to provide expertise, facilities, hardware and software at no cost. The partnerships will advance the commercial space sector and help bring new capabilities to market that could benefit future NASA missions.” (LINK)
– Amazon + Berkshire + JP Morgan = Healthcare: “Haven was formed by the leaders of Amazon, Berkshire Hathaway, and JPMorgan Chase because they have been frustrated by the quality, service, and high costs that their employees and families have experienced in the U.S. health system. They believe that we can do better, and in taking this step to form this new organization, they have committed to being a part of the solution.” (LINK)
Internally, we are keenly aware of the pace of change and the inter-disciplinary nature of the future. We expect to see fewer solutions developed in a vacuum, and increasingly bring together previously disparate parties and capabilities. Data science and crop insurance. Ingredients and pharmaceuticals. Retailers and seed breeders. Food brands and preventative healthcare. Technology companies and soil health. As such, we are actively engaging our industry partners to help us build the food system of 2100. Our partnership with Western Growers Association, and upcoming “AgSharks” event is an example of new partnership models at work. As a result of the partnership, for the last 3 years, we have had the opportunity to connect with leading decision makers in the produce industry and showcase emerging businesses. Innovation is transforming the produce industry and leading growers are supporting entrepreneurs and engaging them in new ways. WGA has taken a leadership position in supporting entrepreneurship and facilitating trials with their members, enabling entrepreneurs to iterate on products and achieve product market fit 3-4X faster than they would on their own. By bringing together entrepreneurs, industry and capital we aim to shape the future face of the food system, starting at the farm gate.
In today’s business climate, there is increasing opportunity to be creative with partnership models, embrace your organization “zone of genius” and push to be the organization you’ve always wanted to be. Transformation starts by surrounding yourself with the right people.
-Audre Kapacinskas, Vice President