John Stapleton is an entrepreneur, angel investor, business leader and speaker with over 30 years’ experience in pioneering new FMCG categories, well known for his founding of The New Covent Garden Soup Co Ltd and Little Dish. He shares his views with Director of Finance readers on how Big Food is partnering with challenger brands and start-ups in finding new avenues to capture funding and regain consumer confidence
Consumers are increasingly demonstrating a lack of trust in what they perceive to be ‘Big Food’. This has been primarily driven by recent food scandals and a perception that large food and drink corporations do not either meet their needs adequately or take their concerns seriously. Areas where consumers feel more could be done include perceived wholesomeness or specific health claims of individual products; sustainability of product ranges; over-reliance on plastic packaging and a perceived lack of innovation to source alternatives. Consumers have sought businesses that appear to be aligned to their values. These have typically been smaller brands and are often start-ups.
Consumers are no longer prepared to accept food and beverage industry claims without evidence. Claims and values need to be justified, transparent and real. Consumers are therefore driving this particular agenda and businesses are reacting in two significant ways: Big Food is eager to appear small – as Big is viewed with mistrust; while small food businesses are keen to appear big to be taken seriously by the trade. However, being small suits the current consumer narrative and is often an advantage.
This trend has fuelled the explosion of food and beverage start-ups in the UK and Ireland (conspicuously vs the rest of Europe) over the last five years. Entrepreneurs often start businesses in response to their own frustration at the lack of available product/brand values and decide to provide it themselves.
Funding solutions have followed this phenomenon. Whereas EIS-driven tax-efficient means of investing in start ups has been with us for some time, SEIS has further facilitated the venture culture to allow start-ups to gain a foothold. This has facilitated Business Angels, Angel Networks and similar consortia to actively invest in high risk, high-reward business ventures. Crowdfunding has brought further impetus to the attractiveness of backing new food and beverage brands. Consumer-facing brands are very relatable so it’s not difficult to see the attraction for many consumers to invest modest sums in a crowdfund platform and follow the success of that brand through the funding process and beyond. Many new-generation consumers like to feel a personal affinity for a brand that voices values similar to their own.
Being a part owner in an aspirational brand is quite accessible – the process becomes quite egalitarian. However, some cracks have begun to appear in this funding model as many brands can accrue non-value-added shareholders. At the same time, entrepreneurs can be lured into a false reality with very inflated early-stage valuations. The three businesses I co-founded (New Covent Garden Soup Co; Glencoe Foods Inc; Little Dish) all followed the more established subsequent funding stages of Friends & Family; Angel Investor; Private Equity.
To counterbalance the lack of value-added shareholder input at early growth stages, a number of accelerators and incubators have sprung up and filled the vacuum. This has been a welcome addition to the start-up and early-stage growth landscape, but many have proved to either provide very ‘lite support’ or have concentrated on the very early stage growth phase and fall short over the important subsequent growth and scale phases.
All of this has not gone unnoticed by Big Food. They are acutely aware of the consumer perception issues they sometimes have to contend with. They are also aware that they are not as agile in recognising shifting consumer trends and bringing innovative solutions to market. A number of large UK food and drink corporations have set up their own accelerator programmes designed to find the next innovative consumer-driven idea that they can benefit from once scale has been achieved. Examples include Nutrition Greenhouse (PepsiCo); JLab (John Lewis/Waitrose); Springboard (Kraft Heinz); and Distill Ventures (Diageo).
One interesting accelerator of note, not associated with any established food business or any third party, is Grocery Accelerator. It provides a programme for getting start-ups on the first rung of the ladder and generate traction into becoming a national brand.
Food and drink retailers have also demonstrated a keenness to get close to start ups and younger brands. Many have formed initiatives to facilitate the launches of these brands in their stores, often with favourable trading terms and consumer-centric data, in return for exclusivity. Future Brands at Sainsburys and Nurture Brands at Waitrose and Tesco Incubator all purport to serve this need.
The essence of entrepreneurship is to identify a need, design a product to meet that need and build a brand that communicates this solution to the target audience identified. To do this means being agile. Start-ups know this and Big Food knows this. Consumers are demanding that the industry provides for their rapidly changing needs. It is likely that over the next five years we will see further start-up-driven innovation, as well as the consolidation of the plethora of new brands. May the strongest survive!