David versus Goliath: The impact of small sustainable food brands on the industry at largeWater
It’s a new food world. The modern consumer demand for more sustainable food is evident: In a 2017 proprietary quantitative study conducted by Barkley, new products with sustainability and traceability claims exceeded all other new product platform territories including portion control, taste or flavor, easy preparation and functional nutrition. As a result, food manufacturers made a notable increase in their commitment and promotion of sustainability policies and practices.
The new retail model must be built around the consumer, with a focus on sustainability to meet consumer demand. The mission remains: To create an environment that empowers consumers and makes their lives easier, healthier and more enjoyable – while protecting the environment at the same time.
With companies big and small alike integrating sustainable practices, employing innovative uses of technology, and adopting new approaches into their businesses, it’s interesting to examine the impact and role that small, sustainable food brands has on their larger counterparts and the industry at large.
Small scale, big impact
Why are we analyzing small (and medium-sized) enterprises in a massive industry? Well, for starters, they make up 99% of the businesses in our food & beverage (F&B) sector; their role in this industry is paramount. In Europe, food and drink SMEs represent half of the sectors turnover (49.5%) and almost 63% of its employment. While these brands stand for cultural heritage and regional traditions, they also represent future youth employers, growth opportunities and innovation.
Parallels can be drawn from the dynamics between different players in the F&B industry and the David and Goliath contest. Goliath is described in the biblical Book of Samuel as a Philistine giant defeated by the young David in a single combat, serving as the representative of paganism, in contrast to David, the champion of the God of Israel. In modern usage, the phrase “David and Goliath” has taken on a more secular and popular meaning, denoting an underdog situation, a contest where a smaller, weaker opponent faces a much bigger, stronger adversary.
Akin to the biblical story, David very much represents the small, supposedly weaker sustainable brands going up against stronger, more well-established and massive food corporations – the giant Goliath(s). While Goliath was defeated and killed by the boy with a stone, we most likely won’t see a clear winner (or loser) emerging in this constantly-evolving F&B landscape.
Fast innovation vs. a conservative approach
Smaller local players are likely to set the pace of innovation over the next few years, stealing share from established brands in the process.
2019 promises to be the year of disruption in packaged food and we expect a lot of disruptive innovation coming from local players in the startup community – particularly around the areas of plant-based protein, personalized nutrition, supply chain and logistics, and food technology.
Startups are able to adopt a more adventurous approach when it comes to delivering innovation, and they have been using this to their advantage to gain global market share. Bigger companies have an existing business to support and defend, making them a little more conservative – at least in comparison to a startup with nothing to defend but everything to gain.
In addition, the smaller, more nimble food brands are able to focus in on specific solutions or targets. The bigger companies look at the bigger problems, but by doing that, they average out the problem. On the other hand, startups can drill into a specific pain and provide a painkiller, a solution.
According to Pinar Hosafci, head of packaged food at Euromonitor International, these new startup companies and local players will create new revenue streams and increasingly steal market share from big players, so these big players will need to come up with creative ways of finding more sophisticated partnerships with niche players.
Meaningful partnerships and collaborations
Many of the sustainability challenges our food system is facing are bigger than any single company, industry, or country. Greater collaboration will happen that unite big corporations with agile startups, where both stakeholders are necessary for the development of long-term, holistic solutions.
While large enterprises face challenges like agility and fast-paced innovation, small brands face greater constraints in gaining access to resources for scaling and growth.
According to Julian Lechner, CEO of Kaffeeform and one of our Food for Thought panelists, small startups are starting to collaborate more with reliable, like-minded corporations, working towards a mutually-beneficial, shared vision. The small food brands offer the mission and spirit, while the bigger partners provide the right networks, sales points, research and development, in addition to the accessibility to customers.
A lighthouse function
Small brands also increase the visibility for sustainability topics and show that it is possible to let sustainability be the front and center of business models in the industry.
Moritz Waldstein, CEO of Mitte, pointed out in a recent interview that larger companies look to small brands for inspiration. “Big companies are all aware of the need to provide more sustainable options in their products and services. And because of that, they are recognizing the importance of startups, meaning startups now have a lighthouse function to the world and these big corporations because they are doing things a little differently, because they are building in factors like sustainability into their business models and showing people how it’s done.”
“We’re seeing more inbound interest from people in the industry. People who want to talk to you and understand more. What I find interesting is that on a personal level, you see a lot of frustration in these companies – the employees there are looking for meaning in what they do. I think the importance of startups goes beyond obvious economic benefits; they’re also a lighthouse to show how a different world can look like,” says Moritz.
And it’s true. Many of such organizations have incubator, accelerator, or startup programs because they realize that they are unable to integrate sustainable practices from within the company; they need to look elsewhere for cues and directions on how to get there.
“The inspiration that small startups deliver invites larger companies to the conversation. Many of them have been contacting us after seeing our story in magazines or on tv, saying that they would like to discuss potential collaborations and partnerships. I’m very surprised at the number of corporates that Kaffeeform seems to be inspiring. These days, we’re getting more interesting and diverse requests from them,” concurs Julian.
The constantly evolving landscape
It’s definitely an exciting time to witness these shifting dynamics in the F&B industry, as we see more collaborative relationships emerging between the small and large players. It is also no longer the case where large corporates are definitely more preferred and trusted by consumers over smaller, local brands. These companies may be small in scale, but they are big in impact. Besides their essential role in remaining the anchor of our economy and traditions, they also satisfy the changing needs of billions of consumers worldwide.
So instead of a David & Goliath situation, it’s hopeful to see that the current food industry is that we are moving towards a more collaborative, fragmented, and varied landscape, with small brands leading the charge towards a more sustainable future. Only by combining the strengths of massive companies and small startups, are we able to equalize the playing field and meet challenges in the F&B industry head on.
Interested in exploring more of such topics? Join us for an exciting time at Food for Thought: A panel discussion on sustainability in the F&B industry on 17 October 2018 in Berlin.
Food for Thought brings together a handful of local entrepreneurs who are groundbreakers in transforming Berlin’s F&B sector by building scalable and sustainable businesses. We will explore topics close to our heart, demonstrating that there is an economic case for protecting the planet.
Limited spots available, RSVP here.
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