How Big Brands are Working with Startups to Innovate in the Food Space
In the world of Silicon Valley, big brands and corporations often get a bad rap for being slow to move and averse to change. As a small company working with major CPG companies, we can definitely attest that sometimes things move a little more slowly than we’d like.
Launching a new product within a large food organization can be difficult. With a portfolio of multi-million dollar brands, a new “idea” needs to have guaranteed returns of tens of millions in revenue at launch. That type of expectation combined with resource allocation and internal politics means that it’s difficult to get things moving.
But it would be wrong to say that brands aren’t looking for ways to be more innovative and willing to work with startups.
It's crucially important that brands innovate because grocery as we know it is changing. For thousands of years (literally), grocery remained relatively the same. People would go to a place that sold groceries, they would buy products and they would go home. Retailer and manufacturer lived cozily in a closed ecosystem that was the physical store.
Over the past 20 years, though, we've seen some major changes in consumer behavior brought on by a little thing called the internet. And while many industries were majorly disrupted, grocery is one of the last industries to be pushed into the digital age. But today, it's finally happening and it's happening quickly.
Thanks to declining capital requirements for starting companies, startups are more nimble than ever, and are able to take advantage of this change in grocery behavior. Meanwhile, big brands are looking for those opportunities to innovate so that they don't get left behind. The best choice, then, is to partner up. So how are major brands working with startups today?
1. Venture Funds
Venture funds are an easy first step into tapping into the startup space. Early stage companies are nimble but need funding. Large companies tend to be less agile, but have resources. It makes sense that this is the first foray into collaboration.
In 2001, Nestle launched one of the first CPG venture capital arms: Life Ventures. It was a $150M fund investing in startups, primarily focusing on food and nutrition, health-enhancing foods and ag-tech. This set the stage for a new wave of collaboration between large conglomerates and startups. Unilever quickly followed suit with their own fund, Unilever Ventures, launching in 2002. They have both invested in an interesting mix of companies. Unilever has even invested in recipe startup, Yummly.
These original venture arms were just that: venture arms. But as we saw the boom and bust of the dot com bubble, companies started realizing that they had more value to offer than simple capital. They have marketing, distribution, packaging expertise and resources; they are smart capital.
2. Venture Incubation
This led to the idea of venture incubation. How can brands help startups with more than just financing?
Coca Cola is a great example. They launched their venture capital arm, VEB (Venturing & Emerging Brands). Their mission statement is to identify and nurture brands with billion dollar potential and describe themselves as “part venture capitalists, part brand incubators.” To date, VEB has had a major role in the success of Honest Tea, Zico and more. Unilever, while they still have Ventures, also launched a more hybrid model in 2014 called Unilever Foundry which focuses more on the partnership side of working with startups.
The mix of financing and incubation has worked well and some companies have gone even further down the pure-play incubation and strategic testing route. Mondelez, for example, hosts an annual startup competition called Shopper Futures where startups compete to get test partnerships with some of Mondelez’s top brands.
3. Brand Innovation Startups
While finding ways to work with startups is sometimes easier than launching a product within a huge organization, it's still relatively tough to facilitate. So what better way to connect with startups than through a startup whose sole purpose is to connect brands with startups?
One such company is Evol8tion. They connect big brands with startups. According to their website they, “empowe[r] brands to collaborate with early-stage startups to achieve competitive differentiation and mobilize at the same pace as their customers.” To date, they have worked with companies like Nestle, Chobani, Kraft, and were the brains behind the aforementioned Shopper Futures program by Mondelez.
For brands, the fact that a company like Evol8tion has their ear to the ground on the latest startups is a huge benefit. Vetting and having relationships with the number of startups that they work with is incredibly difficult. Similar companies, such as Brand Innovators Labs, have also started popping up, validating the need for these types of middle-man companies to mediate the conversation between large organization and startup.
It is clear that as consumer behaviors change that even large industries, like grocery, must evolve as well. These major changes don't occur overnight and they certainly don't occur spontaneously. But brands have to make sure that they stay on top of developments in the industry or else face expiration.