Innovation vs Distribution
The battle for good ideas and shelf space in food rages on.
In a 2015 blog post, venture capitalist Alex Rampell wrote, “The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.” He was primarily talking about tech but his statement rings even truer for the food industry. The competition between companies who have big distribution and those who have big innovation has defined the past 20 years of food, especially in CPG, and shows no sign of changing course. Food startups have all the new ideas, but no existing distribution. Conversely, Big Food has all the distribution, but not the new ideas.
Before working in food, I worked briefly in tech and the lessons from the Internet revolution have always been instructive when looking at food innovation. The transformations that the internet brought to industries where the product or service could be effectively digitized (e.g., music, publishing, e-commerce) were always at least half a decade ahead of when they would hit food. Well before we could click a button and have groceries delivered to our doorstep, we could click a button and have a song instantly downloaded to our devices. Food is analog, so the digital revolution in food has typically been slower to disrupt the status quo than it has for digital products and services.
Recently in the midst of massive turmoil at Twitter, Meta launched Threads, which reached 100 million users in 5 days. The vibe on Threads is quite different than on Twitter right now, but from a technological innovation perspective, it essentially operates just like Twitter and is nothing truly new. Meta was able to get an astronomical amount of users in a very short time because it already owned a massive distribution channel in Instagram and its 2.35 billion daily active user base. Because of this huge distribution advantage, it didn’t need to innovate very hard to get a lot of users.
This happens all the time in the CPG food and beverage industry. A company like Coca-Cola, who already has millions of relationships with retail stores and foodservice establishments, needs only to do something small to its products, like slightly reduce the sugar or produce a smaller can size, and it can quickly gain adoption for that new product or feature in days or weeks. Meanwhile, even cutting edge companies like Impossible Foods or Beyond Meat who spend 100s of millions of dollars to produce a faux meat product still need to fight tooth and nail to grow their distribution because the food industry still has powerful gatekeepers who decide who gets retail placement or not.
Contrast this with Open AI who released ChatGPT and acquired 100 million users in 2 months. Both ChatGPT and today’s food tech companies making fake meat are considered some of the most innovative technologies in their respective industries. But because there’s no retailer deciding if people can get access to ChatGPT like they do with fake meat, ChatGPT can gain a user base far quicker than even the most innovative food companies can. In tech, having a huge distribution platform is a great advantage, but if your tech is truly groundbreaking and useful to people, you can overcome the distribution problem quickly. This is not true in food.
The Importance of Ideological Diversity
Big Food knows that it doesn’t need to create wildly new innovations to grow anymore, because it can simply invest in or acquire innovative startups and plug them into their already huge distribution footprint. As a result, they mostly stopped acting like innovators and started acting like landlords, continuing to tap the value of their giant distribution assets that took decades to build. It’s a defensive position that exploits their strengths (cash and influence) and minimizes their weaknesses (bold innovation).
This is good for Big Food because it can pick which food startups it wants to work with, but food startups still have far more powerful market gatekeepers to deal with than their tech startup counterparts who simply need a web server and a well-executed idea. It is still far easier to find an audience for a good idea as a tech startup than it is as a food startup.
When marketplace gatekeepers lose power, the world gains access to a wider, more varied range of ideas, both good and bad. Relative to the food industry, the internet offers a much more robust and diverse offering of digitized ideas and tools than food does. The barriers to entry are lower for digital media or apps because no one has to ask permission to publish something on the internet like food makers need to do to get into grocery stores, where most people still shop.
Sure, Apple and Google act as gatekeepers for their app stores, but the decision criteria to get in centers more around your app being safe for users than it is whether they think your idea is good or not. Because the cost of placing an app “on the shelf” in the app store is virtually zero, they can afford to stock as many apps as they want, unlike retail grocery which has finite shelf space. As a result, there is a stronger sense of meritocracy online for digital products and services because the crowd is able to see a wider range of ideas and decide what’s good or bad.
Conversely, the average grocery store shopper only sees what that store’s buyers deem innovative and valuable. And while there are more and more progressive retailers out there like Bi-Rite, Erewhon, Foxtrot, and Pop-Up Grocer who stock products from the best and brightest food startups, mainstream grocery stores are still heavily dominated by long aisles of Frito-Lay snacks and Coke/Pepsi products. We need these indie retailers and others like them to succeed because they diversify the kinds of ideas the average food shopper can be exposed to. They help solve the distribution problem for innovative food startups while Big Food companies with huge distribution continue focus on tiny innovations that aren’t really innovations.
I’ve written at length about the importance of agricultural biodiversity, but having a diversity of ideas in food is just as important. The monoculture of crops begins with the monoculture of ideas. The grand theory and promise of the Internet is that everyone can get online and share their ideas and inventions, which accelerates the process of natural selection and hopefully leads to a more evolved society. Yes, the Internet also amplifies bad and harmful things and it’s debatable if we’ve become more “evolved” as a species because of it, but those big flaws notwithstanding, we still have access today to more good ideas than anyone else in the history of civilization.
Food may never be fully digitized and as easy to share across the Internet as an mp3 file, but it doesn’t mean we should stop trying to give a wider, more diverse set of good food ideas more exposure. Supporting independent grocers and seeking out non-mainstream food products are all positive things eaters can do to help diversify the food system. Agricultural diversity doesn’t happen without ideological diversity. And the good news there is that no one needs to wait for a gatekeeper to say “yes” to a good idea in order to help spread it to everyone on the planet.
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Footnotes
3 Recent posts from my Substack
3 Highlights from my current reading list
A.I. Could Solve Some of Humanity’s Hardest Problems. It Already Has. by Ezra Klein - The Ezra Klein Show
Open Your Mind to Unicorn Meat by Annie Lowrey - The Atlantic
On U.S. Cuisine by Alicia Kennedy - From the Desk of Alicia Kennedy
My email is mike@thefuturemarket.com for questions, comments, consulting, or speaking inquiries.
I'm a new reader, and find the writing and topic selection so bang-on, I just can't get enough. Keep it comin' and thank you for your insights.
Excellent assessment of the unique challenges of food innovation. Not to mention regulatory hurdles and testing and also the challenge of utilizing new or different manufacturing lines from the core business.