Why Is Food Tech Seeing a Dropoff?

A few years ago, food technology looked like the next big thing. Meatless meat, food delivery platforms, and vegetables you can grow in the city all seemed poised to disrupt the way we get, prepare, and eat our meals.

Today, however, you may wonder where all that momentum went.

Animal protein and conventionally grown crops still dominate store shelves. Restaurants have largely gone back to the way they operated before the COVID-19 pandemic. So what happened?

Why is food tech faltering, and what does that mean for its future?

The COVID-19 pandemic brought a wave of tech-driven disruption across industries, and food was no exception. Plant-based meat sales grew a whopping 200% in the early days of the pandemic, and app-based delivery services like HelloFresh and DoorDash became the new norm.

Today, alternative meats make up less than 1% of all meat consumed, and customers have flooded back to restaurants.

Food tech startups across all sub-sectors saw a 21.5% decrease in funding in the second quarter of 2022. Individual deals fell by almost a third.

If you look through the news, you’ll likely find a lot fewer stories about exciting, up-and-coming food tech disruptors than you used to.

Some aspects of food tech haven’t completely sputtered out. Delivery apps may not have replaced older methods of getting food, but they’re still prominent.

For the most part, though, food tech has failed to live up to the hype.

Food tech’s drop in funding and innovation comes from a few separate factors. Understanding these is key to seeing how the industry could evolve and grow from here.

One of the biggest reasons behind food tech’s fall from grace is simply that customers didn’t latch onto it the way early investors expected.

After the initial surge in sales, alternative protein failed to generate repeat customers.

Many people were excited about the prospect of something new, but when it didn’t match their expectations, they didn’t try it again.

According to one survey, 46% of the people who tried plant-based meat once but didn’t buy it again cited its taste as their reason for doing so.

Similarly, 35% said it didn’t meet their overall expectations, and 30% said it was too expensive.

Whether this failure to match consumer expectations is a matter of marketing or something on the customers’ end is unclear.

Regardless of the cause, though, it meant food tech’s early 2020 surge couldn’t sustain itself. As sales dropped, so did investors’ trust in the industry.

As food tech has drawn more attention, it’s also run into some regulatory roadblocks.

Much debate has arisen around whether you can call plant-based foods “meat” or “milk” when they don’t contain any actual meat or milk.

A lack of clear rules from government agencies further muddies the waters.

The FDA has yet to release formula guidance on labeling for plant-based alternatives to animal products. Some local governments have imposed their own guidelines, but these vary from state to state.

As a result, it can be hard for new food tech businesses to guarantee regulatory compliance.

Plant-based foods aren’t the only food tech sector facing legal challenges. The National Advertising Division has started investigating meal kit company Blue Apron over its claims that canceling its services is easy.

Cases like this bring food tech’s dramatic claims under scrutiny and may scare new businesses away from the market.

The food tech industry also suffered from too much growth in too short a time frame. Excitement over the sector’s initial growth led to an influx of startups, all offering remarkably similar products and services.

As a result, the market quickly became overcrowded.

There are more than 60 plant-based meat companies with more than $500,000 in sales today. That’s 15 more than the older, more established alternative dairy industry.

A sector that has yet to convince the public that it’s worth its price premium and taste can’t support that many competitors.

Given these massive challenges, is this the end of the food tech industry? Not necessarily, but the market will likely struggle for a few more years.

Food tech will ultimately survive and grow because it’s a necessary step forward. Bioengineered crops improve crop yields and resilience, and alternative meat can dramatically reduce greenhouse gas emissions.

As climate change becomes a more severe and publicized threat, those benefits are hard to ignore.

Some of food tech’s challenges will also fade with time and development. Prices will fall and tastes will improve as technology advances and these companies go through trial and error.

However, that could be a lengthy process, certainly too long to sustain dozens of near-identical companies right now.

In the near-term, many of these startups will likely have to close their doors or become part of larger companies.

Food tech businesses should also focus on innovation to meet current challenges and set themselves apart.

The industry will eventually thrive, but that timeline is longer than investors initially expected.

Food tech is a necessary industry. However, many startups misinterpreted early demand peaks and tried to grow the sector too much too quickly. The resulting crash was understandably startling for players in the market.

As technology improves and the market thins out, food tech will reach its disruptive potential. That will just take more time, and growth will be less disruptive than some companies would like.