Based on our discussions with industry experts and through our past investments, we have identified a number of challenges in the food industry. These challenges have been increasing over time and feedback from industry insiders suggests a pressing need for change and innovation.

(1) CONSUMERS LACK TRUST IN BRANDS AND RETAILERS

Now more than ever, consumers are asking for more transparency and visibility in food supply chains, lacking trust in brands and retailers.

“Only 1/3 of consumers trust food brands and 3/4 say they’ll switch to a brand that provides more in-depth product information”

Globally, environmental impact is a buying consideration for c.70% of consumers and the use high-quality ingredients or components is key for c.80%¹. However, consumers struggle to have visibility and trust in production practices. Ensuring that each product does respect commitment, specifications and practices on the label is a significant challenge for the food industry. According to a study from the Food Market Institute², only 1/3 of consumers trust food brands and 3/4 say they’ll switch to a brand that provides more in-depth product information, beyond what’s provided on the physical label. According to surveys conducted by the “Bureau Européen des Unions de Consommateurs” members (BEUC), in European countries like Germany and the Netherlands, less than 20% of consumers trust food labels³. In France, 34% of consumers trust organic food labels⁴, versus 26% in the US⁵. Moreover, consumers’ trust in brands and labels is low, and continues to fall. A 2018 survey reveals that only 33% of consumers trust the food they are buying, compared to 47% just a year ago⁶.

How did consumers’ trust in brands and labels fade away? Looking at the past two decades, we can list numerous (and disastrous) cases of food safety and fraud scandals, including the 2013 horse meet scandal in Europe, the 2018 E. coli lettuce scandal in the US, or more recently the 2019 ‘sick cow’ meat scandal in Poland. Taking the example of the 2013 horse meat scandal, in our view the scale of such fraud would have been smaller with a real time digital tracking and live audit platform. With constant checks on inputs and outputs, intermediaries would have found difficult to prove that they had bought beef meat, therefore raising a red flag.

(2) PRODUCT RECALLS ARE COSTLY, LEADING TO FOOD WASTE, FINANCIAL AND BRAND DAMAGES

“A product recall has an estimated direct cost of $10mn and indirect cost of $100mn including lost revenues due to significant reputational damage”

Product recalls are particularly risky for brands which spend years and millions on marketing to build unique identities and differentiate from generic/store brands. The actual products are very similar (as per blind tests) but their brands allow them to price products higher and sustain competition. However, if trust is breached then the unique identity benefits are lost. In the US, a product recall has an estimated direct cost of $10mn and indirect cost of $100mn including lost revenues due to significant reputational damage⁷. In addition to brand and financial damages, recalls (i.e. E. coli lettuce, Salmonella beef, horse meat scandal) are also leading to enormous volumes of food waste. For instance, the 2013 horse meat scandal resulted in a 50mn kg of food recall.

(3) FOOD AUDITORS CAN’T FOLLOW MARKET GROWTH

Demand for more transparency, traceability and quality is emerging from all parts of the food industry, from consumers, retailers, brands, producers. As of today, the global food certification market is worth c.$10bn and is expected to grow at +5% pa by 2025⁸ (one of the fast verticals of the Testing, Inspection, and Certification — TIC — industry). However, this growth is facing a major bottleneck on the supply side — to find adequate and skilled labour human resources (i.e. food auditors) — leaving <5% of food production volumes audited. Europe accounts for the largest share of the global food certification market, followed by North America. In both regions, stringent policies and food standards have been implemented to ensure quality in the supply chain. This is also increasingly the case in developing countries, driving further market growth.

While global food production (i.e. wheat, rice) is expected to rise by 10%+ by 2028⁹, the food certification market continues to face human resources constraints. In fact, physical food auditors cannot cover a larger share of the production and cannot verify in real-time. We believe technology could help physical food auditors capture this growing market opportunity, while also increasing their coverage from <5% of volumes today to 100% tomorrow. Why can’t retailers/brands create that solution themselves? In short, the answer is independence. First, the auditor needs to be independent for its opinion to be valid in the eyes of the industry, the consumers and the regulators. Second, industry participants don’t want to use the platform of another industry participant even if they are not competitors (different supply chain levels). They don’t want to give out or share so much information.

(4) FARMERS AND GROWERS, AT THE HEART OF FOOD QUALITY, OFTEN LEFT OUT

Farmers and growers are at the heart of food quality. Sustainable practices can sometimes incur additional costs, putting more pressure on farmers and growers’ margins. We view technology as an enabler to a fairer and more sustainable way of doing business. The worst part is that farmers who produce high quality food sustainably often struggle to differentiate themselves. This in turn disincentives these sustainable practices as they are not rewarded.

“5% of Connecting Food turnover is donated to farmers to reward them for the quality of their work and to value agricultural data”

Food quality is highly related to farm produce, reason why farmers and growers are a major focus for Connecting Food. To reward them, Connecting Food is donating 5% of its turnover to farmers and growers for the quality of their work and to value agricultural data.