Foodtech trends in LatAm: The “rush to deliver the Cokes,” and “alt-protein”

Foodtech is booming in LatAm. Bloomberg Línea looks at Q2 2021 and makes bets on the next big companies.

Moving beyond the veggie based burger, LatAm foodtech companies are growing in several different sectors.
By Marcella McCarthy (EN)
September 16, 2021 | 08:56 AM

Miami — By Marcella McCharthy

The pandemic has either killed your industry, or made it grow exponentially, and the latter is true for foodtech around the world and in Latin America. The tremendous success of food delivery startups such as Rappi and iFood have brewed competition in the sector, with entrepreneurs clamoring to see who can do it better — and more importantly — faster. It’s an industry with infinite possibilities.

“It’s such a huge business; it’s not a winner takes all model, that’s what makes it such a fascinating industry,” said Jose Guillermo Calderon, co-founder and CEO of RobinFood, a food delivery startup based out of Colombia. RobinFood now operates in other LatAm markets as well and claims to be, “Latin America’s largest cloud-restaurant company.”

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Setting the scene

A new report by Pitchbook puts Q2 2021 global VC deals in foodtech at $6.2 billion into 280 companies. The foodtech sector includes technology-driven startups developing products and services that are changing how food has traditionally been discovered, purchased, delivered, prepared, and consumed.

Within the industry, food e-commerce continued to be the leading driver of investment activity in Q2 2021, and in LatAm, in 2019 and 2020 alone, the online food delivery market grew by more than 30 percent, nearing $6.8 billion according to statista. Colombia’s Rappi takes a big piece of the pie, as the most funded food delivery startup in the region with $2.25 billion raised to date.

Source: statistadfd

Emerging trends

According to the Pitchbook report, two emerging trends within the sector are getting the most investor attention.

Ultrafast Delivery: Some foodtech companies provide convenience as their core product. Before Amazon Prime came along, we were all OK with waiting for a couple days for a delivery to arrive, but Amazon got us hooked on their 2-day promise, and now, in some cases, same day delivery. And as consumer urgency increases, more and more startups are emerging and promising delivery in just a few minutes, all hoping to be the next GoPuff’s of the world — an ultra-fast delivery service based in the U.S. which has raised $2.4 billion to date. And if one company can promise short delivery times, consumers start having the same expectations from other companies, too.

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Federico Antoni, founder of ALLVP, a VC firm based in Mexico, calls this trend “the rush to deliver the Cokes,” and he’s skeptical of its longterm viability. As a former board member of Cornershop (which exited to Uber in June 2021 for $1.4 billion), he has seen how startups can make hefty promises to consumers in the beginning when they are spending investor money and trying to grow. But as the pressure to become profitable mounts, companies realize that to increase efficiency they have to balance out their approach, which often includes a longer wait for the customer.

“At the beginning, Rappi was absolutely nuts, fast and cheap, and as they scaled they became more balanced,” Antoni told Bloomberg Línea. Another example is Uber; in the early days, cars were available in city centers in just a few minutes, and all the cars were new-ish and stocked with amenities, but over the years both have started to wane.

“What I’m a little skeptical about the super fast delivery is 1) I’m not sure it will provide a lot of value to the consumer to get deliveries in 20 minutes and 2) the cost - everyone has to be on call. You have to be ready to send a motorcycle or a bicycle immediately, so you can’t be as efficient [as] when you have 30 minutes,” Antoni told Bloomberg Línea.

People today have very scheduled lives. For many of us, our days are plagued with calls that start on the dot, and then we have windows of time throughout the day. If we order food for lunch, we want it to arrive within that designated time, and it’s that consumer expectation that delivery companies have to work with.

“The most important thing for consumers is that you fullfil your promise. If you say 30 minutes and you arrive late, they won’t be happy, and if you arrive early, they could be in the shower, so they won’t be happy either,” said Calderon, of RobinFood.

At RobinFood, Calderon doesn’t focus on instantaneous delivery — that’s just not their game. But the serial entrepreneur who sold his last company to Delivery Hero, sees the demand and the potential for speedy delivery, and co-founded Merqueo, which offers a 24-hour shop that promises deliveries in 60 minutes or less. Merqueo, like GoPuff, keeps inventory in a warehouse (that’s not open to the public) instead of a retail location. Since the company controls the supply, it is able to offer ultra fast delivery to its customers.

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Alternative Proteins: In just a few years the alternative protein (alt-protein) market went from niche to mainstream, as more and more people are becoming aware of the sustainability and health concerns often associated with animal products.

Considering soybeans alone, by 2025, the estimated value of the organic soy protein market in Latin America is expected to rise to about $120 million, an increase of 140 percent from $50 million in 2020, according to statista.

But as more people jump on the plant-based trend, companies in the space have to feed the demand. As a result, startups are emerging to develop alt-proteins that are then used by other foodtech companies. “Existing plant-based proteins have faced supply chain constraints as well as environmental challenges,” the report says. Companies such as Beyond Meat, for example, depend a lot on pea protein, and Impossible Foods depends on soy production, which has been linked to deforestation in Brazil.

“Companies like NotCo have a great dependence on people doing everything correctly,” said Gonzalo Ramírez Martiarena, founder of Swiss Pampa. Martiarena is an Argentine investor living in Geneva who frequently invests in foodtech in Latin America and globally.

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What he means by this is that consumers today value factors such as clean foods which are sustainably sourced at a decent price. But it can be challenging for plant-based startups to source for these variables consistently.

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In Latin America, we see alt-protein startups such as Protera picking up speed, though they are not on shelves yet. The company was founded in Chile and recently raised a $10 million Series A. Protera uses AI to design and develop new plant-based proteins to replace the harmful chemical-based ingredients in food and preserve the shelf-life of food without compromising taste or texture. The company has engineered a protein that promises to keep foods fresh for 30 days, while other clean preservatives offer about 7-15 days of freshness.

According to Pitchbook, the latest trend in alt-proteins is, “....microalgae, a unicellular category of proteins comprising more than 200,000 species of algae with numerous health and environmental benefits.” It’s still a very nascent trend, and microalgae is expensive to produce. That being said, the global algae protein market is expected to reach a value of $1 billion by 2026.

While ultra-fast delivery and alt-proteins are all the rave right now, there are foodtech startups outside this realm that are also taking a piece of the LatAm market. Two that stand out to me are Intuitivo and Frizata.

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Intuitivo, based in Argentina, is betting on the convenience trend and selling healthy foods from grab-and-go machines, similar to the vending machine, but less costly. Vending machines are big business in the U.S. but they never really took of in LatAm.

Frizata, also based in Argentina, is delivering frozen foods directly to consumers in 48 hours. People can order portions, not meals, and because Frizata handles the delivery themselves, they are able to avoid all the traditional packaging that goes with frozen food delivery. While Frizata has some meat products, most of their inventory is vegetarian.

NotCo was able to expand outside LatAm, which isn’t common for Latin American startups, in part because the region is a big enough market in and of itself. But as the foodtech market grows in the region, investors remain eager to see who is going to be the next unicorn. “We haven’t seen all the foodtech companies we want to see,” said Adrian Garcia-Aranyos, president of Endeavor Global.