While 2022 was a tough year for the food industry with record commodity inflation, extreme weather events and supply chain disruptions, it is squarely in the rear-view mirror. From a SEMCAP Food and Nutrition perspective, many of the challenges of 2022 have unlocked significant opportunities for Food & Nutrition brands and investors in 2023.
Here are a few industry predictions for the year ahead:
1. Inflation and commodity price escalation is abating at the manufacturer level. The shockwaves created by the Covid pandemic will continue to impact food prices for consumers this year however, many of our portfolio companies are starting to see raw input prices stabilize in 2023. The margin defense mechanisms instituted over the last 12 months will be important and fruitful for consumer brands who are trying to restore profitability and regain their margin foothold. At SEMCAP, we’ve worked with our portfolio companies on holistic margin management, alternative sourcing and procurement and packaging redesign, which we expect will pay-off in 2023.
2. “Dining In” is in! Cooking healthy meals at home is on the rise. In response to economic uncertainty and tightening household budgets, we expect that many consumers will cut back on eating at restaurants and, in turn, spend more time eating at home to offset higher prices. This is a great tailwind for the types of mission-driven consumer brands SEMCAP focuses on who have loyal consumer followings focused on clean-label, non-GMO/organic and functional ingredients.
3. Convenience will continue to be king for busy and time-strapped consumers. In 2023, we expect to continue to see steady demand for food and grocery delivery services as more food companies take their products direct-to-consumer with online subscription service offerings that provide not just convenience, but savings opportunities for those consumers who subscribe and/or stock up. The emergence of these buying patterns provides a new opportunity for greater customer engagement and an elevated and differentiated buying experience (i.e., customer communities, recipe sharing, product feedback, testimonials, convenience, wider variety of products, etc.).
4. Valuations in food have reset. Over the past 5 years an abundance of early-stage investors, including tech angels, have fueled soaring valuations for early-stage organic/natural/plant-based food brands. The lofty valuations chased by many entrepreneurs put undue pressure on brands to grow at unsustainable rates, often leading to incredible losses and inverted margins. With valuations in our industry re-setting in 2023, the era of sustainable business models, reasonable valuations and smart growth is upon us - and investment opportunities abound.
5. Food is medicine. The pandemic had a profound effect on the way consumers see the world and interact with brands and products. As scientists uncover more about metabolism, our microbiome and digestion we are learning how impactful food decisions are to all aspects of our health (mental and physical). These advancements are increasingly linked to the rise of label-readers…. shoppers who pick up the package, read about the functionality of ingredients, and evaluate the sustainability certifications and benefits of their food. Despite rising costs, consumers have shown that they want to connect with brands that have shared values as well as products that help them live their healthiest lives. With a growing understanding that managing health is more cost effective than managing illness, consumers are increasingly willing to pay a premium for high quality, functional ingredients.
In the year ahead, we believe that thoughtful and resilient natural brands are better positioned to thrive post-2022 than they have been in the past five years. The natural and organic food companies who have buckled down, streamlined operations, found efficiencies, and become laser focused on targeted marketing initiatives have created a more stable food economy with sustainable business models. The consumer’s conviction in organic, functional, clean label and sustainable ingredients remains at an all-time high and families are choosing to support brands who serve a higher purpose.
SEMCAP looks forward to serving our food community and partner companies in 2023 while helping to unlock growth and value for our operators. We believe that 2023 will be a year of rewards for food and nutrition companies who managed margins, streamlined operations, and focused on superior products, as well as a year of opportunity for strategic investors looking to participate in a seismic shift in this space.
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Disclosure:
Past performance is no assurance of future results. This publication has been prepared by Seminal Capital Holdings, LLC (“SEMCAP”) and is provided for information purposes only. The information contained in this publication has been obtained from sources that SEMCAP believes to be reliable, but SEMCAP does not represent or warrant that it is accurate or complete. The views in this publication are those of SEMCAP and are subject to change, and SEMCAP has no obligation to update its opinions or the information in this publication. While SEMCAP has obtained information believed to be reliable, neither SEMCAP nor any of their respective officers, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Unless otherwise noted, all market and price data are through February 15, 2023.
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