June 2, 2018 — The food and beverage industries today enjoy a historical confluence of rapidly shifting consumer trends and low barriers to entrepreneurship, generating a flood of innovation. To explore the motivations as well as technical and business challenges of entry-level food and beverage entrepreneurship, Global Food Forums convened a panel of entrepreneurs to share their insights and experiences. This first of two posts looks at entrepreneurial motivation and initial hurdles for this Innovative Challenger Brands Panel on Proteins.
The panel was moderated by Kara Nielsen, Vice President of Trends and Marketing, CCD Innovation, an Emeryville, Calif.-based food and beverage innovation consultancy.
Panel participants included:
• Miyoko Schinner, CEO and Founder, Miyoko’s Kitchen, a Petaluma, Calif.-based manufacturer of vegan dairy cheese alternatives.
• Dariush Ajami, Ph.D., Vice President, Research & Development, Beyond Meat, an El Segundo, Calif.-based manufacturer of vegetarian meat alternatives.
• Kurt Seidensticker, CEO and Founder of Vital Proteins, Elk Grove, Ill., a manufacturer of hydrolyzed collagen products for joint health.
• Natalie Shmulik, M.L.A., CEO, The Hatchery Chicago, a business incubator focused on food and beverage start-ups.
Nielsen opened the panel by describing her own company’s focus on developing “challenger brands”—the focus of the panel and a term that reflects how many emerging companies are challenging the status quo in food manufacturing. “When we look at challenger brands, we need to ask what it is that we are challenging and why. Consumers have changed and, consequently, their needs have changed. So, when thinking about the trends these new brands are driving, we are talking not only about changing consumers, but also about their evolving values.”
Nielsen then asked panelists what motivated their entrepreneurial ventures.
Entrepreneurial Motivation
For Miyoko’s Kitchen’s, Schinner, a vegan for 30 years, it was an opportunity to change the world. “I have a deep respect for all species to live on this planet as they wish to live, not as commodities for us,” she began. “To be healthy, we need to think about the health of the planet and the health of animals…and create a world that supports all life forms.” But, she emphasized, “we also need to appeal to people’s taste buds, to make people think, ‘if I like products like this, I could go vegan.’”
Ajami, Beyond Meat, said that his company’s goal is to engineer a global shift from animal to plant-based meat. “We believe we can perfectly replicate animal muscle protein with plant protein.” He argued that, ultimately, the animal protein industry is not sustainable.
Seidensticker, Vital Proteins, was motivated to create his company five years ago as the result of sports-related joint injuries. “Humans are creatures of motion and flexibility,” he said, and that means they need to create collagen for joints and other connective tissue. His research suggested that humans synthesize insufficient quantities of the essential amino acids required to meet their collagen maintenance needs. He also found that collagen supplementation helped his joint recovery after running. Thus, he launched his company on the value proposition of health, wellness and functional benefits of hydrolyzed collagen.
For Shmulik, The Hatchery Chicago, motivation in her work was to, in turn, help entrepreneurs succeed. The Hatchery currently occupies a 400,000 sq ft (37,200 sq m) facility that Shmulik expects will eventually house 75-100 entrepreneurs, along with manufacturing, packaging, training and support resources. She also added, “Our social mission is to serve one of the most underserved communities in the nation with one of the highest unemployment rates.” Shmulik predicted that the Hatchery would create 900 new jobs within five years of inception.
Initial Hurdles
For Beyond Meat, said Ajami, the first major obstacle to overcome was a supply chain issue: to identify appropriate sources of protein, as defined by amino acid content, that were available in the amounts required. For Miyoko’s Kitchen, the first major hurdle was manufacturing scale-up. She had started making artisanal vegan cheese at home but ran into problems with scaling up the ripening process. They initially built an aging room using galvanized steel but were forced to switch to stainless steel after rust problems developed.
For Seidensticker, it was about speed and persistence: “The quickest way to learn is to do and optimize something yourself.” Thus, Vital Proteins, built its own manufacturing facility from day one and quickly constructed a vigorous online-sales and marketing presence to develop consumer awareness. Plus, he stated, “Anytime you create a new market category, you may have to go through three or four iterations before you get it right.” That requires time and money.
Shmulik listed the top hurdles she had observed in her work with entrepreneurs. First, she said, they need to do their market research up-front, in order to confirm that what they perceive to be a market opportunity really is a market opportunity. Financing is also a major challenge, as entrepreneurs almost always underestimate how much funding they will need at the outset. “We encourage our clients to build their first prototypes on the cheap and to get them in front of potential customers for feedback.” Third, they should investigate the legal and regulatory terrain in order to avoid making expensive, “brand-shaking” errors.
Nielsen asked Schinner to address the potential labeling issues of marketing non-dairy cheeses as “cheese,” as the U.S. dairy industry is required to label its products, including cheese, according to rigidly defined Federal Standards of Identity (SOI).
“Even though SOIs exist to prevent confusion in the marketplace, they don’t help determine what new, innovative products should be called,” said Schinner. “So, if you can’t call something a substitute for something else, this only further confuses consumers.” There is a lot of legislation and lobbying underway by the plant-foods industry to resolve these issues, she continued, but, until then, “we decided to put ‘cheese’ on our label.”
Sometimes, entrepreneurs need to be bold and willing to create their own market category, added Seidensticker. “At first, I didn’t think we could enter the protein category, as it was so crowded and dominated by dairy and plant proteins. So, we decided that we would create a third category…functional protein.” He and his colleagues spent a lot of time testing their concept by talking to people at trade shows. “Trade shows gave us the opportunity to get in front of major influencers and perfect our message.”
Nielsen asked Shmulik how The Hatchery Chicago advises its clients to leverage resources. “We encourage our community of entrepreneurs to exchange resources, such as leads to distributors and outside manufacturers,” she responded. Being an entrepreneur can be very isolating, and “we spend a lot of time playing psychiatrist.” Also, many entrepreneurs become so excited and anxious to get their product out to retailers that they overlook the importance of negotiating favorable terms and developing long-term relationships with retailers, said Shmulik.
“One of the things that we did very successfully was to go first to consumers through online sales in order to build brand recognition,” said Seidensticker. As a result, Vital Proteins was able to immediately secure national distribution at Whole Foods based on its online presence and extensive consumer community. Ajami added that developing tight relationships early on with the supplier community is critically important. “We wanted to communicate to them that we were in it for the long-run, so that [our supplier community] would be there when they were most needed.”
“Sometimes we come up with products on purpose, sometimes we don’t,” observed Schinner. Some new products are developed by sheer accident, but an active online interaction with consumers provides instant feedback on whether they represent real market opportunities or how they can be adjusted to better fit consumer expectations. Seidensticker confirmed: “Direct-to-consumer sales allow one to innovate more quickly and develop closer, interactive relationships with their customers. They send us suggestions that help us to better resonate with our customers.”
Also, consider cross-brand collaborations, offered Shmulik. She noted several such collaborations, such as online custom coffee roaster Stumptown Coffee‘s (Portland, Ore.) collaboration with Taza Chocolate (Somerville, Mass.), an online, direct-trade chocolate manufacturer.
Some innovation opportunities become evident from simple walk- throughs of food and beverage stores. “If you walk into a butcher shop, you will see all the products that we seek to emulate,” explained Ajami, of Beyond Meat. The company has systematically expanded its original platform to include The Beyond Burger, Beyond Sausage, Be- yond Breakfast Sausage and Beyond Chicken product offerings.
⇒ This was Part I from the Innovative Challenger Brands Panel on Proteins. Click to see Part II of this Innovation Challenges Brand Panel .
