What is the idea?The startup idea is to establish a company, which would manufacture fermented (cultured) foods and drinks. The company would produce food and drinks as per local tastes and cultural preferences. Fermented (cultured) foods and drinks are those, which have been through a process of Lactofermentation. These food items are also commonly called as “probiotic” because they stimulate health-enhancing bacteria.
The advent of packaged food and drinks had pushed this industry to the backstage. However now, there is a rising interest in fermented drinks, and this has propelled products such as Kombucha, Kefir, Lassi, and Ayran as the emerging stars in the super fast growing specialty foods segment.
Market DefinitionAccording to a recent report on ‘Specialty Foods’ by MarketsandMarkets, the market for specialty food ingredients is projected to reach a value of USD 91.2 Billion by 2020, growing at a CAGR of 5.5% from 2015. In the United States alone, the sales of specialty food hit USD 120 billion in 2015. Between 2013 and 2015, fifty-eight out of the sixty-one specialty food categories included in the report grew by double digits, signaling a major a demand boost by the consumers.
Because of the health benefits attached to fermented foods and drinks, it is considered one of the fastest growing segments of the specialty foods industry. The report from Mintel’s 2016 Global Food and Drink Trends echoes the similar sentiment, clearly indicating that the health benefits of fermented products; mainly fermented milk are now moving into the mainstream, fuelling the consumer choice and demand.
Competitor AnalysisThere are many companies, which have been manufacturing specially fermented products. One such product is Kombucha; It is a variety of fermented, lightly effervescent sweetened black or green tea drinks that are commonly intended as functional beverages for their supposed health benefits. In a short span of time, it has become a fast favorite of world-renowned celebrities; the list includes Madonna, Orlando Bloom, and Gywneth Paltrow. Companies like Happy Kombucha and Love Kombucha have encashed on this newfound love for fermented tea and are doing good business.
A US-based start-up BAO has already achieved blockbuster growth for its fermented food range of food items. It specializes in over 33 products including ‘raw slaw’ and ‘fresh Kombucha.' Older players like Yakult and Lea & Perrins Worcestershire Sauce have been in business for many years and have built great brands in the fermented foodstuffs category.
Pain Point & Target AudienceThe target consumer for the firm will be “any customer who is health conscious and is looking to buy products with health benefits.” There is a fundamental shift in the world where the customers are moving from processed food to organic products and other healthier options.
Increasingly the consumers and media have started bracketing processed food products as not so healthy choice, and on top of it, some research studies have even found certain ingredients in them to be carcinogenic. The increased awareness and rising medical costs are pushing the consumers to move towards healthy and non-processed food items.
Value PropositionConsidering that most of the fermented food and drinks companies have opened up in the western world, there is space for a similar company to be started in the Asia-pacific region.
Although, it needs to be noted that various players are operating in this market, but there are offering a very limited range. By providing a wider variety, one would be able to make an entry into the market very swiftly; the key is to identify age-old fermented specialties from different countries and create an urban market around it.
Business ModelThe product will be sold to large retailers or supermarket chains; the consumers would buy directly from them. In the first stage, the business should avoid setting up its own boutique shops, as it would be tackling multiple challenges at the same time, the business should focus on production and brand building so the consumer uptake from the supermarket is fast.
The other option would be to tie up with schools and colleges, as there is a big gap in that segment, most of the parents don’t want their kids to splurge on cola or sugary drinks, this product could be a healthier option as it would be natural with minimal sugar content.
Way to marketThe startup should start with identifying a potential market and a food product, which has the cultural value, attached to that market. For example, one could start with a product like Lassi from India or Doogh, which is the traditional drink of Afghanistan, or Kimchi from Korea.
Since this is in the packaged food category, most of the countries have detailed laws and approvals before you can formally launch the product in the market. The first step would be to get the regulatory approval for launching the product.
MilestonesThe first milestone would be perfect the recipe for manufacturing the product, in case you can add certain ingredients that make it unique and patentable, you would have built an initial layer of defensibility and attractiveness for the investors.
The second milestone would be to identify the target market for launching; the startup should start from one market. For example, the startup could consider selling Kimchi in the any South East Asian country and Indian market, as these markets could be more receptive.
Investment Needed For PrototypeSince this is a brick and mortar startup, you would need to get investors on the board early on. You can target senior executives from FMCG sector to pool in money for your seed round. By getting backers from the FMCG sector, you will be able to leverage their supply chain and distribution experience. In addition to this, they may be able to convince one or two supermarket chains to stock your product. You should look at raising 500K to start the venture.
Team CapabilityYou would need to have a microbiologist, who understands the fermentation process and can create healthy products and a marketing expert who has worked on helping brand and product launches. In addition to this, you need to get a senior member of the Food retail industry, preferably someone who has worked in the supply chain or channel building.
Investors / Expert TakeVenture Capitalists have been feasting of Food startups. According to entrepreneur.com, USD 2.06 billion were invested in the first half of 2015 alone. In 2015, Hormel Foods paid $775 million for Applegate Farms, a producer of humanely raised, antibiotic- and preservative-free deli meats.
General Mills has started a fund just for Food startups. According to Wall Street Journal, Food and beverage deals rose to $603 million across 48 deals in 2015, up from $377 million across 46 deals in 2014, representing a 60% increase and record annual amount invested in the sector since 1992, when Dow Jones Venture Source began tracking the data.
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