The grasshopper burger and plant eggs are just a few of the small-scale food technology trend that ignited the pre-Corona investors’ imagination and led to a rise in the value of companies operating in the field with the onset of the epidemic. But the public – investors too – probably have a short memory, and with morbidity declining and returning to routine, the spotlight on human health and the environment faded a bit, and investors’ enthusiasm for low-income companies cooled and led to a decline in value.
“The term ‘food tech’ in the field of major international food players mainly expresses a trend,” explains Sergei Vaschunok, A senior analyst at Oppenheimer Investment House. “This is a trend that started with the rise in awareness of healthy foods, especially in the United States, alongside the trend of not eating meat and caring for the environment. The worlds of podtech focus on two main types of companies: those that produce a primary consumer product as a raw material for the food industry and those that produce a shelf product. Regarding the latter, these are usually companies that are working to develop their own brand. “
The big ones are not in the game yet
Among the better known companies is, for example, Beyond Meat, an American public company that produces plant-based meat substitutes. Its products are currently sold, among other things, as vegetable burgers at McDonalds. Not competing on plant-based meat substitute technology, but food brand giants like Nestlé or Procter & Gamble. These companies have a turnover of hundreds of billions of dollars, and a company like Beyond Meat is unable to compete with them for the pockets and attention of consumers. This means acquiring one of the hundreds of companies operating in the field of meat substitutes or moving them to the margins of the market, thus allowing them to develop in niche markets only.
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Hence, the podtech companies that develop a brand are examined in the eyes of investors like any product in the food chain, according to parameters such as whether the brand is known and whether it has power over the food chains or not. This affects both sales and profit margins, as the profit margin of brands – as opposed to manufacturers of raw materials for industry – is larger.
“Regarding the raw material companies, it is not certain that the mere registration of a patent for protein processing in a certain way can maintain the company’s uniqueness from developing another technology for processing proteins by a competing company. At the end of the day it is still a commodity.
“And this may be what needs to be memorized: at the end of the day it’s a commodity and not a unique algorithm or code like in high-tech. Hence the technology can not be preserved and remain unique in the long run, allowing growth over years. Food giants like Nestlé, which run hundreds and thousands of brands.
“Although the food market is very large and important, this does not mean that the podtech companies will be major players in it, and it is not certain that whoever is in it will be able to make a profit. her life”.
In his remarks, Vaschonok is targeting companies such as the Israeli soda stream, which was sold in August 2018 to the beverage giant PepsiCo for $ 3.2 billion. “This is a wonderful example of an old company that went bankrupt several times, and each time was resurrected,” says Vaschunuk.
“The company managed to survive difficult times, and some time after marketing its products in the giant Wal-Mart chain, PepsiCo expressed interest and bought it. But it is impossible to buy a share based on a company’s exit. In my experience, it does not come. And its activity and against the background of the investor’s belief in its business model.and this is the estimated reason why the shares of some companies in the field are declining because they mainly express the investor sentiment, which is now more negative, because these are mostly companies that still do not have significant revenue.
“Looking overseas today, you can still find companies like Beyond Meat and Oatly, worth billions of dollars, but forgetting that the first value, for example, jumped to more than $ 10 billion at the peak of the trend, and since then it has mimicked more than 60% campaign At the peak.
Also perceived as its main competitor – Impossible Foods – aimed for an IPO worth about $ 10 billion at the beginning of the year, and is now preparing for an IPO worth close to $ 7 billion ‘only’.
“Even such a value still represents, in my opinion, a bubble situation, mainly because it does not yet express the potential competition from the big food companies, which have already started to develop competing products. And in the food market the advantage is for the size.”
Podtech shares (Photo: None)Much more than a trend
Hanan Schneider, CEO of R&D Millennium FoodTech, which is the largest public investor in the field of foodtech in Israel, disagrees with Vaschunok: “Unlike other types of technologies, which do not affect the daily lives of consumers, foodtech is more a necessity than a trend, It will change the way and nature of food and beverage consumption, and will directly affect human and environmental health. “And raw materials are thrown away during the production process. These are all very important things in the world of food, and they are, in our view, included in the podtech definitions.”
It should be noted that Millennium Foodtech’s investment portfolio includes eight companies – in which the partnership has invested about NIS 120 million – among them companies that deal in raw materials, along with companies in the field of packaging substitutes, organic waste treatment and more.
“I believe that sugar substitute companies can be independent companies,” Schneider continues, “and as in any field, when there is a problem, there are many companies trying to offer solutions. Those who have succeeded in developing a solution accepted by industry and consumers as a real and good solution .
“In this the food tech industry is no different from any other industry. And when it comes to competing with the giant companies, one has to understand that these are huge markets, divided into sub-worlds with different applications. For example, a sugar substitute will not be the same sugar substitute for pastries.
“Every such market is worth billions of dollars, so there is room for a large number of solutions. That way any such food giant will catch one or two solutions, and its competitors will catch the others. There is room for many products and solutions.
“And again, in the end, as in any field, only those who can develop technology that can bring efficiency and benefit or – when it comes to products – the texture, quality and taste, will reach the shelves and companies and stay there. The healthy food trend has sharpened with the corona. “On the planet and the awareness, which has developed and also reached regulation throughout the Western world, will no longer go back.”
Schneider turns the spotlight on Israel’s relative advantage in the field: “Israel has become a world-renowned HUB FoodTech, which has led to many investments in Israeli companies, especially during the Corona period. “Large Israeli venture capital that invests in Podtech, most of whose innovation is in Israel, compared to the huge funds that are being formed in the world. In their absence, the R&D partnerships have taken the place of funds in the field.”
Millennium FoodTech is an R&D partnership traded on the Tel Aviv Stock Exchange and invests in companies in the field of podtech.
Schneider has no answer as to why Israeli Podtech shares have fallen so sharply with the return to routine, but he does turn the spotlight on the pace of development required of the companies, alongside the potential that is not yet fully understood among investors.
Hanan Schneider, CEO of Millennium Food Tech Credit Shlomi Harel (Photo: Yachz)“Representatives of companies and countries from all over the world come to learn from Israel about Podtech,” Schneider adds. “They are expanding the window of investment in local companies. In Israel, they are very strong in technology development and product reach, but much less in sales, certainly worldwide. This is the case in most areas, and not just in Podtech.
“As in any field that requires development, it takes time for the product to reach the market, and certainly for significant sales. But in the long run, I believe that the investments identified by investors as real will succeed in bringing them value, and even today Israeli companies are attracting interest from large companies.
“The revolution is already here, it is happening and will continue to happen, so I believe we will see more products and technologies that will replace the value chain consumption of the existing food industry. him”.
Despite Schneider’s optimism, capital market officials I spoke to estimate that by the time restaurants start serving worms and grasshoppers as major protein dishes and machines will lay egg substitutes that will allow chicken coops to be converted into chicken spas, investors will continue to wait for high revenues. Capital will not be satisfied with substitutes for income.
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