Is Big Food becoming Big Tech?

Innovation does not only come from startups. I know that is self-evident, but sometimes, by focusing on which startup raised the most, we can forget it. Large food corporations (let’s call them “big food”) have huge means and are slower to change directions. But by looking closely at what they did, we can find a lot of learnings that can in turn be helpful for the startups.

One of these may be found in the increasing number of tech acquisitions made by big food companies. For example, let’s look at three major foodservice companies:

It seemed that the idea was to become technology companies “that own and operate food brands”. The underlying idea was maybe to benefit from the fact that the valuations of companies in the tech sector are much higher than those operating in the foodservice industry (a rule that is both true in the public and private markets).

This can also be observed in other food industries:

  • many retail chains are developing their own “tech stack” (set of technologies) with the intention to licence it to smaller players. In this area, incumbent players are facing competition from disruptors such as Amazon (whichlicence the tech behind Amazon Go) or Instacart (which recently acquired multiple smaller companies, among which a smart cart and instant checkout startup).
  • CPG companies with acquisitions of AI and data companies.

Where is this going?

Interestingly, McDonald’s, often a leader in food, announced last month that it will sell Dynamic Yield to Mastercard (after saying it was considering only a partial sale). We can see multiple explanations:

  • it seems that franchisees were not that pleased to see their independence diminished and to have McDonald’s becoming de facto their technology provider.
  • managing the relationships with other restaurants (and competitors) clients of Dynamic Yield was a tricky job.

In a word, becoming a tech company by developing or acquiring technologies, that will be first used internally and then sold to competitors, is much trickier than what it seemed to be. In a food environment that is evolving fast, being able to change gears and find new technology partners should also be considered. Hence, we may see further disinvestment in the tech space from large food companies as they want to increase their agility.

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