2022 predictions: Liquidity to drive investment and and continued interest in artisan baking

M&A advisor Farzad Mukhi and growth investor Richard Brick provide their thoughts on likely trends to strike the food industry next year

As December winds down and the New Year rolls in, NutritionInvestor is asking contributors and members of our network to take a look into their crystal balls and make some predictions on the future of the F&D business in 2022.

This last year has presented record investment into novel foodtech categories like precision fermentation and cultivated meat stem cell development. And while retail sales for many leading alt-protein companies have taken a hit in 2021, the investor interest into the category is still growing.

But what will the market look like next year? Here are the first in a series of industry predictions for 2022:

Farzad Mukhi, managing director at M&A advisory Duff & Phelps

Key ingredient technology

Investors will likely seek out ingredient technology funding opportunities: the process for creating functional and sensory ingredients is ripe for disruption. Many early-stage technologies have developed in recent years which apply novel approaches to agriculture, flavour efficiency, clean label formulation, functionality and tracing. We anticipate these technologies will see additional funding in 2022.

Supply-chain struggles

Supply-chains will likely remain disrupted. Numerous challenges and roadblocks that companies are facing surrounding labour, logistics and quality may continue for much of 2022. It will be vital for companies to communicate a nuanced story to the market that effectively supports performance (absent these external pressures) when seeking funding.

Massive liquidity

Massive liquidity will likely drive continued M&A and investment: the immense amount of liquidity that is currently in the market is expected to continue in 2022. This will result in robust valuations and greater options for fundraising and exit transactions.

Richard Brick, Principal at PE and growth investment firm True Global

Supply headaches and headwinds

Capacity planning has long been an issue for growing food and beverage businesses, but a perfect storm has been brewing that has affected the volume and margin of the wider industry. The latter half of 2021 has seen various issues affect swathes of the UK FMCG market. The list is long. Labour shortages due primarily to Brexit affecting farm workers; pandemics and pingdemics; poorly-notified paperwork issues if exporting to the EU; the nationwide shortage in HGV drivers and other logistical nightmares; carbon dioxide for soft drinks; scarcity in aluminium; cardboard shortages as industry giants take control; and even IT glitches hitting potato crisp availability have all made headlines in recent months.

Given the Omicron Covid variant wave and uncertainty around further incoming government restrictions, it is likely there will be little let-up for brands in the retail environment. The questions, unfortunately, are firstly how brands might be able to mitigate this through short-term hits to working capital, and secondly, given the wide variety of issues that ops managers never would have thought they’d needed to account for: what might be next?

Category innovation

Regardless of the sector or category, the need to offer consumers newness is as important as ever. There has been a proliferation of brands in the vegan and meat-alternative spaces in the last few years, with both paid and earned media from well-funded, fast-growing, and cross-channel brands such as Beyond Meat, This!, or Meatless Farms creating a curiosity for retailers and meat-eaters alike.

Meat-free is far from the only category that has seen interest in both retail, foodservice, and on-trade environments. Several categories have cropped up in a big way with clear market leaders in the last few years, showing an appetite for trying things that have ever-healthier claims: kombucha, nut m*lks (oat, almond, macadamia), CBD-infused, mochi ice cream, energy drinks in powdered form, kefir, seltzers.

2022 again will see a continuation of the theme as the mega-trends of health/wellness and sustainability snowball further into the minds and wallets of consumers. The UK market will continue to see historically global foods, traditionally from Asia or the US, infiltrate the market: will 2022 be the year that insect protein really catches on? Is yuzu going to go mainstream? How will superfoods like hibiscus or turmeric be added to infuse or fortify other products?

Craft and artistry

As people had more time on their hands during lockdowns, there was a short-term explosion of interest in arts and crafts. Knitting, sewing, sourdough bread-making, and Pret cookie-baking all had their day during 2020. Whilst some of these were relatively short-term, the Great British Bake-Off continues to be one of the most-watched and loved programme or format on terrestrial TV.

In 2021, searches on Pinterest for “art cake ideas” have tripled versus 2020 – which shows that eyeballs and stomachs are roughly the same size. Amateur artisanship, particularly in baking, is likely to continue to grow as skills developed over the past two years is further refined and retailers cater for ever-more unusual tastes and combinations. The creative incorporation of better-for-you ingredients into all recipes (dessert or otherwise) also provides opportunity for further experimentation, and social media provides a virality where any and all ideas can gain prominence very quickly.