Agrifood Tech | April 11, 2022

Food startups are using discounts to give food a second life

Alejandro Enamorado
Guest Author

Alejandro Enamorado

When a business wants to move product, it cuts the price. Think 50% discounts on day-old bakery items.

And while this is not a new model, there has been new funder interest driven by how this model is executed (through software and apps) and where the intervention is taking place in the food supply chain. The result: More food finding a second life by being sold at a discount rather than going to waste.

Supply chain innovation

“Assisted distressed sales” refers to the business-to-business sale of surplus food inventory that is being discontinued or nearing expiration. We previously pointed to Spoiler Alert’s $11 million Series A raise in late 2021 as a good indicator for the food waste sector overall; it’s also a positive indicator for companies that are facilitating discounted sales. 

Spoiler Alert is a software company that helps consumer packaged goods firms sell their excess, short-dated, and obsolete inventory via a proprietary software tool. The company’s traction is clearly visible in their 400% growth in gross transaction value – equivalent to 200 million pounds of product – in 2021 and the growing list of manufacturers using the platform, including Campbell Soup (a longtime customer), Danone, and HelloFresh. Spoiler Alert is also powering opportunistic purchasing by discount purchasers and emerging direct-to-consumer companies like Misfits Market and Ollie’s Bargain Barn. (We’re always happy to see food waste companies partner with one another to create full solutions to the problem!)

>> Go deeper: FoodMaven, FreshFry, Mi Terro and other food waste startups raised capital in March. ReFED’s market update

FoodMaven is a similar company that once operated as an online marketplace, selling surplus food bought from grocery stores and food distributors to more than 300 restaurants, institutional kitchens, and commercial food-preparation businesses in Texas and Colorado. As part of their growth plan, they were focused on building out physical infrastructure by purchasing distribution facilities. With the pandemic’s hit to foodservice upending their business model, FoodMaven shifted to a direct-to-customer model, selling their wholesaling operations in 2021. With the $3.5 million raised in a seed round, FoodMaven is now looking to pivot into a price comparison app to help buyers in the food service industry more easily compare prices for non-standard items.

Retail and consumer

Just as discounts are moving from stickers to software, the U.S. is also starting to see development of markdown alert applications, which allow retailers and foodservice organizations to think beyond traditional markdowns by putting discounted products on tech platforms to supplement in-store discovery or physical displays. While this model has been more developed in Europe so far, it’s starting to take off in North America, with companies expanding their geographical footprints to gain market share:

  • Canadian firm Flashfood is a mobile marketplace that provides customers with access to discounted grocery retail food nearing its “best by” date. In late February, they raised a $12.3 million Series A backed by S2G Ventures. They are now very much focused on their continued U.S. expansion, forming further partnerships with retailers with the funds raised.
  • Too Good To Go is another mobile application that (in addition to some grocery stores) focuses on foodservice, a sector composed of many small and medium-sized enterprises that tend to handle product that is more perishable. Using employee count as an indicator for business scaling, we have seen Too Good To Go grow from 350 employees in 2019 to an estimated 1,200 employees now. By mid-last year, Too Good To Go’s U.S. launch had amassed 1 million users and 4,300 partners in eight cities.

Is the market big enough for all players? Given the size of the problem, the answer is… probably. Because they are accessing surplus food from different sources, these companies are operating adjacent to one another – but we can see a future where overlap will occur. At the same time, they are building expertise and specialization around specific customer types, which might allow them to defend their territory. 

While we believe that these solutions do reduce surplus food, it’s important to note that there is still a need for research to determine how these solutions affect household food waste, since consumers are purchasing products with less remaining shelf life.

Alejandro Enamorado is the capital and innovation manager at ReFED.