A winning formula? Free-from snacks are safest bet for food start-ups

By Lynda Searby

- Last updated on GMT

Beverage & snack start-ups are succeeding because they are the most adaptable to rapidly changing market forces. ©Graze
Beverage & snack start-ups are succeeding because they are the most adaptable to rapidly changing market forces. ©Graze
Food and beverage start-ups that bring to market on-the-go snacks or beverages with a ‘free-from’ positioning have the best chance of success, whilst dairy concepts face the greatest risk of failure, finds new research.

Research from New Nutrition Business​ analysed 151 businesses founded between 2002 and 2013 in the UK, US and Australia, exploring what makes a ‘healthier’ food start-up fail or succeed.

The main finding was that snack and beverage start-ups are most resilient; snacks enjoyed the highest success rate of 64%, and, if a ‘free-from’ message was added, this figure rose to 88%.

Beverages came in second, with 56% of ventures still thriving.

ThinkThin, which markets a range of high protein and fibre bars in the US, Graze - the UK-based ‘healthier’ snacks subscription service, and on-trend US coconut water label Zico were among the beverage and snack ventures that came out on top in the analysis. A start-up was considered ‘successful’ by the researchers if the company has a presence online and products are commercially available.

Joana-Maricato-NNB
Joana Maricato

Explaining why beverages and snacks had a higher rate of success than other categories, Joana Maricato, senior market analyst at New Nutrition Business​, said: “beverages and snacks are products that are easier to adapt to constant changes in demand and preferences”.

Dairy: a daring strategy

By contrast, dairy was the only category where failure exceeded success, with 57% of start-ups no longer present on the market.

Maricato suggested that this was because many of the dairy start-ups in the period studied connected to benefits that were “not logical fits to the category”​, for example, omega-3 fortified dairy products with a heart health positioning.

yoghurt dairy probiotic iStock.com Yurchello108
Dairy functionality can be problematic. ©iStock/Yurchello108

From a practical point of view, she pointed out that dairy products can also be more challenging in terms of retailing.

“Chilled chains cause a higher rate of wastage, which can be a big problem for start-ups. Then there is the applicability of ingredients and product adaptations, such as different flavours and formats, which is more challenging when compared to other categories like beverages or snacks,” ​she said.

Kids products no child play

Kids products also face particular obstacles. This was apparent in the beverages category, where kids beverages brought down the success rate significantly – when these were stripped out, the beverage category recorded a higher success rate than snacks.

“Anyone venturing into the kids’ segment needs to bear in mind the double consumer challenge they face: to please the ‘consumption’ consumer - the children, as well as the ‘buying’ consumer - the parents,” ​advised Maricato.

Sneakz

An example of a food brand that delivers on both counts is Sneakz, a kids’ shake in which vegetable nutrition is disguised by organic milk and other ingredients.

Besides the category, the choice of benefits and other properties appear to influence how well a product will fare, said Maricato. For example, in beverages, energy was one of the benefits with the highest success rates, whilst in dairy, the high protein platform performed well. A free-from positioning was associated with high success rates in both beverages and snacks.

Making it mass market: a misguided ambition?

Only 60% of the successful start-ups made it to mass market - in other words, achieved a presence in traditional retail channels such as national supermarket and drug store chains.

However, in Maricato’s view, the mass market route is not the be all and end all.

individual-group
©iStock

“Start-ups can thrive while remaining in smaller, niche segments, where premium prices are often easier to obtain,”​ she said.

Even if a mass market presence is the ultimate goal, she suggested that “rather than trying to go mass market immediately, it may be better to establish a well-defined target consumer group and invest in sampling campaigns initially.”  

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