Healthy food start-ups: secrets for success

Start-ups that launch snacks or beverages with a ‘free-from’ positioning have the best chance of success, a research project by New Nutrition Business (NNB) has found.

Analysing 151 businesses founded between 2002 and 2013 in the UK, USA and Australia, the project explored what makes a healthier food start-up fail – or prevail.

NNB’s major finding is that snack and beverage start-ups are the most resilient in the healthier foods market, as the products are easier to adapt to changes in demand and preferences.

Snacks are an entrepreneur’s best bet with a 64% success rate, and if they add a free-from message, the success rate rises to 88%. These results reflect the presence of two consumer trends — snackification and free-from — which consistently feature in NNB’s annual 10 Key Trends reports.

While beverages come in at a modest second with 56% of the ventures still on the market, they are the category most successful at breaking into the mass market. However, a look at the distribution of successful start-ups according to the benefit platforms reveals that kids’ beverages are bringing down the average. When these are stripped out, the beverage category in fact achieves higher success rates than snacks.

Dairy is a high-risk category, and the only group where failure exceeds success, with 57% of start-ups no longer present on the market.

Launching a kids’ product also faces particular obstacles. “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,” said Joana Maricato, senior market analyst at New Nutrition Business.

The research indicated that the combination of benefit and product category has an influence on the success rate. “For example, in beverages, energy was one of the benefits with the highest success rates, while for dairy this was the case for the high-protein platform,” Maricato said.

Certain benefits alone make a product stand out. “There seem to exist benefits that are related with success across categories, such as free-from, which was associated with high success in both snack and beverages,” Maricato added.

Managing expectations regarding success is another important tip entrepreneurs can draw from the analysis. “Only 60% of successful start-ups made it to mass market. But mass market presence is not the only way to succeed. Start-ups can thrive while remaining in smaller, niche segments, where premium prices are often easier to obtain,” Maricato said.