The food tech shakeout has arrived

As inflationary pressures nip consumers' wallets, delivery services and alternative meat brands are falling out of favor.

Why it matters: Food tech investment is showing signs of slowing as the sector is vulnerable to shifting consumer habits and price-sensitive shoppers, though it may still attract some capital, per PitchBook data.

By the numbers: Venture funding in the food tech industry in Q1 2022 dropped 41% from Q4 2021 levels.

What’s happening: Online food delivery providers are particularly vulnerable as they tack on fees for their service, on top of paying higher costs for wages and fuel, making consumers pay a premium.

• These providers may see significant churn as rising food prices are reducing consumer purchasing power, PitchBook senior analyst Alex Frederick writes to Axios.
• Plant-based food companies, such as Impossible Foods and Beyond Meat, which sell foods at higher prices than traditional meats and dairy face similar threats.

Meanwhile, this doesn’t bode well for food tech companies looking to tap the public markets amid market swings.

• Instacart, one of the better-known delivery upstarts in the U.S., confidentially filed to go public last month despite slashing its valuation by some 40% to around $24 billion in March.
• Frederick says Instacart and platforms like it will be affected by higher consumer prices because they already charge various fees and inflate prices, all for the convenience of home delivery.

• Delivery startup GoPuff is another one with IPO plans, though it recently prepared to lay off hundreds of workers, or 3% of its roughly 15,000 global workforce, as it reins in expenses.

Yes, but: There is a silver lining for the few digital-first players who've invested in infrastructure and can reduce fulfillment costs, PitchBook's Frederick says.

• "Digital-first grocers such as Weee! and Picnic have established infrastructure and operational efficiencies that may allow them to continue providing delivery services at prices competitive with in-store prices at chain grocers," he writes, adding they “may triumph through the shake-out."