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Why you should be excited about Food Innovation - Part 4: Functional Food

Anna Barlow avatar

Anna Barlow

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Why you should be excited about Food Innovation - Part 4: Functional Food

Startup innovations in the food space in the 18 months since COVID-19 have exploded, with many startups focusing on the eCommerce and home delivery space. Many of these startups are designed to enable consumers confined to their homes to access their favourite restaurants or boutique grocery stores and have become a lifeline for hospitality business survival. This week, as Australian state borders close and multiple capital cities are under lockdown due to the latest infiltration, we are once again reminded of how important being able to respond to rapidly changing landscape and market conditions has become.

Opportunities for innovation in food span the entire supply chain and cover all three innovation horizons:

  • Horizon 1: solving today’s pains with technologies that unlock efficiency
  • Horizon 2: developing adjacencies or solving challenges to existing products and services
  • Horizon 3: completely new opportunities with disruptive business models.

In March, we launched our Food Innovation industry facing workshops designed to identify the biggest problems, challenges and opportunities food businesses in Australia are facing. Attended by over 20 different organisations representing startups, SMEs, multinationals, government and research sectors, each workshop focused on different opportunity areas, beginning with Circular Economy, followed by Fermented Food & Beverage, Food Tech Advances and finishing with Functional Foods (which we'll discuss here).

Functional Food

Functional foods can be defined as foods that claim to provide a health benefit beyond basic nutrition.  First regulated in Japan in the 1990’s through FOSHU (Foods for Specific Heath Use), multiple jurisdictions have followed suit. In Australia and New Zealand, health claims relating to functional foods ingredients are regulated through FSANZ and the Therapeutics Goods Administration.  An area ripe for innovation, the global market segment for Functional Food Ingredients is projected to grow by 6.7% between 2017 - 2027, with the Asia Pacific market predicted to perform strongly.  This growth is driven by consumer needs shifting from the simplest form of functionality such as fortification, to food products that claim to support almost every consumer need from the time we wake up, until we go to bed at night.

In Australia, there are tremendous growth opportunities for foods containing functional ingredients.  FIAL’s Project 2030 Roadmaps predict that the Australian Food Health and Wellness sector will create up to 37,000 jobs and grow by AUD$14Bn in value by 2030. Increasing consumption of health and wellness foods also has the potential to reduce the public health burden.

Through our food innovation workshop on Functional Food, we revealed the pains, challenges as well as opportunities facing Australian businesses today.

Horizon 1:

Our respondents discussed a significant number of Horizon 1 pains that have potential to be solved by technology and innovation from startups, across the areas of Primary Production, Processing and the Consumer.

Primary Production

Traceability of functional ingredients was called out as requiring greater transparency across the supply chain. From a practical perspective, this is driven by Country of Origin labelling regulatory requirements, especially where exotic ingredients are included.  Perhaps of greater value for Australian exporters, traceability capabilities are needed where our unique functional ingredients and food products are targets for cheap knock-offs.

Ingredient manufacturers highlighted the challenge of balancing in-feeds to meet changing customer demands, especially where multiple specialty ingredients are extracted from the same primary source. In these situations by-product recovery is not always possible, and can result in excess waste.  Here the impact of further processing on the environment and commercial viability (scale-up) needs also to be considered. What technologies from other segments could be applied to the food industry to help solve these pains?


With consumer demand driving product formulations towards better-for-you options, challenges arise with product formulation and reformulation. Achieving a benefit via adding an approved functional ingredient is only half the battle; the final product also needs to meet strict nutritional guidelines. This can mean a sacrifice in taste as vilified ingredients such as sugar and salt may need to be reduced to enable a health claim to be made. Multinational food companies and ingredient suppliers have had their technical teams and research partners working on options to solve these pains for decades. Perhaps a different approach is needed.


As consumers seek personalised or tailored options to meet their specific needs it can be challenging to differentiate between products with scientifically validated health claims vs those which are puffery. As a result many consumers are skeptical about whether products will work for them. With a limited range of health claims available, product benefits are often communicated through magazine articles, influencers / blogs posts. Ultimately though, companies we spoke to also highlighted: no matter how the benefits are communicated, product taste is still king, requiring new functional ingredients that are proven to be beneficial and deliver on taste.

Horizon 2

As businesses seek to extend their functional food innovations beyond their core business, further challenges and opportunities for innovation appear. Two areas that stood out in the workshops were communication opportunities and finding ways to encourage innovation and scale-up within an industry with a low appetite for risk.


The demand for personalised nutrition solutions offers new mediums to communicate needs and benefits of functional foods to skeptical consumers, whilst still remaining within regulatory constraints. The challenge is for businesses to find the best way to adopt this. As wearable technology advances beyond measuring steps, heart rate and sleep cycle to more sophisticated dietary intake monitoring, it seems reasonable that food companies will have access to new ways to communicate the benefits of their products to consumers with specifically targeted needs. Imagine if you will, that your wearable has tracked a full week of poor sleep and then your app follows this up with product recommendations for you to take at bedtime.

Encouraging Innovation and Bridging the “Valley of Death”

Our workshop participants highlighted that the concept of the “Valley of Death” was also alive and well in Australia.  Businesses looking to validate ideas at a small scale often struggle to find suitable pilot manufacturing facilities to do so.  Testing and scaling new ideas that are adjacent to core capability requires a different approach to core business and many businesses are struggling to find this. This challenge is as real for startups as it is for SMEs and multinationals, for different reasons. Universities and research institutes can offer startups opportunities to partner to produce at small scale, however for many, IP arrangements can be challenging to navigate, meaning there is often a huge impediment when scaling up the solution. Most SMEs and many Australian business units of multinationals do not possess capability in house for scale, so costs can be prohibitive if looking to produce small scale runs with partners, suppliers or co-manufacturers. In general the maturity of the market to enable “test and learn” on a small scale is challenging. Add to the mix producing a functional food from a waste stream or by-product at scale and the challenge to achieve this is even greater.

Horizon 3:


The opportunity outline by FIAL’s Project 2030 report for Australia to create new functional food businesses is significant.  Our workshop participants highlighted two areas that can be captured as “How might we… statements from which to begin ideation.

Both statements are designed around finding functional food innovation opportunities for food waste:

  1. How might startups help Australian food businesses capture their wasted manufacturing outputs in a state that’s fit for use and then convert these into value-added functional food ingredients?
  2. How might Australian businesses leverage the “Food as Medicine”  trend by identifying and utilising byproducts from other industries.

Looking to Sustainability Victoria’s Top 6 to Fix, tomatoes rank as one of the top sources of food waste. IFT’s Food Trends to define 2021 highlights eye health solutions as a result of increased screen time due to COVID-19. This begs the question:  How might we extract and concentrate functional ingredients such as lutein from waste tomatoes to covert to new functional foods to help with Eye health?

Wrap Up

Our March workshops have highlighted many opportunities across all three horizons for startups, SMEs and corporates to innovate. Comparing and combining pains, challenges and opportunities from food waste, fermentation, functional foods and food technology advancements offers ample room to find solutions, some of these can be solved by Australian and international startups in collaboration with established businesses. We will be sharing more of our plans to facilitate these collaborations through Startupbootcamp’s FoodInnovation startup accelerator which will be launching later in 2021.

If you are a startup, SME or corporate interested in learning more about Startupbootcamp’s FoodTech Innovation offerings please reach out to Anna Barlow, Partner - Food Innovation via email:

Anna Barlow avatar

Anna Barlow

Food Innovation Partner @ Startupbootcamp Australia