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'Bad' frozen food has a plan to go good with help of celebrity-backed start-up

Frozen food doesn't have the best reputation. Tater tots, TV dinners and frozen spinach, which in decades past served as examples of the food science that made cooking quick and convenient, are no longer in sync with demands from Americans for healthier options. Soup and smoothie maker Daily Harvest, which has the backing of celebrities that include Gwyneth Paltrow and Serena Williams, thinks it's onto a new kitchen science that can shake up preconceptions about frozen food.

Daily Harvest founder Rachel Drori claims its farm-freezing technique — in which it freezes organic produce that has been picked at peak ripeness and frozen within hours right at the farm — locks in nutrients far better than the conventional method of picking produce while still green and letting it ripen in transit or on store shelves. The online food retailer then delivers items directly to consumers, primarily busy parents.

Several start-ups have in recent years turned "bad foods" that moms hesitate to put in their shopping carts into big bucks, and they've been successful getting major food corporations to acquire them for hundreds of millions, if not a billion or more. Annie's Homegrown made mac 'n' cheese and gummy snacks healthy before General Mills bought it for $820 million; Applegate made chicken nuggets and processed lunch meat healthy before Spam maker Hormel snatched it up for $775 million. As far back as 1999, Kellogg's bought the parent company of Morningstar Farms, maker of frozen-food aisle veggie burgers, for $300 million.

Erin Lash, food-sector analyst at financial research firm Morningstar, said there has been a shift in what consumers perceive as being healthier. "Products labeled 'light' and 100-calorie' have fallen out of favor," Lash said. "Simplified ingredient profiles, natural and organic have been winning."

Just past the midway point of the year, the number of venture capital investments in frozen-food start-ups and the total amount invested is well ahead of the pace from 2014–2016.

Venture capital deal flow in US frozen-food companies

Year
Deal flow ($M)
Deal count (#)
2014 161 25
2015 79 26
2016 110 24
2017 134 21
PitchBook (6/27/2017)

Lash said product development in large food companies also has tended to be a longer process than at start-ups. "Small niche operators have done a better job of getting new products to the shelf in a more timely fashion," the Morningstar analyst said.

Daily Harvest's marketed "superfood" — which is packaged as soups, smoothies and chia parfaits — is delivered directly to the home, to be stored in the freezer, and can be prepared in 30 seconds. Daily Harvest thinks it stands out from the refined, processed-food competition in the freezer aisle. "Some with a lot of preservatives and salts, and things that you just really don't want to be eating," Drori said.

"By getting out of the freezer aisle and going directly to consumers, we have an opportunity to educate consumers and let them know not what frozen is but what frozen can be, and get these customers who probably wouldn't go into the freezer aisle because of the misconception to rethink frozen," said Drori.

Daily Harvest founder Rachel Drori is betting that her on-demand smoothies and soups will change the perception of frozen food.
Daily Harvest founder Rachel Drori is betting that her on-demand smoothies and soups will change the perception of frozen food.
"We have an opportunity to educate consumers and let them know not what frozen is but what frozen can be." -Rachel Drori, founder of Daily Harvest

A year since it went national with its marketing, the company has attracted a number of investors. Paltrow and Williams both took part in a recent June round of financing.

Drori was introduced to Paltrow after talking to one of the editors at Goop, the actress' successful health-and-wellness brand that offers content and products. "She knows all the benefits of frozen food," Drori said. "She was really excited about what we are doing." Drori was able to get in contact with Williams through her fiancé, Alexis Ohanian, co-founder of Reddit —which was recently valued at $1.7 billion — who is a fan of Daily Harvest.

"Frozen food gets a bad reputation, but it's actually a very practical way to consume nutrient-dense foods," Paltrow said in a recent statement about the company. "Most people don't have access to farm-fresh produce year-round."

Drori said that as a mother of two, she understands that parents don't always have time to cook healthy meals. That's where she got the motivation to start Daily Harvest.

While Daily Harvest's most prominent demographic is busy parents, it's also growing sales among the retired who are looking to eat healthy. "They're getting really excited about the prospects of being able to partake in some of these wellness trends and healthy eating movements," Drori said.

Through constant social media promotion, Drori has managed to grow Daily Harvest to 1 million smoothie sales since national delivery launched in 2016. That's a long way from the start-up's early days. "I was delivering all the boxes by myself, but when we moved to a nationwide company, I could no longer do that. Not having ever delivered frozen food on a national scale before, it was a lot of trial and error," Drori said.

Her advice to those hoping to start their own venture in uncharted territory: "Don't be discouraged by rejection or by people not fully understanding. Be able to show that what you're building is needed in the market," Drori said.

By Alexandra Carmon, special to CNBC.com

(Correction: An earlier version of this article included a valuation for Daily Harvest provided by venture capital research firm PitchBook that could not be confirmed.)