CNBC Disruptor 50

Why Oprah and Katy Perry invested in Apeel, a start-up trying to solve the food-waste crisis in the U.S.

Key Points
  • Oprah Winfrey and Katy Perry recently joined investors backing Apeel, a food science start-up that has developed a coating to preserve produce like avocados well beyond traditional supermarket shelf life.
  • Food waste is a huge and growing global problem at a time of increased food insecurity and food supply issues exposed by the Covid-19 crisis, as well as carbon-intensive climate impacts from perishables.
  • Apeel ranked No. 34 on the 2020 CNBC Disruptor 50 list, revealed Tuesday.
The Kroger Company has a partnership with Apeel as a part of its Zero Waste Zero Hunger Innovation Fund, carrying Apeel avocados in a Cincinnati store.

Covid-19 is changing the way we think about food. To start: taking for granted having food readily available. With food markets and food plants becoming hot spots for coronavirus outbreaks, access to food has become more challenging and food insecurity has surged as an issue for many Americans. These new challenges make the issue of food waste, already a growing problem on a global scale, a more pressing priority for the agriculture and food sectors. 

"Covid hit and we got this incredible opportunity to highlight just how many Americans are food insecure, just how valuable the food banking system is and the opportunity to think more creatively with our supply chains," said Meghan Stasz, vice president of packaging and sustainability for the Consumer Brands Association and a member of Food Waste Reduction Alliance.

"Perishability is more important than ever," says James Rogers, founder and CEO of Apeel.

Nearly 25% of fruits and vegetables are lost globally, and North America is among the global regions with the highest level of food waste. For Apeel — which has developed a coating to preserve produce, including avocados, apples and limes, among others — mitigating food waste is a market opportunity made even more critical by the pandemic.

"Because of Covid, shoppers are changing their shopping frequency. ... Now perishability is more important than ever," said James Rogers, founder and CEO of Apeel, which ranked No. 34 on CNBC's 2020 Disruptor 50 list, revealed Tuesday.

The science behind Apeel

To keep fruits lasting longer, Apeel has engineered an edible coating product made from plant materials that can make fruit last two to three times as long. It has been tested on dozens of different types of fruits and vegetables but is commercially available for avocados, organic apples and citrus fruits (mandarins, lemons, limes, finger limes).

The idea has attracted a number of high-profile investors, including celebrities Katy Perry and Oprah Winfrey, who in late May contributed toward a $250 million fundraising round, bringing Apeel's valuation to $1 billion. GIC led this capital raise.

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The company is working to expand its technology to new categories of fruits and vegetables and new markets around the world. Apeel is engineering its coating for the most carbon-intensive produce items, such as asparagus, which typically needs to be flown to market due to its rate of decay. With the Apeel coating, it can last up to 30 days and be shipped by ground transportation, cutting back on carbon emissions typically associated with air transport. 

Apeel's protective coating for produce is extracted from lipids that come from the same produce to which the coating is ultimately applied. The water-based solution extends shelf life by preventing oxidation and water loss, from the grocery store to the consumer's home, though due to the proprietary nature of its science, Apeel does not disclose extensive details on the formula.

"The key to all of this is that food waste is this invisible tax that everyone in the food system is paying," said Rogers, who has a Ph.D. in materials and started the company with a grant from the Bill and Melinda Gates Foundation in 2012. "When you eliminate that or reduce that waste, you free up that money that can then be redistributed back into the food supply chain."

Food waste and climate change

Food waste costs the United States an estimated $218 billion annually, while costing the globe nearly $940 billion, according to the EPA and UN Food and Agriculture Organization. This not only makes the issue of hunger frustrating but contributes to climate change. Spoiled and unwanted products that are primarily diverted to landfills or combustion facilities serve as one of the main causes of carbon emissions. The infrastructure needed to prevent food waste is lacking even in the United States.

"Infrastructure development is a major issue. A lot of food waste is going to landfills simply because there aren't enough places to send it; there aren't enough composting facilities," Stasz said.

The environmental impact of the full life cycle of produce and other food products has made mitigating spoilage, especially within the supply chain, a top priority for major grocers, farmers and other producers.  

Kroger is among the supermarket chains that has entered into a partnership with Apeel as a part of its Zero Waste Zero Hunger Innovation Fund. Kroger is rolling out Apeel avocados in 1,100 stores. Harps Foods and Martin's carry its products throughout the Midwest. In Europe, its produce is currently available in Denmark's Salling Group, the country's largest retailer, and has a deal with Germany's 11,000-plus Edeka stores. 

"One thing that's really cool about Apeel is that it helps with reducing food waste within supply chains, our stores and for the consumer," said Kari Armbruster, Kroger's Zero Waste Zero Hunger project manager. "Our partnership helps us hopefully reduce the food waste of our consumers as well, because it's going to take everyone to really make a change." 

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Consumers role in food waste

Preventing spoilage and preserving produce is of the utmost importance to suppliers, but most food waste is coming directly from consumers in their homes. 

While the pandemic shelter-in-place orders led to a massive spike in demand for food-delivery services, it also resulted in many people developing a closer connection to their food, which presents an opportunity to raise awareness of food waste.

"It's an interesting twist with Covid-19 as more people are cooking. ... We can really make people think about what they can purchase so they are not wasting," said Jean Bonhotal, waste-management specialist and director of the Cornell Waste Management Institute.

According to Carlos Diaz-Acosta, associate professor of packaging science at the Rochester Institute of Technology, consumer behavior and food-waste education play an important role, particularly in more affluent nations where most of food waste comes from the consumer. "There are many parts of that system, and some people think that solving consumer waste is the main solution, some think education is a key solution. ... The issue has many different dimensions," he said.

Vijay Pande, a general partner at Andreessen Horowitz, also an Apeel investor, said to CNBC in an email, "This will have profound consequences and broad applications for our entire food ecosystem. This technology lowers cost for everyone involved, from growers to distributors to supermarkets to consumers, thereby making fruits and vegetables more accessible to all."

Currently, the industry norm is to coat produce in fruit wax to give it a glossier appearance and serve as a short-term preservative. "Waxes could be natural, but it's not what you want to be eating or ingesting, so it doesn't fit into what this product is," said Nancy Pfund, founder and managing director at venture capital firm DBL Partners. "This product is a coating. What Apeel is doing is creating this mixture, allowing the produce to thrive post-harvest so they are different and the results are better."

Food experts do worry about the ability of Apeel's approach to make a significant difference in developing nations with limited resources and infrastructure, specifically those lacking access to cold-chain refrigeration throughout the supply chain.

"Refrigeration, or storage at low temperatures, has the biggest effect, and then you have this protective coating that helps with microorganisms, oxidations. It's really hard to pinpoint that just because of the coating, we get the extra days of shelf life," Diaz-Acosta said. 

While U.S. and European produce suppliers and retailers remain a top priority, Apeel's recent funding round will also be used to support initiatives in economies in Sub-Saharan Africa, Central and South America, that are at greater risk of food security issues and food waste, though the company has not yet provided details on those plans since the May fundraising. 

Rogers said Apeel's approach can be used to augment cold chains and provide value even in underdeveloped nations.

"The losses magnify the further down you get in the supply chain," he said, "and that's the opportunity with Apeel. ... We can use Apeel as an alternative to refrigeration and can use it as an alternative instead of investing in infrastructure. ... We can slow down the clock, and now that produce is able to reach a market. It's intrinsically valuable." 

Correction: This story has been updated to reflect that Apeel's avocados are being rolled out in 1,100 Kroger stores, and has a deal with Germany's 11,000-plus Edeka stores.