It's Zoetis' (digital) world, we're just living in it
Prime Future 005: the weekly newsletter highlighting trends in animal protein
|May 22, 2020|
ICYMI, Zoetis recently acquired Performance Livestock Analytics, an analytics software for small to midsize feed yards. Today we’ll look at 2 elements:
The venture funds that backed the company early, one in particular with a fantastic investment thesis around animal ag.
Zoetis' digital strategy that drove the acquisition, including the $140M valuation (according to AgFunder).
"In April, Zoetis acquired Performance Livestock Analytics, a technology company that simplifies data and analytics for the livestock industry. This acquisition will help Zoetis to accelerate progress in precision livestock farming and improve sustainability of producers’ operations.”
Here we go 😎
The VC’s Behind Performance Livestock Analytics
According to Crunchbase, PLA raised $3.3M from Cavallo Ventures, the venture arm of Wilbur Ellis, and Builders VC. Interestingly, Builders VC has created an entire thesis around investing in livestock.
"While Silicon Valley technologists search for the science-crafted animal replacements to address the world’s growing need for protein, they are ignoring the most impactful solution - bringing efficiency, process, and basic analytics to the existing $1.7 trillion industry."
Yes!!! This is a critical point that gets overlooked by VC’s and entrepreneurs in search of the next big opportunity in row crops or alt meats. Furthermore…
"Beef and livestock have never been considered “sexy” industries, especially for VC firms focused on the next big thing. However, these are massive, core industries. As the global protein supply is strained, the potential for long-term growth through sustainable, technology-driven solutions creates tremendous opportunities as global protein supply is strained. As with most antiquated industries, IT and biotech contain untapped benefits for these sectors. Entrepreneurs will be a critical part of fixing these laggard industries through technology. What problem could be more important than feeding the world?”
Now it gets interesting with the explanation of the PLA investment and the problem being solved:
"Many small and medium sized feedyards are struggling with negative gross margins and high variability year to year. Performance Livestock Analytics helps these feedlots better manage their operations. Their technology allows farmers to see daily performance and farm profitability, something previously only calculated at bi-annual reconciliations. Using bluetooth scale devices, a mobile data platform, and real-time feed prices, they allow feedyards to make data-driven decisions. This is crucial at a time when overall profitability is declining."
A feedyard manager recently said “the worst apps in the real world are better than what we have for use in livestock”, which validates this:
"Whether solutions are to be found in operations technology, or in genetic improvement, there is a lot of potential growth in the livestock industry. While other industries readily adopted IoT years ago, only now can we see feedyards do the same. Technology is just beginning to penetrate this sector, with incredible potential for higher yields, growth optimization, and improvements in animal health."
This next point is one I wrote about recently, “Can Robots Save the Meat Industry”?
"The food production industry now has at least two incentives to invest in non-human mechanization. Mechanization, via the reduced dependence on human labor, reduces the exposure to human pandemics. Mechanization is risk mitigation not just for the private businesses, but for governments as well. Ultimately, restricted production because of human labor hurdles will cause beef prices to rise. Higher prices will create the incentives for investments in production technologies.”
More on their portfolio companies & problems to be solved:
“Another issue is the efficiency of cow-calf operations. Often they do not focus on efficiency because cattle are not a substantial portion of income. However, Agriwebb is changing this. They have created farm management software that increases the efficiency of cow-calf operations and enables animal traceability. Resources are allocated more efficiently, and grazing becomes more effective. Agriwebb matches business goals with operational metrics.
On the biotech side, a lot can be done to create superior cattle. Ascus Biosciences utilizes a platform for microbial discovery to identify naturally occurring bacteria that increase nutrient uptake and overall health. Their technology has increased the milk fat concentration by 10% in dairy cows, and has demonstrated decreased mortality rates for other animals such as chicken.
Finally, beef is only one area of potential technology impact. Swine, dairy, poultry, and aquaculture all stand to benefit from increased efficiency. For example, Soma Detect is a company using spectroscopy to directly monitor dairy milk quality and the health of an animal at the stall. Their technology can monitor diseases before they are visible to the rancher, helping to decrease the use of antibiotics, and creating healthier animals.“
I couldn’t agree more with this thesis and the most compelling dynamic is that much of this thesis can be extrapolated to dairy, poultry, and swine.
The Acquisition Strategy (Zoetis)
CEO Kristin Peck highlighted the company’s digital strategy in her recent letter to shareholders. This is a company that believes every company of the future must be a technology company, even animal health companies.
Zoetis has identified key future value drivers and built an acquisition strategy to enable the digital offering that their customers expect. This is not haphazard, it’s a clear vision to “skate where the puck is heading” which could make it hard for their competitors to catch up and compete along this digital dimension. And “this digital dimension” should not be viewed as a small silo, but as an enabler of their core portfolio and future portfolio.
“Leading in digital and data analytics” is one of the company’s strategic objectives. The following is an explanation of how they will achieve it and why it matters.
"At the same time, the profile of our customers is changing as well established practices and producers are consolidating, and as new distribution channels and e-commerce players become more prevalent. As these trends shape the future of animal health, our customers’ successes and competitive advantages will depend increasingly on a partner who brings them comprehensive solutions and choices to predict, prevent, detect and treat disease for their animals—an approach we call the continuum of care. To that end, areas like diagnostics, genetics, precision livestock farming, nutrition, digital and data analytics will all be increasingly important to our customers over the next decade."
This context aligns pre-COVID trends in the macro-environment with trends in the farm economy, all of which are accelerated by COVID.
"As new distribution channels and e-commerce create more avenues for selling Zoetis products, we are working to further improve our engagement with customers while also making it easier for them to do business with us. This includes selling more products through e-retail sites while ensuring that our veterinary customers can still offer our products at competitive prices. More than ever, our customers are relying on technology including smartphones, servers and tablets— and the data they produce— to run their operations. At the same time, they’re using these tools to detect and treat sick animals; pursue more sustainable practices; monitor pet health; and provide virtual veterinary consultations in rural areas. To address this trend, Zoetis is investing in digital and data capabilities in the following ways:
Expanding our portfolio with new digital products and digitally connected solutions like our Smartbow® digital ear tag technology for cows and our poultry biodevices that can help automate hatchery operations.
Delivering the best customer experiences through greater personalization, relevance and consistency based on new, cloudbased marketing software that generates data insights to better understand our customers’ needs.
Reaching new customers through digital channels that complement our direct touchpoints—such as our U.S. Petcare Rewards program, which gives pet owners credits they can use for products and services at their vet clinics.
And the punchline that positions this capability as a core business capability:
“At the same time, we know that digital tools must be a core part of how we operate our own business to drive. The future of animal health will depend on integrating many different solutions and technologies to help producers and veterinarians make early and accurate decisions to prevent disease, and deliver targeted, effective treatment. …by integrating our products and solutions in a way that truly advances animal health, we will help our customers achieve better results…”
You can see why startups like PLA fit into the future Zoetis is creating. So with a string of acquisitions under their belt to enable this strategy, who are the next acquisition targets Zoetis might pursue?
Smart tag companies targeting beef cattle and/or smart scale companies for feed yards, swine or poultry houses
Companies using computer vision for animal recognition and detection of key on farm measures
Data analytics companies like Data Robot that simplify forecasting and AI
One of the most interesting ideas wrapped up in their strategy is the pet insurance offering. The next iteration of Marc Andreesen’s 2011 “software is eating the world” is the idea that every company eventually becomes a FinTech (financial technology) company. As Zoetis builds its data capability, could it be poised to offer some intriguing FinTech products across the food animal space….perhaps even compete with financial institutions like RaboBank? It’s far fetched but, in short, yes.
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Janette Barnard works to enable technologies throughout the animal protein value chain. She leveraged her commercial experience with Elanco Animal Health, Cargill, and McDonald’s Global Supply Chain team to launch and grow two animal protein focused startups. Janette is now a principle in Rock Road Consulting, helping companies to launch, source, and fund innovation.