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Cultivated Foods: The Field of Dreams

Cultivated meat is making progress in terms of key technical and regulatory hurdles but if CEOs ignore commercialisation strategy they’ll miss out on value. This is one of the most innovative sectors in the food industry with brilliant science being applied to overcome the challenge of making meat without (much) animal involvement. However, there are commercial challenges to be overcome if it is to be successful and many companies don’t seem to recognise that failing to address these challenges will slow progress and damage long-term prospects for the sector.

A few weeks ago I visited a cultivated meat pilot facility. Lots of shiny pieces of steel, technicians in white coats, little specks of meat floating around in some kind of gravy-like medium. Extremely exciting. It no doubt represented many millions of euros of investment in IP as well as manufacturing assets.

Investors are right to be interested in cultivated meat. Of all the food tech technologies, cultivated meat is the one that promises the most in terms of taste. Given that every piece of consumer research we at Food Strategy Associates have undertaken in geographies across the world suggests the number one reason for not eating plant-based foods is taste, this seems pretty relevant. The idea of eating a steak, as good as the steak I can buy at a butcher, but with no animal killed in the process seems to me to be the holy grail of alternative meats. 

Start-ups are right to focus on the technical challenge of growing meat and cost is an important dimension here because consumers won’t pay much of a premium for the environmental benefits of plant based – even when it tastes great.

There seems to be some real progress on this front.

In 2021, a research paper written by Sinke and Odegard concluded that “substantial cost reductions that bring Cultivated Meat production costs close to the benchmark are feasible. This requires a combination of reductions that covers nearly all aspects of the business case.”  The study had such heroic assumptions it left me pretty sceptical.  Today, as I speak with business founders across the industry, I am increasingly confident that price parity might be realistic – or perhaps I am less sceptical that it is wholly unrealistic. 

Businesses approach the challenge of cultivated meats in slightly different ways but all founders that I speak to talk of extraordinary breakthroughs. Either in the cost of mediums, the valorisation of bi-products, the capital costs, the energy requirements or the speed of cell multiplication. The mood music on costs is increasingly positive. As the industry scales up, cost parity with premium meats may well be possible helped by the inflationary pressures on meat: increasing pressure due to land availability, climate change, taxes and potentially the loss of value of biproduct streams because of plant based substitutions. However, there are some important caveats here – the industry has to get through a scale up phase. 

The challenge is that scale-up investments are potentially vast and cultivated food start-ups are very much at the beginning of their investment curve. Technologies are being proven but scale manufacturing facilities have not yet been built.  All the estimates around capital requirements for scale manufacturing are high – much higher than the costs incurred so far. Many of the start-ups will just fail as they burn through funds and fail to raise new investment. This is a problem for all of food tech – but it is particularly a problem for cultivated – because the funding requirements are very high and the markets not yet close to being proven. 

Neither investors nor management have focused sufficiently on commercialisation opportunities. This will inevitably change.

Commercialisation Opportunities
  • The penny is dropping that 3D cultivated steaks are like moon shots – a technical wonder but many years from commercialisation and may never be cheap enough for mass markets. If they were, consumers will still eat more of less demanding formats like burger and sausage. The intermediate step for the sector is more mundane – blending cultivated fats with other plant-based ingredients to improve taste, or creating products from smaller particles of muscle – more like a mince ingredient.  
  • Rising interest rates inevitably have an impact on venture capital and directly impact the valuations of long-term investments.  At Food Strategy Associates we track funding into foodtech across the globe and have seen the dramatic drop in funding in the sector in 2022 versus the prior year and that slowdown has continued into 2023. 

The decline in funding needs to be seen against a backdrop of declining funding across venture capital. It is also notable that cultivated has experienced a reduced slowdown versus the rest of plant-based investments suggesting the venture market remains bullish on the opportunity.  Funding in cultivated meat and fish start-ups accounted for 38% of total funding in plant-based foods in 2022, up from 27% in 2021. This shift towards cultivated technologies is understandable given the significant technological progress many have made in cultivated. 

  • Commercialisation strategy will be one of the issues, and possibly the critical issue, that separates survivors from the failures: there are simply too many cultivated meat players today with no commercialisation strategy.

So what do CEOs and investors need to do?
  • Acknowledge the challenges of forward integration and make informed decisions on where they want to play on the value chain based on what is necessary and where they can win. Do you have a technology that can be licensed? Do you want to forward integrate to the manufacture of ingredient or all the way to finished product? Are you going to build a brand?
  • Understand the current plant-based market and where cultivated ingredients could bring most advantage. Consumers are rejecting current products as not tasting good enough. Cultivated ingredients could dramatically improve taste. Similarly, existing ingredients are too expensive or seen as too unnatural. Cultivated needs to target what it will displace and understand the value it can bring.
  • To stand a chance, businesses need a guide – navigating the food industry may not require the IQ of solving the technical challenges of cultivated food – but it is no walk in the park.

So how should companies think about forward integration?

The cash challenges in the venture capital market are forcing participants to find compromises and take short-cuts to preserve cash. Maybe utilising third party production capacity or skipping pilot stage facilities. In biomass and precision fermentation, new businesses are being established that act as co-manufacturers for early stage businesses. Possibly teaming up with other start-ups to share investments.  Focusing on single lines not multiple lines and choosing those lines carefully. Our view on start-ups generally is that they have a tendency to be too scattergun in their approach to strategy – focus is essential when managing cash – choosing where to focus then becomes critical and needs to be informed by an understanding of market opportunity and competition – something which many start-ups just don’t have. 

A more strategic approach is also necessary. Questions around whether to build a brand or not are fundamental. Quorn, the grandaddy of plant-based foods companies forward integrated into low value manufacturing and built a brand for a reason. No-one else was willing to take the risk – and it’s a miracle it got to market, even if investors lost billions along the way and it had a fully-patented superior product. Don’t let hubris blind you to the challenges. 

Too often I hear, “ We are going to launch our own brand” – really?  Good luck on that. There are reasons why the top FMCG companies launch new brands when all other options are ruled out. It is difficult.

If you don’t launch your own brand then you have to be clear how you play in a B2B world. Are you tied to specific businesses and brands or supplying all? And on what basis – lowest cost, differentiated versus other cultivated players (because rest assured there will be other cultivated players), first to market? The choice of geographic market and channel is important too?  

Here again, the commercial understanding of players is often limited. “We will partner premium meat brands already in the market”  Really?  Which premium meat brands would you be talking about there?

In the short term, cultivated players may have to work within the plant-based world. Because scale economies will be limited, adding cultivated meat or fat will improve flavours of plant-based foods and not be prohibitively expensive. Plant-based becomes a vital step in the scale up journey. 

Adding cultivated fat or muscle could improve taste and texture further. The cultivated players have to be clear what role they play, which brands might be a good fit for them (not all brands will be happy to lose the vegan / vegetarian label), and what will happen to costs and price of the partner brands.  They have to engage with brand owners in a professional and informed way – something of course we at Food Strategy Associates are equipped to help with.

We are going to supply fat to the plant-based meat alternatives market”  And how enthusiastic are you finding the owners of these plant based and vegan brands? Is your cultivated meat going to appeal to the consumers of a vegan brand? 

Cultivated meats face real and substantial challenges to appeal to consumers and customers. “A Field of Dreams strategy (If you build it they will come)” is simply naïve and should not wash with investors.  What are the benefits that cultivated meat really brings to consumers? Plant based consumers are attracted by environmental and health benefits as well as animal welfare – and animal welfare concerns are really country specific. The Germans really care about animal welfare.  The French and Americans not so much. So why will consumers consider paying a premium at all? Do consumers want to eat lab grown cells where the “Frankenstein Food” label is so readily attached? Improving taste is a challenge for some brands but others seem to have cracked it. Where will our cultivated muscle and fat improve taste the most?

There is a language point here too. How will brands communicate the benefits of cultivated meats and what is the terminology that will be used?  How will cultivated chicken fat be labelled on the back of pack – and are cultivated producers happy to let the regulators make this choice or do they want to influence the outcomes?

To stand a chance, cultivated businesses need to navigate the food industry and work out how they play in it. Many start-ups have had access to tens of millions of Euros advancing the technology and building pilot facilities but have not always spent it meaningfully on understanding the consumer and the markets that the technologies can access. What markets? What products? Where in the value chain? Who are their customers? How do they engage retailers / foodservice customers? Perhaps, most importantly, how do they communicate this new technology to final consumers?  When probed and challenged on the commercialisation strategy, the answers are often not there.

If cultivated meat companies are going to navigate these choppy waters and persuade consumers and customers to accept their products they are going to have to be equipped with so much more than they have already. A real understanding of consumer motivations.  A careful selection of partner companies.  A language to label ingredients. A strategy to nullify the Frankenstein Food attacks. Companies need to select their priority markets with care – to test the concepts and products in a most favourable environment. Many cultivated food companies have spent no time or money considering these challenges. The spend is 99% on science, 1% on understanding the opportunity. This imbalance jeopardises success.

So how have these companies received so much investment so far? Some investors are so bought into the dream of a plant-based world they don’t challenge the specifics. Venture capital in the foodtech space has not done sufficient due diligence – but it is beginning to do so now. We believe the investment market will recover but be much more discerning in where it chooses to invest. The onus is on investors to begin to ask searching questions and for start-ups to have their answers ready. 

Robert Lawson is Managing Partner at food industry strategy consultancy Food Strategy Associates, formerly CEO of Quorn, the world leader in plant-based meat alternatives and an expert in plant based foods.