2021 has been yet another year of growth in investment and innovation for the plant-based foods market, as investors and businesses recognise the long-term potential of the industry. We have seen large multinational companies race to get a piece of the pie, acquiring brands and creating spin-offs of their own. The drivers of growing consumer demands continue to evolve, with health now supplemented by an increase in awareness of environmental and animal welfare factors. As this growth has unfolded, we have been analysing the changing mix of technology investment within this dynamic marketplace. Through our research we have been able to answer the questions at the heart of the race; who is receiving what investment and which technologies have seen significant headway in the past year? One thing is clear, at the pace the market is moving today, we can expect the competitive landscape to continue to evolve at pace and will unlikely look the same in three years’ time.
Investment and Technologies
Investment into protein alternatives has been on a steep upward trajectory over the past three years. In 2018, protein alternative companies raised $530 million in disclosed investment. In the space of one year this investment increased more than three-fold to $1.66 billion. Despite a global pandemic and financial uncertainty, confidence in protein alternative start-ups was resilient and investment in both 2020 and 2021 exceeded $3 billion. Whilst investment is a great indicator of confidence in the underlying market, it is also interesting to see what technologies investors are betting on. Historically, ingredient formulation has been the key focus for investors, with these businesses receiving more capital than any other category of food technology. Ingredient formulation describes the blend of proteins (e.g. soy, wheat and pea) alongside other plant-based ingredients to form a final meat or dairy alternative product. Here, development chefs play a significant role in the success of the product.
During 2021 we have seen a shift in this historic trend; over the course of the year more investment was received by businesses with fermentation at the heart of the product than any other technology. The use of fermentation in food and drink applications has been around for centuries, but it was recently more widely adopted in plant-based applications. There are three types of fermentation used in meat and dairy alternatives: traditional, biomass and precision. These are defined by The Good Food Institute (GFI) as:
- Traditional fermentation has been used for thousands of years to make beer and bread; within plant-based applications it uses microorganisms to modulate and process ingredients, impacting the flavour, texture and nutritional profiles
- Biomass fermentation leverages the fast growth and high protein content of many microorganisms to efficiently produce large quantities of protein. This biomass serves as either the predominant ingredient of a food product or one of several primary ingredients in a blend.
- Precision fermentation uses specially designed microbial hosts as “cell factories” for producing specific functional ingredients. These ingredients are powerful enablers of improved sensory characteristics and functional attributes of plant-based products or cultivated meat.
Quorn was an early adopter of biomass fermentation in 1985 and is now the UK market leader. However, 2021 has been the year of precision fermentation, with $750 million in disclosed investment year-to-date (YTD) (55% of total fermentation investment). Unlike traditional and biomass, precision fermentation has end use applications better suited to dairy alternatives. In 2020 the first commercially available product using milk-identical proteins via precision fermentation was launched by Perfect Day – an ice cream retailing in the US for $5.99. Whilst this is undisputable progress for the technology, the milk and ice cream alternative markets already have products very akin in taste and texture to their respective dairy counterparts. The real challenge here will be in replicating dairy cheese.
Cheese of the future
Taste is the number one driver in the consumption of meat and dairy alternatives; whilst milk and many meat alternatives have closed the gap between their animal sourced originals, cheese has remained significantly far behind in taste and hence has significantly lower levels of penetration. Precision fermentation has the potential to bridge this gap with the production of casein proteins providing the vital functionality of cheese products. We could see precision fermentation cheese commercialised in as little as 12 months, with both Change Foods and New Culture planning to launch cheese products in 2023.
The potential of the technology is widely recognised and we have seen many companies with stakes in dairy partnering with precision fermentation players (e.g. Fonterra & Motif, Kraft Heinz & New Culture, Norco & Eden Brew). However, there are detractors that raise doubt around the future of this technology in dairy, in particular the high capital required for the fermenters. But significant investment and increasing partnerships can only accelerate the technology potential and we expect to see tangible progress in the next year.
Cultive it and they will come
The technology behind cultivated meat hit headlines in 2013 when the first lab-grown burger was announced to the world with a shockingly high price tag of c. $300,000. And much to the delight of the media the burger disappointed when taste tested. Cultivated meat has come a long way since its notoriety in 2013 and 2021 was a big year for its investment. Over the past 10 years disclosed investment has reached ~$1.34 billion, 42% of which was achieved in the first six months of 2021.
While there is still a long way to reaching commercialisation, the money being invested will help drive down production costs and increase efficiency. We may still be sceptical of the short- and medium-term place for cultivated meat in the food industry, but investors are certainly confident it can make a dent in traditional meat farming.
“The next 12 months months will be significant for protein alternatives as the race speeds up and and markets develop further”Robert Lawson, Food Strategy Associates Managing Partner
Panic in America
Few now doubt the market’s long-term consumer drivers and there will be volatility in year-on-year (YoY) market growth, as is inherent in such a dynamic market. We have seen circa 50% growth in German meat alternatives and similar levels in the UK – two of the most mature markets on the basis of consumption per capita.
However, the US plant-based meat market, which is arguably less developed and has lower consumption per capita, has demonstrated this volatility with four-week retail sales ending 3 October declining 1.8% compared with the previous year. This slump represents the seventh consecutive month that sales have been in decline. Add that to the foodservice pandemic difficulties and players in the sector have been hit hard.
One prime example is Beyond Meat’s Q3 US retail sales dropping by 16% YoY. US market instability could be reflective of brand saturation, supply chain issues and high prices – the question is, will this feed through to the investment market? It is possible this will translate to a slow-down in investment and M&A activity over the next quarter.
The next 12 months will be significant for protein alternatives as the race speeds up and markets develop further. The volatility we have seen in the US raises concerns and Food Strategy Associates will continue to track these developments and provide commentary on the race to the top within this sector.
By Robert Lawson and Sophie Young for Nutrition Investor, first published on 7th December 2021.
If you would like to get in touch with us at Food Strategy Associates, please e-mail Robert Lawson at [email protected] or 07810756957.