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Where Next for Plant-based?

Plant-based alternatives to meat and dairy have seen strong growth in interest from consumers, retailers and suppliers during the past decade and have been among the fastest-growing food categories across the world. However, more recently, growth has slowed and even reversed in both North America and Europe. Beyond Meat, the poster child for the plant-based revolution whose share price soared to $235 following its 2020 flotation now trades at under $13 and is yet to make a profit.

What’s going on? Is the plant-based revolution over? Was it all just a fad? Or is this just a bump in the road?

Food Strategy Associates have been advising food industry participants and investors since our founding a decade ago. We have accumulated data and insight into many different food & drink categories and countries and have a particularly deep understanding of plant-based development – one of our co-founders is a former CEO of Quorn.

To understand what’s happening in plant-based, let’s look more closely at UK meat substitutes – the most advanced market in the world in terms of consumption per head and technical development.

The chart shows three distinct periods, beginning with pre-2018 (+10% CAGR), before meat substitutes were ‘sexy’. This was before Beyond Meat floated, and when meat substitutes sold in the UK were dominated by a couple of specialist brands and usually found in frozen vegetarian aisles away from more mainstream products. Growth in sales was typically 5-15% CAGR, well above average for food categories, but not spectacular.

In the period 2018-21 UK demand for meat analogues accelerated (+23% CAGR). Major retailers threw open their (mainly chilled) shelves to accommodate an explosion of new brands from both startups and existing food companies, driving alternatives into every untapped niche and local delicacy. Smoky bacon? Scotch egg? Cornish pasty? Tick. Consumers became more aware of plant-based: we saw ‘mainstreaming’ of key categories so that regular shoppers could find plant-based analogues next to or even within the analogous animal-based display. Brands responded, some employing new protein sources and formats (eg: yellow pea isolate); new manufacturing processes that better replicated the fibrous texture of meat (eg: High Moisture Extrusion); new, more natural ingredients (eg: potato protein vs. methylcellulose), and even tofu was offered in more convenient and appetising formats.

Towards the end of 2021 and through 2022 came a reckoning (-4% CAGR): UK retail sales of meat substitutes began to decline. Retailers had begun culling a long tail of underperformers; many of the new brands and products were not good enough, falling short on the key consumer criterion of taste, and price. Consumer research we commissioned in 2022 in seven different countries consistently found continued high consumer interest in meat and dairy substitutes, but relatively few brands which consumers were willing to recommend. Tasting sessions with our clients have highlighted many products that failed to raise the bar. Taste and texture in many meat segments still falls short.

So, where does the market go from here?

From a consumer perspective, we remain confident that long-term demand for alternatives to meat and dairy will continue to grow. The health, environment, and animal welfare concerns that have driven past growth will only become more pressing in the years ahead. Consumer research we commission has consistently identified health as the most important reason for buying alternatives. Around the world, longer life expectancy and more chronic disease is driving healthcare’s rising share of GDP, to 10% globally and an astonishing 20% in the US. Environmental concerns relate mainly to global warming and carbon footprint but also to land and water use and are also forecast to continue to grow.

Consumer health and environmental consciousness tend to translate into cutting down meat and dairy consumption rather than rejecting it outright. Accordingly, flexitarians (rather than vegans) have been responsible for much of the growth in meat and dairy alternative consumption over the past decade and have driven high mainstream acceptance of alternatives where taste and price are competitive. For example, plant-based milk is consumed by 40% of US households, typically alongside regular cow’s milk. In the UK, Quorn is the number one mini scotch egg brand – across both meat and meat-free.

From the supply side, we are also confident that product offerings over the next decade will materially improve on taste, price, nutrition and environmental credentials. Specifically, we believe mycoprotein (protein derived from fungi through fermentation and currently only sold as Quorn) will drive the next phase of market growth as more than a dozen new entrants make this proven ingredient commercially available as an ingredient, in a diverse range of formats, and at lower cost.

More generally an unprecedented global wave of investment in technologies and startups focused on meat and dairy alternatives has been building over the past decade and is yet to reach the market. Cultured cell technology – offering the future prospect of real lab-grown meat – will be commercialised initially for simple applications such as production of animal fat cells. Sold as an ingredient these will improve the juiciness and meatiness of current plant-based offerings. Similarly, precision fermentation of molecules such as casein via genetic modification of yeast is being developed by a range of well-funded startups. Further along the value chain there are companies pioneering new production processes for transforming ingredients into more accurate meat and dairy analogues. Further along still, there are companies focused on using the widening range of ingredients and processes to manufacture specific meat and dairy products that will meet local tastes.

There are literally thousands of companies focused on their own piece of a vast global jigsaw. And some of the most successful so far have been the traditional meat and dairy players themselves. Danone has a thriving global plant-based milk empire. In plant-based meat, strong local brands such as Richmond in the UK and Rügenwalder Mühle in Germany have enjoyed huge success.

We are still in the foothills of a major transition that will take decades to achieve. The investments required to scale up some of the most promising technologies will be vast. But the tipping point – where consumer demand, product quality, scale economies and government incentives align ever-more decisively in favour of a transition to alternatives – is close to being reached in the most advanced markets and segments. Despite the current downturn, long-run volume growth rates exceeding 10% are a realistic expectation. For alternative and for traditional meat and dairy brands and their suppliers there is still an awful lot of money to be made in the plant-based revolution.

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