Where does the plant-based meat category go from here?
Think of an analogy around springtime – after a harsh winter, pruning back the dead wood, or even green stems to germinate new shoots of quality growth, hopefully stronger and more resilient than before.
2023 was, as such, a harsh winter for meat alternatives as some reputable companies withered away into administration or bankruptcy, with some saved only in brand name terms, like The Meatless Farm and VBites.
A perfect storm of externalities you might say – the Covid-induced growth benefits around plant-based health dissipated somewhat, the era of cheap money that had funded many start-ups ended and the cost-of-living crunch ate into the appetite for premium-priced products like meat alternatives.
Arguably, and perhaps contentiously, some of the casualties were self-inflicted. Poor business models, poor management, unprofitable businesses burning cash, products not living up to expectations, and the bandwagon effect – jumping into the category to take a slice of the growth pie without a clear conviction to differentiation, product evolution and quality.
Consensus is, there’s more weeding out to come, not consolidation through M&A but more plant-based companies going to the wall. And the same old obstacles over consumer repeat rates remain and need to be overcome – quality, taste and price, with long ingredient lists thrown in.
With category growth slowing consistently over the past few years, volumes declining and retailers cutting back listings, there are too many players chasing a shrinking market, industry watchers say.
“I think we’re seeing a natural thinning out after a period of exuberance,” Mark Lynch, a London-based partner at corporate finance advisers Oghma Partners, tells Just Food.
“The fact you’re seeing people dropping out is probably a good thing because that means the people left should have better economies of scale to be more efficient.”
John Baumgartner at Mizuho Securities in the US and Amsterdam-based Cyrille Filott at Rabobank suggest a bottom has yet to be reached in terms of growth tailing off and more players are likely to fail before the market picks up again at a more conservative pace relative to demand.
“When Covid came in, you had a lot of distortion in the market with this massive sales pop and you’ve had a steady bleed down ever since. I think the biggest problem for the category is still a lack of innovation,” Baumgartner, a managing director at the Japanese investment bank, says.
“I don’t think anything’s really changed and that’s why we continue to see sales decline. The product is not there yet, whether it’s nutrition for some people, taste or texture. In the US, there’s still probably well over 100 brands in the category and it’s just not big enough to support all of them.”
“Execution matters”
Similarly in Europe, Filott suggests retailers have realised the meat-free category is “not as big as everybody expected it to be” with respect to growth and volumes and is ripe for consolidation.
“Many of these start-ups throughout Europe were aiming for huge numbers in terms of growth rates and in terms of potential market size.
“The challenge is that, for a lot of these brands, they built a supply chain for a certain demand and that hasn’t come through, which is hurting them quite dramatically,” the global strategist for consumer foods, packaging and logistics at the Dutch investment bank, says.
“There are many small companies out there that only sell into foodservice or have a very particular small market in a certain country. Those are likely to disappear without us even knowing because there’s so many out there.”
Key to survival in a saturated market is staying ahead of the pack, according to Nick Cooney, a managing partner at US-based better-for-you investor Lever VC. After speeding up the “hype curve really fast”, the slowdown in plant-based meat is likely to level off and “resume more normal growth rates”, he says.
“Execution matters so much,” he adds. “Brands can’t rest on their laurels and being around for a long time does not mean you’re going to continue to be around for a long time or continue to grow. It’s not like ‘okay, just sell plant-based meat and you’re good to go.’
“You’ve got to keep up with the competition, from a quality perspective, from a marketing perspective and you need to make smart decisions around manufacturing and market expansion.”
Filott, meanwhile, stresses the need to “continuously evolve” the product offering given repeat rates are low and many consumers have already been put off and perhaps “lost forever”.
He suggests “attracting new consumers is a big challenge and a big opportunity”, noting distortions in the data from pricing-led inflation.
Filott explains: “In 2020-21, the growth was mostly volume and not a lot of price. In 2022, and especially 2023, the growth numbers were mostly price but volume-wise there wasn’t a lot of growth – it was negative in the US and UK.
“It could still be an attractive sector but with very different expectations and dynamics than people were expecting in 2020," Filott adds. “Let’s not forget that the drivers around animal welfare and broader sustainability are still there, provided that the product is good enough. But when the turning point will be is very difficult to predict.”
Lynch at Oghma agrees in terms of the outlook but underlines that the old inherent take-up obstacles also need to be fixed as he levelled a criticism around too many meat-free products and producers without a “clear leader” in the category.
“The long-term trend seems to be in favour of the category. People want to be eating healthier, and that’s quite critical, but there’s also the green agenda.
“The challenge, which the category hasn’t delivered on, is it has to be price equivalent, or cheaper, has to taste good and it must not have a list of ingredients. They’re not insurmountable challenges and I think some of that will come from scale.”
Market consolidation
Baumgartner argues green credentials aren’t enough on their own, especially when the sodium content in some existing products is “too high”, allied with too many ingredients, attributes which fly in the face of clean-label claims.
And he suggests too many plant-based meat start-ups lack a CPG “pedigree” when it comes to leadership and knowledge, especially if aspirations are embedded around animal health and/or the environment.
“I don't think you can really grow a category based on environmental concerns. Whenever you’re selling food to people it comes down to two things – taste and price,” he says.
New generations of products coming through might be the fix as far as quality is concerned, such as fermented plant-based proteins or products made from cells cultured in a lab.
Baumgartner believes it might well be the new generation of R&D scientists at private businesses that will crack the code for improving the quality of ingredients, what he calls an “aha moment”.
Explaining the theory, he says: “Those R&D companies don’t really have much interest in building a brand and selling into retail. They would much rather take their aha R&D discovery, licence it and sell it to an existing brand. The big unlock on the R&D side is not going to come from these small plant-based meat brands.”
This category is going to stick around but it’s going to look a lot different than it does now
John Baumgartner, Mizuho Securities
The market could well trim down to a handful of players such as the likes of Beyond Meat, Impossible Foods, Nestlé and Conagra Brands, he contends, adding the category needs to evolve to embrace a wider scope of meal occasions and overcome some of the “stress” shortfalls from various cooking methods such as frying and grilling.
“You will probably coalesce around four or five companies that are going to have the first-mover advantage, the brand recognition, and eventually the cash to licence this next generation of R&D.
“I think this category is going to stick around but it’s going to look a lot different than it does now,” Baumgartner suggests.
Access to cash has also been a key requisite for start-ups to scale and invest, and ultimately survive, especially amid the taxing economic environment last year, which is likely to continue to some degree in 2024.
However, the end of the cheap money cycle has shut off funding for many, such as the unprofitable Tattooed Chef in the US and The Very Good Food Company in Canada. Both cited a lack of capital for their demise.
Unless of course your lucky enough to have a pool of money behind you. Monde Nissin, which this week warned its Quorn vegan brand was still seeing challenges in meat-free, turned to its family shareholders last year for cash.
And Heather Mills, whose VBites business went into administration in December, saved the brand for £1m ($1.2m) and waivered £4.8m in debt owed to her.
“Quorn owned the space up until 2017-18 and then you had all these new entrants because of the promise that this market would be huge,” Filott says. “They have been suffering because they have been losing market share because there are some interesting brands and products out there.
“In general, it’s a market issue if you call out the external factors but you also have too many players and the competitive environment is just too tough. So a shakeout is a very good thing.”
Investors have also turned more risk-averse. “The funding environment has changed dramatically,” Lynch says. “Your run-of-the-mill private-equity funds are working on the basis of buying profitable businesses, generating cash which will pay down debt, grow a bit and you buy it at X and sell it at X.
“I think we’ll see some of these players who are struggling go by the wayside. In terms of the current horizon, I think more casualties are inevitable.”
Baumgartner says there is now a “much stronger emphasis” on cash flow as well as profitability, arguing that a “lot of [plant-based meat] companies probably would never have got funding or got off the ground 15-20 years ago” had it not been for cheap borrowing.
Lever VC’s Cooney suggests there are exceptions based on performance and a firmer footing, although he says “there’s a lot less investor interest” in the meat-free category than two or three years ago.
“I’d say the companies that have good things going for them, like sales are growing nicely, there’s differentiation, they’re among the market leaders, the growth strategy, the margins etc are decent, I think they’re still able to raise capital but it’s a lot harder than it was before.
“For the ones that spent a good amount of capital, not growing revenue that much and are not too differentiated, it’s exceedingly difficult. For sure, we will see a number of those continue to go bust in the next 12 to 18 months.”
I do expect that once we get that next iteration of notably better-quality products, the next jump from where we are now will happen again
Nick Cooney, Lever VC
On a brighter note, product evolution and technologies are likely to stand the meat-free category in good stead over the longer-term but whether growth rates can ever revisit the lofty heights of years gone by remains to be seen.
“I do expect that once we get that next iteration of notably better-quality products, the next jump from where we are now will happen again,” Cooney argues.
“Our view is that likely comes in meaningful part with the inclusion of things like cultivated meats, fermentation-derived ingredients and so forth. That is coming and we’ve had these products and the difference in quality is pretty staggering.
“It seems to me, the odds are very low that, 15 to 20 years from now, people are consuming less plant-based alternative proteins.”
