January 19, 2022
Meat substitutes are a fast-growing and promising sector which has been attracting considerable interest and investment from the venture community in recent years. An industry where ethics meets profit.
Consumers around the world love animal protein, to the point that they consumed 574 million tonnes of meat, seafood, dairy products and eggs, or almost 75 kilos per person, in 2020. Moreover, consumption is steadily increasing, especially in emerging markets. However, concerns about the environmental costs of raising all the animals we eat, how these animals are treated and the effects of consuming so much conventional protein on human health are growing even faster. This is why alternative proteins have gone from being a niche product to a mainstream phenomenon in just a few years. Plant-based meats are increasingly common in fast-food restaurants around the world, and plant-based milk is a mainstay in many households. Microorganism-based alternatives have been available for decades, and restaurants in Singapore and Israel serve meat generated from animal cells. Indeed, customers will soon be able to cook nine out of ten of the world’s most popular recipes with low-cost alternative proteins, especially those requiring less structured meats such as ground beef.
However, what we are seeing now is only the beginning of the protein shift. By 2035, when alternative proteins have achieved full parity in taste, texture and price with conventional animal proteins, alternative proteins are likely to account for 10-11% of all meat, seafood, eggs and dairy products consumed worldwide. With a boost from authorities and technological advances, that number could rise to 22% by 2035.
Assessing the “market opportunity”
The global market for alternative proteins has been roughly estimated by McKinsey as $2.2 billion in 2019 (a fraction of the $1.7 trillion global meat market). Other BCG research predicts this market to reach $290 billion by 2035, as consumers drive unprecedented growth in the consumption of plant, microorganism and animal cell-based alternatives. BCG also predicts that consumption of alternative proteins will grow from the current 13 million tonnes per year to 97 million tonnes by 2035, constituting 11% of the global protein market, even assuming a very conservative scenario.
Faster technological innovation and full regulatory support could accelerate market growth to 14% annually from 2020 to 2035. At this rate, Europe and North America would reach “peak meat” by 2025, when animal protein consumption would actually start to decline.
Where is the private market going?
A significant amount of money needs to be spent across the protein value chain to support protein transformation. Most investment funding is currently directed towards companies that are integrated across the value chain, allowing them to maintain quality control while experimenting with new technologies. However, as the business evolves, two types of investment strategies will emerge. The first is a technology play: a company that solves a specific technological difficulty, such as flavouring, will almost certainly become the go-to company for that specific step along the value chain, and other companies will be happy to license its intellectual property to integrate their processes. The second strategy is a platform play, in which well-funded companies or investors build industrialised platforms for capital-intensive technologies such as extrusion.
Alternative proteins represent a fast-growing sector with considerable innovation to date, and much more is expected in the medium to long term. There has been considerable interest and investment from the venture community in recent years: in 2020, the value of deals exceeded €3.5 billion and 2021 is on track to reach €4.5 billion.
Given the stage and size of company development in this space, the activity of private market companies far outstrips public companies. In the following years, opportunities related to the public market will arise as many of these private companies move to the IPO stage.
Vertical sectors are broadly categorised into the following groupings: plant-based meat/food, cell-grown meat/food, plant-based egg and dairy alternatives, insect-based. According to Dealroom, the largest investments to date have been in plant-based meat (€2.1 billion), plant-based dairy and eggs (€1.7 billion) and insects for animal consumption (€589 million). Alternative plant-based protein products to date have enjoyed a clear advantage in terms of time to market, speed to market, product cost and regulatory angles, while cell-grown products have a long-term appeal that could eventually rival plant-based options, but with significant challenges to overcome upfront.
Plant-based vs. Cell-based
Adoption of, or conversion to, alternative protein products can generally be tied to three simple considerations: taste, safety or nutrition, and affordability.
While plant-based meats are becoming advanced in terms of commercial use, the ability to closely replicate the sensory attributes (taste, texture, colour) of traditional meat may eventually be outperformed by cell-grown alternatives which, given their derivation from meat cells, may eventually realise a clear sensory advantage, while facing a long “catch up” period with the advances of plant-based meats in the market. While plant-based meat alternatives are commercially available and considered safe, attention is shifting to nutritional aspects such as “clean” labels with fewer ingredients, as well as higher protein content to better serve as a source of replacement for meat protein. Plant-based dairy and egg alternatives are particularly attractive to consumers with a dairy intolerance, as well as vegans, while vegetarians and flexitarians may not see such a clear value proposition for converting to this vertical. Cell-grown meat alternatives face challenges related to widespread regulatory approvals, as testing and review standards cannot be fully established without finalising commercially viable end products and processes, and as proprietary technology is closely guarded by companies.
Finally, beyond buy-in to social messages, testing and adoption/conversion will be tied to achieving product cost parity with traditional meat products. There will be fewer challenges to plant-based alternatives that are already more competitively priced, although even the biggest players Beyond Meat and Impossible Foods are currently at a premium to traditional meat equivalents. Cell-grown meats are still a long way from achieving price parity, as the production technology for commercial scale has not yet been developed in the industry; the focus is also on creating products that use a mix of cell-grown meat with plant-based components to help lower the cost at this stage.
Where ethics meets profit
Alternative proteins have obvious advantages: fewer carbon emissions, less ethical and environmental concerns about intensive animal production, as well as enjoyable, nutritious and healthy meals. Consumers can feel confident that they are helping to achieve the UN Sustainable Development Goals, while ESG-focused investors can profit from the expansion of a great new industry.
Farmers and scientists are at the forefront of the revolution, providing the necessary technological tools and high-quality inputs. In the race for parity, incumbent food companies and startups will refine and scale up production to make alternatives tastier and less expensive. Alternative proteins will be in demand by consumers. Investors with the right vision and experience can help finance the transition and participate in every step of the process. They can benefit from a $290 billion industry by working together to create a more sustainable food system that also tastes delicious.