The future of alt-meat: cleaner ingredients, whole-cuts, and a lot more competition

Leonardo DiCaprio has invested in it, everyone from McDonald’s to Ikea is selling it, and now some companies are even growing it in a lab: We’re talking about oversized doors alt-meat.

The category’s gone from niche to mainstream (no, really, there’s a plant-based burger brand called Mainstream)—boosted, no doubt, by the pandemic: Plant-based meat sales shot up 45.3% to $1.4 billion in 2020 amid Covid stockpiling, per a report by the Plant Based Food Association and Good Food Institute (GFI) last year.

But sales slowed down in late 2021, and it seemed like the space had been counting its alt-chickens before they hatched.

• On Q3 earnings calls in early November, Maple Leaf Foods President and CEO Michael McCain said growth rates in the plant-based category had “evaporated,” affecting sales for its subsidiary Greenleaf Foods (-6.6% YoY), while Beyond Meat said US net revenues declined 13.9% to $67.5 million.
• Sales across the refrigerated alt-meat segment had declined 3.1% YoY in Q3, per IRI.
• Plus, some plant-based items were dropped from fast-food menus.

Then there are fermented and cell-based meats, which could potentially alter the alt-meat segment’s dynamics as they come to market.

With so much competition, retailers, fast-food chains, and VCs may be getting a bit pickier about the companies and protein types they bet on in 2022. And brands will need to adjust their strategies to keep up.

Meating expectations

Beyond Meat’s founder, president, and CEO Ethan Brown said on the company’s Q3 call that it would lean on its “most aggressive marketing to date” in 2022 to mitigate the sales loss.

So far, it has jump-started the new year with its McDonald’s McPlant expansion and leak of its plant-based jerky from its Pepsico joint venture.

• Michael Lavery, senior equity research analyst at Piper Sandler, told CNBC this week that in initial tests, McDonald’s sold 70 McPlants per location daily (not so far off the 110 Big Macs usually sold each day at an average McDonald’s). He predicted the McPlant could boost Beyond Meat’s US revenue by $170 million–$215 million.

Brown told Morning Brew’s Business Casual this week that these QSR additions will lead to wider omnichannel opportunities, which could eventually drive down prices. (Reaching price parity with traditional meat is a major goal for many alt-meat companies.)

“The more we can get traction in foodservice, we think the more that’ll lead into retail, and then it’s gonna drive that cost structure so that we can make this something—there’s no penalty to making the decision to go Beyond or have a plant-based product,” he said.

But Greenleaf COO Adam Grogan, who will move to president on January 31, told Retail Brew in an email the company is currently “reassessing” the plant-based protein category to “re-examine the drivers and changes” within it.

“We need to understand whether this is temporary or a sign of a more fundamental and lasting change in the market,” Grogan said. “This may lead us to either affirm or alter our investment thesis for the plant-protein segment.”

Emma Ignaszewski, corporate engagement project manager at the GFI, believes the sales slowdown is “a snapshot of a point in time,” especially as they lap a period of accelerated growth. “Seeing plant-based meats’ more modest growth, or even stability, or even small declines, would indicate very little about the general health of these brands or the category at large,” she said.

• Refrigerated alt-meat sales could be turning a corner, at least—they rose 1.8% YoY (with volume up 0.5%) for the weeks ending December 26, 2021, per IRI.

Channel surfing: Juan De Paoli, Kroger’s VP of Our Brands, said the grocer hasn’t seen notable sales slumps in the category and that stocking plant-based brands “is a priority.”

• Plant-based food sales grew 10% YoY in Kroger stores last year, 8x the growth rate of other categories, he said, citing SPINS data.

But as it brings in more brands, clean-ingredient labels will be paramount.

“There is still a gap and customers are craving more whole-food, veggie-forward, less-engineered meat options,” De Paoli said. “As plant-based trends continue to evolve, we want to make sure we continue to provide our customers with options.”

• About two-thirds of Americans have tried plant-based meat in the last year, according to a survey conducted in August by the International Food Information Council.

This selectivity around ingredients will be a major trend in 2022, according to Stray Dog Capital partner Johnny Ream, which he said could make grocery more challenging to navigate in 2022 than foodservice. (Though he noted it’s important for brands to pursue both channels.)

After reports of plant-based fast food faltering last year, JP Frossard, consumer food analyst at Rabobank, pointed out that QSRs are still in the “testing” phase of this trend. Working to perfect new offerings—from ingredients to marketing strategy—has been tricky for restaurants slammed with pandemic-driven supply-chain chaos, understaffed kitchens, and rising input costs, he explained.

“The long-term goal is to have at least one good plant-based option,” he said. “It’s not a matter of sales; it’s a matter of complexity.”

• Plant-based has already picked up the pace this year, with new menu items landing at Chipotle, McDonald’s, and KFC.

Money moves: While sales may be plateauing, funding is not. Alt-meat companies brought home the (vegan) bacon in 2021.

• Impossible Foods landed the segment’s largest round last year—$500 million—according to Food Dive, while Nature’s Fynd and Future Meat Technologies each raised about $350 million.

Ream said he expects this investment bonanza to continue, but evolve to prioritize more established brands looking to scale. So pre-seed, seed, and Series A funding may slow in favor of later-stage financing.

Ignaszewski said she also expects investment types to diversify this year to include more debt-based financing as companies upgrade facilities and scale production.

• More acquisitions and IPOs may come as well, she noted. (Impossible Foods CEO Pat Brown told Forbes in November going public was “inevitable.”)

Cutthroat competition

As companies jostle for shelf space and menu placement, new forms could be key to reaching more consumers.

Brands will need to “go beyond the kids menu” this year to focus on more center-of-the-plate, whole-cut offerings. (“There’s a limit to the amount of burgers and nuggets you want to eat in a week, right?” Frossard noted.)

There are barriers to this, of course, namely that making whole-cut analogs is trickier and more expensive than producing burgers, nuggets, or sausages. That’s why he thinks we’ll be “talking more and more” about fermented meat companies once they scale up production and bring their products to market.

• In the meantime, emerging forms like seafood and bacon alternatives will likely gain traction, Frossard said. (Or, could this year mark the rise of plant-based lamb?)

Selling cell-based: The cell-based meat category, transforming lab-grown cells into everything from steak to lobster, could also cash in on new cravings.

But for companies hoping to hit the US, it’s a waiting game. Singapore issued the world’s first regulatory approval for cell-based meat when it OK’d the sale of Eat Just’s chicken in December 2020. The rest of the world, including the FDA and USDA, is still working on regulations.

When that green light does come, brands will be ready, Ignaszewski noted.

• In November, cell-based meat startup Upside Foods opened a 53,000-square-foot facility in Emeryville, California—the largest in the country—that it says can produce 50,000 pounds of meat per year.

Plant-based brands may not have to worry, since once these brands hit the market, they’ll likely take aim at conventional meat eaters—“a much larger opportunity”—rather than looking to steal share from current alt-meat players, Ignaszewski said.

Either way, everyone will have time to adjust. Due to the high cost to manufacture, plus that whole process of explaining to consumers what cell-based meat is, Frossard anticipates that this segment won’t be a relevant competitor in the US meat market for another decade. But the buzz could “add more meat to this discussion” and bolster plant-based, he said.

Spread your wings: With so many players in the space, new brands hoping to make their mark will need to stand out—whether that be a new protein source or production method—from the alt-meat crowd that’ll only keep expanding this year, noted Stray Dog’s Ream.

“What is someone doing in terms of the process that is just really hard to replicate? Or what have they unearthed that just makes their product really, really unique? It could be the way that they manufacture it. It could be the way that they put the formulation together. But something different than just somebody being in a kitchen and developing something new,” he said.

Put simply: If they don’t diversify, they might be dead meat.