Boom in meat and dairy substitutes sets up 'battle for the centre of the plate'.
First came the vegetarians, then the vegans, followed by a bewildering array of food tribes from veggievores, flexitarians and meat reducers to pescatarians and lacto-vegetarians.
If the profusion of terms for people who have cut their meat or dairy intake is anything to go by, a change is afoot that is set to sweep through the global food industry as once-niche dietary movements join the mainstream.
Fast-food chain Burger King has partnered with a "foodtech" start-up, and McDonald's with Nestlé, to put meat-free burgers on their menus. Pret A Manger is considering a surge in its roll-out of vegetarian outlets as it looks into buying UK sandwich rival Eat.
But at the other end of the supply chain, Big Food is getting in on the act as the emergence of plant-based substitutes opens the door for meat market disruption.
"This is a battle for the centre of the plate," said Justin Sherrard, a strategist at Rabobank, referring to the western practice of building meals around a piece of protein with vegetables on the side.
The prize will be huge if imitation meat matches adoption levels of milk product alternatives such as soy yoghurt and almond milk, which account for 13 per cent of the American dairy market. It is a $35 billion opportunity in the US alone, according to newly listed producer Beyond Meat, given the country's $270b market for animal-based food.
Packaged food producers, burdened with anaemic growth in segments from drinks to sweets, have jumped on the plant-based bandwagon. Market leaders including Danone, Nestlé and Unilever are investing heavily in acquisitions and internal product development.
Laggards are dipping their toes. Kraft-Heinz, for example, is investing in start-ups via its corporate venture capital arm and making vegan variants of some of its products. Even traditional meat producers, such as US-based Tyson Foods and Canada's Maple Leaf Foods, are diversifying into plant-based offerings to remain relevant with consumers.
"Plant-based is not a threat," said Wayne England, who leads Nestlé's food strategy. "On the contrary, it's a great opportunity for us. Many of our existing brands can play much more in this space than they do today, so we're accelerating that shift, and there is also space for new brands."
Nestlé aims to reach $1b in sales from plant-based products within a decade. While small in the context of its total annual sales of SFr91.4bn, Mr England said the sector is a priority. The company has a lot riding on the recent launch in Europe of Garden Gourmet's Incredible burger, which is designed to cook and "bleed" like real meat, with the US to follow in the autumn. In a sign of the times, Nestlé has put its Herta cold-cuts brand up for sale — but is keeping hold of the unit's vegetarian and dough products.
From cashew "foie gras" to fake shrimp made of algae, a plethora of alternative protein products are hitting supermarket shelves. They appeal to consumers for different reasons, industry executives say, with some wanting to reduce their meat consumption for health reasons and others concerned about animal welfare and agriculture's contribution to climate change.
France's Danone, known for Activia yoghurt and Evian water, has gone the furthest in putting plant-based at the centre of its strategy. Emmanuel Faber, chief executive, has promised to triple sales of plant-based products to €5bn by 2025, which would account for a fifth of group revenue at current levels. But some investors have questioned whether Danone overpaid for its $12.5b acquisition of WhiteWave, an upmarket US producer of alternative milks in 2016.
As Big Food rushes in, it faces stiff competition from a new breed of start-ups that have raced ahead to launch plant-based meats they claim look, taste and feel like the real thing. Flush with venture capital funding, they have turned to technology, analysing the molecular structure of foods and seeking to reverse-engineer versions using plant proteins.
Beyond Meat, whose market capitalisation has more than tripled to $5.5b in the two weeks since its initial public offering, and rival Impossible Foods have big ambitions to convert even the most committed carnivores to their cause. "We can win on taste, we can win on nutrition and if we can get the price of this to be lower than the cost of animal protein, very few consumers are going to be like, nah, I'm not going to do it," said chief executive Ethan Brown of Beyond Meat.
Not only are the disrupters innovating on the product side, they are rapidly creating new brands using digital marketing and partnerships with restaurants. Big food companies, which can struggle to create new brands, often rely on acquisitions to bring new ones onboard.
In a sign of the branding savvy of the start-ups, Impossible Foods' distribution deal with Burger King in the US is for the "The Impossible Whopper", giving the new brand double-billing with the fast-food chain. In contrast, when McDonald's chose Nestlé's Garden Gourmet Incredible Burger for sale in Germany, it coined its own name, the "Big Vegan TS", with the foodmaker's branding nowhere to be seen in stores.
Aside from the quality of the new protein substitutes, how they are marketed will determine whether they become truly mass-market or remain limited to the margins of motivated vegetarians and vegans. The positioning of the product in stores influences sales, with new brands such as Beyond Meat pushing to be placed in the meat section rather than separate chilled cabinets alongside the vegetarian and vegan options.
Elio Leoni Sceti, whose investment company recently backed NotCo, a Chile-based start-up that uses machine learning to create vegetarian replicas of meat and dairy, believes new brands have an edge on the marketing side because they are not held back by old habits.
"The new consumer looks at the consequences of consumption and believes that health and beauty come from within," said one industry veteran who used to run Birds Eye owner Iglo. "They're less convinced by the functional-based arguments that food companies are used to making, like less sugar or fewer calories. This is not the way that consumers used to make decisions so the old guard are flummoxed."
For big meat producers, the risk that people will gradually reduce their consumption poses a more existential threat, although with global demand still strong, such a change does not seem imminent.
The new consumer looks at the consequences of consumption and believes that health and beauty come from within.
Addressing investors at a New York conference this week, Tyson chief executive Noel White explained the meat group's plan to launch a plant-based product this summer. The largest meatpacker in the US owned a stake in Beyond Meat before selling ahead of the IPO.
"It came to the point in time where we decided that we were going to enter that market ourselves, and do it in a meaningful way," he said. He added that the product could eventually deliver $1b in revenue, and played down the capital investment required, saying the project would draw on existing supply chain and distribution resources.
Canada's Maple Leaf Foods, which bought two plant-based brands in 2017 for $270m, announced this year that it would spend $310 million constructing a plant-based product facility in Indiana. Dan Curtin, who heads Greenleaf, the company's plant-based business, played down the idea that alternative meats will eat into meat sales, saying the substitutes were "additive". "We don't see this as a replacement. People want options," he said.
Despite these initial forays, most large meat producers are not betting as much on plant-based foods as their consumer goods counterparts. That is partly because of continued growth in meat demand, as well as a reluctance to enter an increasingly crowded market without a distinct offering.
But the landscape is changing fast. The meat makers, said Mr Sherrard, "need to realise" that if they are not careful, consumer food companies could eat their lunch.
- additional reporting by Gregory Meyer.
© 2019 Financial Times