A tasty future
Exploring the fundamental shifts in how humans are thinking about food
By Dinika Mahtani and Christian Meermann
We like investing in foodtech at Cherry.
From revolutionary vertical farms (Infarm) to the industry defining software that lets restaurants communicate with their suppliers (Rekki) to lab-produced cocoa (Planet A Foods formerly known as QOA), and of course, to the fastest way to get your groceries (Flink) and beverages (flaschenpost), we have invested across most food tech verticals. Just this week, we announced the addition of JULIENNE BRUNO, which is creating a plant-based pantry starting with cheese, into our portfolio after leading its £6 million seed round.
As we said, we like foodtech. Often, we have been so early that we now harvest some of the plants we have sown.
So far, we have invested in the thesis of “what” and “how” humans are consuming food. A clear example shows that younger eaters are tending towards vegetarianism and veganism at much higher rates than older generations, with 11% of 18–49-year-olds identifying that way — 2x higher than their predecessors. Relatedly, the “what” and “how” humans are producing food are also changing.
At Cherry, we don’t think this is a trend. Rather, we view this as a fundamental shift in the way we humans are thinking about food.
New ways to think about food
Environmental concerns. Mounting environmental concerns surrounding the impact of meat and dairy consumption are real and not going away. If we look at dairy, dairy cows and their manure produce methane emissions that are 23x more harmful to the environment than the effect of CO2. Poor handling of manure and fertilizers can degrade local water resources. And unsustainable dairy farming and feed production can lead to the loss of ecologically important areas, such as prairies, wetlands, and forests (Source). Furthermore, FAIRR’s research report “Managing environmental risks in meat and dairy supply chains” found that agricultural emissions, including those from dairy, are on track to contribute approximately 70% of total allowable greenhouse gas (GHG) emissions by 2050. We’re big fans of Zoe’s podcast episode “How your food choices affect the planet” which effectively discusses the topic further.
Options, options, options. In cities, various options available to consumers in the alternative dairy and alternative-protein space have shown that the market exists beyond vegans, as long as the taste of these products is superior to that of the original product. Oatly’s global dominance in coffee shops and Beyond’s launch with McDonald's are clear indications that ‘next-generation foods’ are now rather mainstream. On the fundraising side, there has been more than 420 new companies founded in the “alternative foods” space to date.
Health, allergies, intolerances. ‘Going vegan’ is viewed as healthier and, in many cases, has even proven to support longer life expectancies for people than meat-eaters, helping them grow old with fewer health issues. Studies suggest that around 68% of vegans are motivated by animals, followed by their health at 17%. Dairy (especially cheese) is an impediment to becoming fully vegan. The average per-person dairy consumption in the US was 643 pounds in 2017 — about 14% more than 20 years ago. However, while milk consumption is down, cheese is up nearly 30%.
Research has revealed that lactose intolerance is more common globally than tolerance and that the variation is due to genetic differences — with up to 70% of East Asians and a smaller fraction of people of Arabic and South Asian descent.
Venture dollars have followed this phenomenon. Investments in plant-based, fermentation-based and cultivated meat technologies have ballooned over the last two years, with investments in 2021 significantly overtaking those in 2020, increasing 58% year-over-year.
Is there a catch?
This, of course, is not to say there haven’t been some difficulties in the space, such as Oatly’s reputational blows, disappointing product launches (eg. McPlant being taken off menus at Mcdonald's), and questions around profitability amidst brand saturation, fueled partly by the VC-funding frenzy over the last decade.
What does the next decade look like in this space?
Not all alternative foods are the same — and the three key verticals are described below with a summary of where the dollars have flowed in the past two years:
Plant-based alternatives. Plant-based alternatives are the leader in this category, and the one innovation most visible today (Beyond Meat, Impossible Foods, Oatly). These startups mix various plant-based ingredients to recreate the taste and texture of the meat, dairy products, or seafood that they look to replace.
Fermentation. Two types of fermentation, precision, and biomass, are particularly prevalent in this space. These fermentation methods mimic the functionalities and protein components of certain foods. In the U.S., notable fermentation startups include Meati, MyForest Foods, and The Better Meat Co., while Mush Labs and Libre Foods are leading in Europe.
Cultivated/cell-based. Using cell biology technology, this approach involves growing meat from real animal cells, meaning yes — cultivated meat is *not* for vegetarians or vegans. Nevertheless, this method caters to omnivorous consumers who are conscious of their environmental footprint. Reducing the need to breed, raise and slaughter animals for food, cultured meat offers a way to reduce the environmental impact and the ethical concerns of traditional meat production. Upside Foods, previously known as Memphis Meats, and Aleph Farms are startups that fall into this category.
What do we really think?
The opportunity ahead is still massive, as we’re early in the consumer adoption curve. The market for alternative proteins is still in its infancy — 13 million tons were consumed worldwide in 2020, representing only 2% of the animal protein market. In a BCG study, interest in trying these new products was far higher than 2%.
- 11% of consumers in the US, UK, and Germany are very interested in alternative proteins; 66% were neutral, and only 23% are not interested at all
Unlike software products, however, the complexity of getting these products right is non-trivial:
- Taste. Alternative proteins must effectively imitate the familiar flavor and smell of meat, seafood, dairy, and eggs.
- Texture. Alternatives must also look and feel the same as animal proteins. For instance, the experience of eating meat depends largely on its fibrous structure. Chicken appears different from beef, and cheese can feel either hard or stretchy. Besides the structure, alternatives must also behave like the actual product when being cooked. For example, eggs alone have up to 70 different uses, from scrambled to whipped to mayonnaise to cake. Alternatives must cover all these use cases.
- Price. Currently, alternative proteins typically have a price premium compared to animal proteins. If alternative proteins are to reach larger consumer groups, the cost must match or undercut that of non-organic animal proteins.
- Shelf space. Displays at grocery stores are limited, expensive, and, most importantly, already occupied by food stalwarts. As accessibility and convenience are key drivers of grocery sales, upcoming plant-based food companies find it difficult to create large consumer demand where it matters most. Impossible’s partnership with Kroger, the largest supermarket operator in the States, shows that it can be done at scale.
Yet, incumbents are waking up and driving a consolidation spree. Incumbents have been alerted to the changing consumer preferences and have begun to invest in a multitude of alternative protein companies. Given current competition is most threatening to established meat-based products, we expect this trend to continue. Combining the consolidation spree with the fact that incumbents have large negotiating power over grocery shelf space due to size advantages, we are less bullish on new alternative meat companies emerging.
In addition, competition in the alternative protein space is already convoluted with big brands such as Oatly and Impossible Foods leading the way. As the technology to extract plant-based protein improves, production costs will decrease. Propelled by growing environmental and health concerns among consumers over animal protein, we expect these established alternative food companies to continue to grow, albeit in a less steep fashion than in previous years.
We will plant more seeds
Hooked on the sweet taste of Planet A Food’s recent success and JULIENNE BRUNO’s plant-based cheese hitting the market, we will push ahead with alternative food investments and are excited about advances into largely untouched categories.
Plant-based cheese is an obvious candidate given it is already a $2.4 billion global market today and is expected to grow at a 13% CAGR until 2030. Similarly, demand for plant-based seafood is soaring amongst growing environmental concerns of overfishing, marine pollution and microplastic health risks. With companies such as Hooked already leading the way and investments into alternative seafood up 92% YoY, we are not the only ones following this tasty trail. We believe that distribution struggles and a smaller global market estimated at $1.3 billion in 2031 are key hurdles to overcome. While some seafood alternatives have now started the B2B-route by selling to restaurants and grocery stores, we have yet to see how large consumers’ hunger truly is in this specific vertical.
Distribution matters
Although retail market share for plant-based meat has flatlined in major regions such as the US, UK, and, to some extent, Germany, we have seen a rise in distribution deals into food services and other wholesalers. Global QSRs including Starbucks and Dominos have piloted and now maintain meat alternatives on their menus. Moreover, unexpected customers such as IKEA — surprisingly the 6th largest food chain in the world — are also actively transitioning into the alternative space, where IKEA has pledged to convert 50% of their menu and 80% of their packaged goods to plant-based alternatives by 2025.
Don’t forget the other alternative proteins
In the long term, we believe that protein innovations show great potential. Insect, algae, and chickpea-based proteins will eventually find their way into our pantries. In addition to nutritional value, insect-based proteins have an astonishingly superior carbon footprint with cricket-raising resulting in 100x lower greenhouse gas emissions than beef cow production. While recent surveys indicate that 36% of consumers already find the idea of eating insects palpable, we believe consumer acceptance has a long way to grow until insect-based protein can become mainstream. By contrast, algae-based proteins are already well underway with Sophie’s BioNutrients recently unveiling the world’s first 100% microalgae-based milk alternative.
We are excited to see what further research into cell culture and lab-grown products will bring and hold our fingers crossed for innovations to break through soon.
With that, whatever we put on our plates next, we’re sure the future is going to be tasty.
