‘Bloodbath warning’: Technology and marketing key for alternative protein companies to survive long-term in Asia
Product development has often been the primary focus for alternative protein firms, especially in the plant-based sector, and previous expert discussions also came to the conclusion that plant-based consumer growth in Asia is all about the product – but new equity research insights from Jefferies now say that technology and good marketing are emerging as more important factors for investors to consider.
“My concern here is mainly with the plant-based sector, where there are a high number of ‘me-too’ B2C plant-based firms emerging focusing on new products but that are not differentiating from each other in terms of technology or may not even be that tasty or healthy – the valuations for many of these are currently really too high,” food tech accelerator Brinc Senior Advisor and author of the Jefferies report on alternative protein Mattan Lurie told FoodNavigator-Asia.
“I am expecting a full-on incoming bloodbath as a result of this – it is going to end with some, maybe many, of these players being wiped out. The big players will remain, and some companies will find their own niches like pork in China or targeting the halal market – but not all will survive.
‘One might draw parallels with the internet boom of the 1990s: While the technology did indeed change the world and gave rise to many of today's tech giants, there was still a monumental shakeout along the way – [I believe] we may see the same here.
“As such, I am bearish on plant-based brands focused on B2C products that do not have technological defensibility and feel that these represent an investment risk.”
Along these lines, Lurie highlighted precision fermentation as a ‘very bullish’ area in the long term due to the existing potential of this technology and its shorter expected commercialisation timeline.
“Firms on the market now that are dealing with precision fermentation technology can actually create products at scale today, and we’re talking a wide range such as dairy proteins, infant formula, eggs, and more,” said Lurie.
“This is basically existing technology, and it has already been used in other industries such as healthcare and pharmaceuticals for many years so we know how to use it for large-scale, lower-cost production already.
“This is opposed to cultured meat technology which is about 10 years out, and which I would say I am just cautiously optimistic about due to the many bottlenecks involved here to reach price parity and for global regulations to catch up, despite its recent success in Singapore. There’s also the issue of consumer perception, which means a lot more has to be done to gain acceptance.”
Jefferies Equity Strategist Simon Powell highlighted research done on cultivated meat bottlenecks, saying that the numbers alone represented a major problem.
“These products are now all on the benchtop, and we’re seeing firms taking perhaps 10 million cells (less than 1mL) and letting these divide every 18 to 24 hours until it hits about 1kg or so, which is 1 x 105 cells – this can be done on a benchtop bioreactor, but what happens if you want to scale up to 3000kg of protein per week or something?,” he said.
“This is where the main bottleneck lies, as the world eats some 420 million tons of animal meat per annum, and you’d need huge numbers of very big bioreactors to sustain this demand. So if I were investing, it would make sense to go for high value products like lobster, abalone, blue or yellowfin tuna with good price margins – but this is not for the mass market.”
That said, Lurie added that in the long-term he is still bullish about the potential of cultivated meat, although it will take time for the potential of this sector to be realized.
Won or lost in Asia
Regardless of the type of alternative protein, both Lurie and Powell stressed that Asia is the region to conquer if firms want the sector as a whole to succeed.
“Another important factor to remember is that the alternative protein battle is really going to be won or lost in Asia – consumers here are the ones that will decide whether alternative protein ends up becoming mainstream or remains a niche product,” said Powell.
“Global demographic data already shows that in 10 to 20 years from now, Asia will hold seven of the 10 most populated cities in the world, then two from Africa and one from Mexico – none of these top 10 are in the west.
“The developed world is also ageing rapidly, and soon Asia will have the biggest collection of Gen Z consumers in the world – a demographic most likely to be accepting of alternative protein.”
Advice to secure investment
In all, Lurie’s advice for alternative protein firms looking to secure investment, whether in the plant-based, cultivated meat or precision fermentation sectors, is really to focus on technology differentiation – and also to make sure they have a strong marketing strategy in place.
“Even Impossible Foods, one of the biggest plant-based brands now, carved a niche for itself by differentiating with its heme-creation technology – that’s the kind of differentiation and innovation investors want,” he said.
“The other important thing investors are looking for is the ability to build your brand and the existence of a strong marketing team – this is where the bigger plant-based firms have stood out too, by getting on-shelf, building partnerships, etc.”
“I’d say really product development is not so much the main concern at this point, especially for plant-based firms – investors will be looking at your ability to get on-shelf first.”
This is sharply in contrast with advice for firms in the China market - Chinese investment firm Dao Foods Co-Founder Tao Zhang previously emphasized to us that here, consumers are ‘extremely discerning’ in terms of taste, so the development of a good, tasty, affordable product is the most crucial factor, so firms may also need to look closely at the specific intended markets of entry first.