Plant-Based Boom: A Fad or the Future of Food?
5 Reasons Why Plant-Based Businesses Struggle and My Thesis for the Future
📖 About us: We are a UK startup with a mission to empower a healthier, sustainable future through plant-based transformation. Plantwise meal-planning app 📲 helps users leverage AI to create personalised plant-based dishes with food on hand.
A quick forward
In the upcoming pieces, I will prioritise sharing my unique takes and opinions rather than following a newsletter-style reporting approach we have used in the past.
It hasn't been a great couple of years
The past two years have brought negative headlines for plant-based products, both big and small. Tattooed Chefs has closed down, Meatless Farm has fallen into administration, and Beyond Meat revenue is going backwards. This is in stark contrast to 2018 when the UK saw a 200% increase in vegan product launches.
Is there a way back?
1. Over 90% of startups fail
Given the relative novelty of the plant-based alternatives industry (aside from tofu), the majority of plant-based brands are new. Right from the start, statistically speaking, 90% of them are likely to fail, just like 90% of startups in other industries.
Less than 0.0001% of startups ever become unicorns, meaning their valuation exceeds $1 billion. However, even unicorns can fail, and it happens quite often. For instance, WeWork recently filed for bankruptcy. Additionally, Clubhouse had to lay off 50% of its workforce, according to Market Realist. Moreover, the Web3 and NFT companies that were so popular a year ago seem to have faded away.
But those who can survive will flourish from the disappearing competition. For example, Redefine Meat, a 3D-printed vegan meat alternative (seriously tasty), is making strides in both high-end food services such as Gauthier Soho and retail, such as Ocado.
2. Business-to-consumer models (B2C) are always challenging
Due to their mission of replacing animal products, plant-based brands primarily operate in the B2C (selling directly to retail) or B2B2C (selling to food services who then sell to end customers) sectors. However, consumer products in this industry face significant challenges such as intense competition, constantly changing trends, and production obstacles.
Every year, thousands of new products flood the supermarket shelves. However, it is rare for consumers to venture beyond their familiar choices, especially when the new products are often priced higher.
Most vegan brands go unnoticed simply because consumers have a wide variety of options available, both plant-based and animal-based. Promoting a greener or cruelty-free mission alone is not enough for plant-based brands to overcome the mass consumer obstacles such as unfamiliarity with the brand, affordability concerns, scepticism about taste, and doubts about nutrition.
Luckily, Gen Z is emerging as the champion of sustainability. They are more willing to spend on healthy and eco-friendly products. The catch is that Gen Z would only be swayed if they could verify a product’s authenticity and credibility.
3. Food choices are personal and regional
There is a dilemma in consumer choices, as we have a strong attachment to traditions. This means that when consumers associate meat and cheese with long-standing family occasions, they won’t abandon them easily. At the same time, novel trends change from year to year. What consumers enjoyed trying in 2019 may not be popular in 2024.
Currently, many plant-based brands are facing challenges on both ends of this dilemma. They are not powerful enough to break the "traditional values" associated with meat and cheese, but they may also have lost the “trendy” factor for the mass consumers.
Startup founders in the food sector now observe a polarisation in health choices. Many customers opt for super clean whole foods during the week but indulge in unhealthy foods on the weekends.
This means that advertising "high protein" in Beyond Burgers, with the aim of replacing beef burgers, may not be effective for non-vegan consumers who are in a takeout mindset and not focused on health when making their purchases. (Personally, I enjoy trying different plant-based burgers whenever possible, but this sentiment is not shared by many people).
Brands that perform well in Europe may not necessarily succeed in the US or Asia. It is rare for a brand to achieve global dominance like Coca-Cola, which, by the way, is 131 years old.
Plant-based brands need to emphasise taste, nutrition, price, convenience, cultural traditions, and social trends in order to appeal to the mass market worldwide. However, this is a challenging task, especially for smaller brands with limited budgets.
4. Great businesses are not made by genius marketers alone.
You may have noticed that plant-based brands market their products differently. Oatly is a pioneer in this field. Oatly's marketing is often described as unconventional, irreverent, and even "anti-marketing." The brand is known for its quirky and humorous advertising campaigns, which playfully mock traditional marketing tropes.
But this does not excuse Oatly from the challenges of running a global business. Just a few years ago, Oatly had advocated for more self-manufacturing capabilities. With this in mind, Oatly significantly increased its self-manufacturing capacity between 2021 and 2022. However, late last year, Oatly reversed its decision and decided to outsource bottle-filling to specialist partners, particularly Ya YA Foods. This change was primarily driven by financial considerations to reduce capital expenditure, even at the expense of their gross margins. It serves as a reminder that being strong in branding does not guarantee proficiency in the entire production-to-distribution chain.
Given the immense challenges of entering a new market, it is possible that large non-plant-based brands such as Unilever, Nestle, Mars, Danone, and PepsiCo may dominate the plant-based sector in the future. These brands have significant resources to develop, promote, and test new products for their customer base. Testing a wide range of products is routine for these companies, but plant-based startups do not have the same luxury.
5. The macroeconomic environment is difficult
Finally, the current macroeconomic environment is not favourable for plant-based startups, or any startups for that matter, due to the near 5% risk-free interest rates.
There are two implications to consider. Firstly, investors are hesitant to invest in new and risky businesses because they can earn a 5% return by doing nothing. This is why venture funding across all sectors, except AI, experienced a significant decline in 2023, as reported by Crunchbase.
Secondly, consumers are feeling the impact of inflation, rising energy bills, and higher mortgage rates. As a result, half of Brits are cutting back on discretionary purchases, including grocery shopping, as highlighted in a Barclays report. Our customers have informed us that they are now trying to make their food supplies last for more meals, and some are even taking on part-time jobs to support their families.
My thesis for the future
In my previous writing, there was a notable amount of short-term pessimism. However, I continue to hold a long-term optimistic view. My thesis for the future is based on three key areas.
Firstly, as time passes, Gen Z will not only have more spending power but also increasing influence to drive the growing plant-based trends. Although this demographic shift will take time to fully materialise, it is a persistent change.
Secondly, large food companies like Unilever and Danone will play an expanding role in introducing plant-based products due to ESG (Environmental, Social, and Governance) requirements. These companies may acquire more pure plant-based players, similar to Danone's acquisition of Alpro. Additionally, they will utilise region-specific brands to optimise distribution.
Lastly, the adoption of plant-based diets requires a network effect solution. It is essential to foster a cultural shift towards a greener and plant-based future on a societal level. This may be the most challenging part. I still remember when I was at school, teachers had just started emphasising the importance of recycling and saving energy. It had a powerful effect on my generation, building the mindset and habit for sustainability.
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