A Path for Plant-based Meat out of the Trough of Disillusionment: Consolidation Seems Inevitable in Europe
The plant-based meat alternative (PBMA) market is coming to terms with a more realistic growth perspective. European meat alternative manufacturers and food retailers are rationalizing both production capacity and their offering to the consumer. That does not mean we should write the category off, but players will need to go back to the drawing board.
Growth expectations for meat alternatives have been very optimistic over the past years. Often unrealistically optimistic, as we argued in our (Dutch-language) report on the protein transition in 2021. Changing consumer behavior with regard to food and beverages takes decades, not years – and that is when products meet consumers’ expectations on taste, price, and healthiness. All of which one cannot really say about the current generation of plant-based meat alternatives, also called PBMAs.
That optimism came to a rigorous halt last year. Plant-based meat alternatives throughout Europe have been experiencing serious backlash in terms of volume growth and consumer perception over the past 18 months. Or, as our US colleagues put it: “Meat alternatives have hit a wall.” In the technology world, such shattered high expectations are called the ‘trough of disillusionment.’ On both sides of the Atlantic we find meat alternatives in these troughs.
The good news is that there is a pathway out. Our US colleagues have identified five considerations that could help revive the PBMA category again, here in Europe as well. The bad news is that not everyone will make it out. Further consolidation in brands, SKUs, and production capacity is likely.
Severe Headwinds for Meat Alternatives in Europe and the United States
According to IRI, US dollar retail sales of plant-based meat alternatives in the US dropped 9% in the first quarter of 2023, following an already lackluster 2022 with volume declines of some 6%. The situation in Europe is less dramatic, but here too meat alternatives are losing ground. Even though consumer price increases in meat alternatives were considerably lower than those for meat products – making meat alternatives relatively cheaper in comparison – volumes in important markets like the UK, Germany, and the Netherlands have not benefited and even saw a decline last year (see Figure 1).
Recent performance represents a significant slowdown from the double-digit growth rates reported over the past years and has raised doubts about the optimistic forecasts that foresaw the PBMA category capturing a sizeable market share of the USD 1.5+ trillion global animal protein market in 10-20 years. The expectations that the category would expand from vegan and vegetarian niches into mainstream adoption were boosted by new pure play players with heavy funding, appealing advertising, constant media buzz, and celebrity backing. Well, the initial hype has now faded. Inflation is taking its toll on the pockets of consumers, who are also increasingly questioning meat alternatives’ nutritional advantages.
Back to the Drawing Board
Although a lot of air has been taken out of the inflated anticipations, we continue to believe the main drivers behind plant-based products remain strong. We expect growing attention on food as a health driver coupled with perceived sustainability and animal welfare benefits, increasing concerns about the level of processing of food, and a refreshed appeal for convenience-at-home will gradually boost the choice for plant-based products. But not just any product. Our US colleagues laid out five thoughts on how PMBA players can revive the category by more closely aligning product development and promotion strategies with evolving consumer preferences. These considerations are equally applicable to the European market:
#1: Where Is the Plant in Plant-based?
Over the past decade, the second generation of meat alternatives has tried to win over the hearts and wallets of flexitarians by offering a product closely mimicking meat. PBMA innovators figured that a product undistinguishable from meat in taste, texture, and appearance – and at similar prices – would appeal to consumers’ environmental and health concerns. However, to achieve the desired meaty taste, texture, and shape, the mimicking efforts removed most of the plants’ physical components and nutrients and added undesirable ingredients that don’t relate to plants. The current generation of plant-based meat alternatives aren’t exactly plants, but ultraprocessed products. And consumers are increasingly starting to realize this.
#2: PBMAs Haven’t Focused Much on Plants’ Nutritional Benefits
By only highlighting meat’s disadvantages, PMBA producers are missing an opportunity to use plant-based meat alternatives to highlight the intrinsic beneficial properties of plants. Growing attention for dietary fiber, gut health, and pre/pro/post-biotics could benefit plants in all their forms: vegetables, whole grains, fruits, roots, nuts, and leaves. Plant-based players will benefit from talking more about the positive attributes of plants and bringing more of that to their final products.
#3: Sustainability Won’t Do the Job Alone
Plant-based meat alternatives benefit from science-based evidence and public perception that plant proteins consume fewer resources (land, water, farm inputs) and release fewer greenhouse gases in their life cycle than animal proteins. These sustainability advantages regularly appear in companies’ pitches and on product packaging as a main selling point. But sustainability alone will not persuade consumers. Taste, price, clean labels, healthiness, and versatility are required to convince consumers.
#4: The Fallacy of Price Parity
The past one-and-a-half years of unprecedented food price inflation have been an important lesson for the PBMA market. One of the core assumptions behind the inflated forecasts for meat alternatives was that volumes would be boosted and economies of scale would kick in once price parity was reached with animal protein products. The belief was that this would bring down costs and spur further growth.
For a variety of reasons, the shelf prices of meat alternatives stayed behind price developments in meat products. That proves that if a product is not up to par on taste and quality, price alone cannot win consumers over. If scale is what meat alternative players are after, focusing on blockbuster launches and headlines is perhaps not the quickest way to scale up. Replacing ground meat in a frozen lasagna or ready meal with plant-based alternatives seems an easier task than trying to disrupt the burger or steak experience. This shift in innovation strategy may garner better returns on investments by incrementally changing successful formulas with lower capex, reduced supply chain and manufacturing process changes, and a faster lead time to shelves and menus.
#5: A Deeper Look at the Plant-based Chain
Ultraprocessing is not only undesired by consumers. It also adds complexity and costs to the manufacturing process. Improvements early in the chain could generate savings, boost R&D outcomes, reduce the need for additional chemical ingredients and overall processing (with energy and inputs savings), and increase the sustainability profile of PBMAs even further. Looking along the chain, there are three areas where improvements can be made:
Seed Selection & Farming
Seed breeding may increase plants’ protein content and positively impact final products’ sensory attributes like smell and mouthfeel. This could help producers avoid the crushing process, ingredients needed to mask undesired smells or tastes, and ultimately costs.
Crushing and Ingredient Processing
Why go for concentrates and isolates when you can use more of the plant itself, taking advantage of plants’ additional nutritional benefits, an optimalized manufacturing process, and less upfront capex investment.
Food Manufacturing and Distribution
Apart from using fewer and more natural ingredients in the manufacturing process, distributors could also benefit from some rationalization and optimalization, starting with establishing the best shelf for these products: fresh or frozen? Near fruit and vegetables or near meat products? Moreover, food retailers can help the consumer by reducing choice anxiety. In the UK we have seen major supermarket chains do exactly this by rationalizing both the number of SKUs and brands over the past year (see Figure 2).
Consolidation Seems Inevitable
It is not only consumers’ choice anxiety that needs to be addressed. On the back of overly optimistic market growth expectations and seemingly abundantly available funding, much has been invested in setting up new production capacity, launching new brands, and expanding shelf meterage in supermarkets. In retrospect, perhaps too much. Some meat processors that set up dedicated PBMA production facilities earlier have brought these production lines back in-house and are rationalizing their offering. For example, just last month we saw the British brand Heck cut their plant-based assortment from ten to two SKUs. Multinational Nestlé even pulled their Garden Gourmet brand out of the UK.
Pure play plant-based companies like Meatless Farm and Plant & Bean did not have the luxury of an adjacent cash cow business and had to wind down operations in recent weeks. Market conditions in mainland Europe appear to be not as harsh as in the UK, but there is anecdotal evidence that manufacturers there are reassessing capacity needs and that supermarket chains may consider reducing shelf space for PMBAs.
Not Everything Is Lost, but Some Rethinking Is Necessary
Looking back over the past ten years, plant-based meat alternatives have successfully established a base for further growth. Just as one should not have expected the tremendous market growth through 2020 to last forever, today’s headwinds will not last for the coming 10 to 15 years either. Having said that, the current market conditions should be viewed as a wakeup call for players to reevaluate their strategies. Changing consumer behavior takes time and a lot of effort. Purely mimicking meat to lure flexitarians to meat alternatives has failed to take into account many other consumer requirements, not in the least taste.
In principal, the ‘task’ for PBMA producers hasn’t changed: offering consumers tasty products, made from ‘clean’ ingredients, that are convenient, flexible to use in different recipes, reasonably priced, and have the additional benefit of being good for the planet and animals. This will require investments in innovation, new products, ingredients, and manufacturing processes. And it will take time and money. Not all PBMA players will have this time, let alone the money. It is going to be a bumpy ride.
