Consumer Staples Author: Sasha Chen May 18, 2022 05:10 PM (GMT+8)

From mush to meat, edible alternatives are ripping the protein industry apart from traditional livestock feeding and animal byproducts. Commercially manufactured and processed plant-based meat alternatives are created to mimic the texture and taste of real meat with some of the heavyweights like Beyond Meat and Impossible Food around the world. Developing from non-animal sources, plant-based meat alternatives open a new door in the nation of gourmets China.

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Nevertheless, China is still in its early stages of cultivating a new mass consumption trend in meat alternatives. What will be the fresh look of mingling Chinese culture with a commercialized portfolio? The following article sheds light on in-depth insights from Chinese leading impact investing venture capital and meat alternative producers. 

Zoom into the Reality of "Faux, Fake, Mock Meat"

Speaking of the meat alternatives market, there are three existing categories – plant-based, fermentation, and cell-based meat products. Most commonly seen in wholesales, plant-based meat (PBM) has a stronger presence than cell-based meat (CBM) or fermentation meat, among which cell-based meat requires lab research and engineering development to acquire cell lines from animals. 

Cell-based meat entails the creation process of well-characterized cell lines from species spanning livestock, poultry, and aquatic animals on the basis of laboratory experiments. In the middle of the spectrum, fermentation meat is another alternative created from microorganisms similar to ancient microbial cultures to preserve foods and create fermented alcoholic beverages. Thus, regarding the pace of commercialization, plant-based meat products directly produced from plants, instead of relying on the conversion from animals to plants, are the first options for many global companies that decided to enter this market. 

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Over many centuries, China has not been alien to the concept of a plant-based meat diet. Originated from ancient religious belief, the Chinese tradition highlights the culinary scene in Buddhist monasteries that abides by a strict vegetarian diet. A cult-like diet preference is underpinned by folk religions like Confucianism and Taoism for Chinese Buddhists. Therefore, Faux meat has been long-existing even before the modern vegan trend in China. 

But the western behemoths like Beyond Meat and Impossible Foods took this diet trend to a next level, with the biomimicry approach began in 2012 when Beyond Meat launched its first plant-based chick strips. Four years after, more fast-food favorites like alternative burgers were invented, showing momentum of entering the mainstream food outlets. 

Impact Investing Favors the Market

The Founder of Dao Ventures Group (道资本), Tao Zhang, indicated that founded in 2018, its impact investing subsidiary Dao Foods International has financially supported the highly growing plant-based and cultured meat small and medium-sized Chinese enterprises and some cross-border companies that incentivize the technological development in China's commercial meat alternatives market. 

Under the premise of social impact, Tao explained that Dao Foods International (道夫子) attempts to incubate domestic Chinese entrepreneurs or companies in the plant-based meat market. The subsidiary's incubation program and financial support have buttressed Chinese or cross-border startups with a sustainable goal, mostly concentrating on the environmental and food sectors. At present, Dao Foods has invested in 16 companies that specialize in all three categories of meat alternatives market. 

One of their first partners, Starfield (星期零) has grown into the fastest-growing plant-based meat maker in China. Tao disclosed that after meeting with Starfield's founder, Dao Foods and other capitals are the first investors financially leading Starfield's Angle financing round. Recently, the company completed its Series B round financing round, worthing up to USD 100 million, and announced its first production base and self-built factory in Xiaogan, Hubei. Other of its invested companies range from plant-based snack, protein, and beverage China-based companies. 

Tao explained that currently, it is hard to predict the potentials of individual tracks, mainly depending on entrepreneurs and national policy. China already has a long history of vegetarian diets so plant-based meat is not foreign to people. Despite the fact that consumers are not new to the concept of plant-based meat, companies should not overlook consumer acceptance of this food category compared to the west. When consumers consider that the price of the product must be commensurate with the value of the product, they will expect a similar experience purchasing real meat, either from the consuming process, texture, or flavor. 

"I realized that this industry is challenging to develop because of the business mindset of many Chinese companies trying to push this market purely from a commercialized perspective. Personally speaking, I think the plant-based meat market is still relatively new for Chinese consumers, which still stays as a new-generation category," said Tao. 

Previously served as the Global Chief Operating Officer of New Ventures at the World Resource Institute, Tao also has a keen insight into the food poverty crisis in the world. Although he does not expect that plant-based meat will completely replace real meat derived, he believes that this industry will have a critical function in environmental protection and alleviating climate change issues around the world. 

"When you look at the alternative protein industry, it is important to address social and environmental issues. For all three categories of meat alternatives, they require a transformation from qualitatively to quantitatively. Taking plant-based products as examples, their price will reduce in accordance with mass productions. This is the main reason why we input efforts to support domestic startups and help them regulate the product pricing in this market," said Tao. 

He gave an example of Starfield in which forms strategic partnerships with nearly 100 organizations. The company's meat alternatives products have been launched in more than 37,000 restaurants in China and therefore achieved a reasonable price range for their products. Some of Starfield's plant-based pork or chicken products are even cheaper than animal products.

In the future, Tao indicated that more domestic startups will keep rising as big compnianes like Starfield will lead the headwind and capture the market potential of expanding to the younger generation in China. These big firms will play a pivotal role in standardizing and establishing a formidable market that attracts startups or even large chain manufacturers. 

The Chinese Way of Taking Real Meat off the Menu 

Other than conventional western fast-foods like burgers, Chinese consumers are craving for identical plant-based products used in a wide variety of Chinese regional cuisines.

Founded in 2020, Herotein (植物家) is a first Chinese domestic company producing plant-based meat by using high-moisture extrusion technology. With raw resources imported from the North America, the company's main business is in Shanghai and mainland China. Differentiated from traditional dry textured vegetable protein (TVP), this high-moisture extrusion process places proteins to undergo thermal and mechanical stresses, and will enable a wide range of final product characteristics by altering conditions. 

While acknowledging that consumers are wolfing down plates of authentic Chinese dishes, Herotein's flagship meat alternatives are tailor-made to satisfy this taste preference. The company provides a variety of products, including beef patties, meatballs, mice beef, chicken patties, and chicken nuggets. Until July 2021, Herotein has expanded from B2B to B2C market in China, shifting its focus to retail and ecommerce. At the same time, some of the scenarios for launching their products include schools, restaurants, and companies. 

"We have seen an increased level of acceptance especially in China's international schools when they have education programs and sometimes a weekly diet theme in plant-based meals," said Vicky Lee, the CEO of Herotein.

In terms of the consumer portfolio, Lee revealed that the company's research shows that plant-based meat are most popular among female city workers in China. Specifically, 54% of consumers reflect that health condition is the reason why they chose plant-based meat because these meat alternatives do not contain cholesterol or animal saturated fats. Nearly 23% expressed their environmental concerns over animal meat and global warming crisis. The rest of consumer base divides into different reasons, such as religious belief, animal welfare, or new lifestyle. 

"Chinese consumer behavoris are following the global trend. I think the largest market potential relies on those people who do not have prior experience consuming plant-based meat in China," said Lee, "Meanwhile, it is undeniable that the Chinese government is supporting the plant-based meat industry as we have some beneficial policies related to carbon neutrality and meat consumption reduction."

To further improve its product line, Lee disclosed that the company is currently working on a development of integrating plant-based ingredients with animal cell-based fats to mimic the scent and texture of real proteins. 

Another company ZhenMeat (珍肉) is a Beijing-based company focusing on protein alternatives founded in 2019. As a serial entrepreneur, the CEO of ZhenMeat Vince Lu emphasized that similar to many food companies, ZhenMeat aims to eliminate negative environmental impacts contributed by the animal husbandry industry. 

Global food poverty and current protein supply chain post two challenges of oversuing land and crops in the world, explained Lu. He underscores the inefficient bioconversion of plant-based feedstocks to animal products, among which beef is the least efficient category. Useful high protein resources from plants include grains and corns, which largely wasted on feeding livestocks and have relatively minor bioconversion rate. 

By saving these high protein plant-based ingredients, Lu thinks that producing plant-based meat is a good alternative of maximizing the used resources. This method is well-shaped for improving the natural ecosystem, carbon neutrality, animal welfare, and sustainable development. 

"This year, President Xi Jingping highlights in the Two Sessions that through biological technology, China encourages the expansion from traditional crop and livestocks to more diverse biological resources. His remark also includes a goal of acquiring protein and energy from plants, animals, and microorganisms. We see this as a historical opportunity to develop this industry," said Lu. 

Among three categories of meat alternatives, Lu explained that fermentation meat is mostly produced in Singapore and the U.S. while cell-based meat is lab-grown. In the remarks of President Xi (Link in Chinese), he included all three categories and indicated a clear trend encouraging Chinese companies to innovate and excel in biotechnological advancement. Since 2019, ZhenMeat has been focused on plant-based meat production and is expecting to develop more products of other two categories in the future

Stay Alert with Challenges Ahead 

For every industry, blindfolded optimism is less than constructive for future development. In contrast with fanatic media outburst and overexaggerated forward-looking prediction, Lee and Lu provided another side of the story instead. 

Specifically, Lee hinted that consumers might encounter frustration when they cannot find complete replacement of real meat based on the texture and flavor. Fundamentally, plant-based meat derived from plant ingredients that are different from animal proteins. 

"If consumers are not familiar with plant-based meat, they would compare these products with real meat. We found that this group of consumers tends to be over-idealistic in terms of finding the complete meat substitute," said Lee, "Another barrier is the low-price strategy for rising companies who want to quickly attract a large user base. But lower prices usually mean the downgrading food quality, which is detrimental to first-wave user experience for the plant-based meat industry."

Lee explained that some Chinese companies mainly use the dry TVP technology to produce plant-based meat alternatives to control their budget within a low-price range. Like Unilever and Nestle, Lee said that Herotein's products are among the middle price range while Beyond Meat's products are the most expensive in China. For China's market, she highlighted that low-price products have a large consumer base. Unfortunately, in relation to this phenomenon, this market also witnessed negative consumer feedback, given that some companies might want to seize this opportunity by offering low-priced products and quickly penetrate the market.

Lu said that technological maturation will be a challenge of achieving this goal, whether or not these meat alternatives could be mass produced and commercialized. The other difficulty will be the pricing for fermentation and cell-based meat. For example, some U.S. leading companies can produce cell-based meat for USD 300 per kilogram, far exceeding the price of real meat. On contrary, plant-based meat are much cheaper and achieved a few dollars per kilogram. 

Moreover, different countries will set pricing benchmarks of plant-based meat based on real animal meats, such as beef and pork. In the U.S., companies like Beyond meat will correlate their pricing with real beef. On the other hand, China consumes the most meat category in pork. In this case, many companies making meat alternatives have set their pricing bencemarks in comparison to pork price in China's market.

In addition to prices and technology, national policy is another obscure around the globe. Lu highlights that the food safety of plant-based protein is strictly regulated and verified in China's market. But for fermentation and cell-based meat, those are still in early stage of lab development while their safety level remains unverified. 

"Singapore is the first nation to approve cell-cultured meat for human consumption. However, the situation is now uncertain in China, so that we see a very few Chinese startups in this field," said Lu. 

Instead of contracting on customer acquisition, meat alternatives rely on buyer retention to keep a company's customers returning over time. Deepening the relationship with customers who repeatedly choose to purchase plant-based protein products is helpful for any brand as buyers climb the loyalty ladder. In addition to competitor products, the primary reason for retaining customers today is the variety of alternatives available and whether they can grasp the taste of buyers. 

"We will keep increasing the product variety to satisfy the specific appetites for our consumers. Also, we are expecting more innovative protein alternatives that will emerge in the future. I believe that in ten years, cell-based meat will likely to be input into the commercialization process," explained Lu.

In a Nutshell

The future of meat alternatives is seemingly on grips. Ranging from impact investing ventures to meat makers, their voice are loud and valuable, with an objective undertone outlining both opportunities and challenges ahead of their journey.