Alternative proteins: The race for market share is on

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In countries with economic wealth, there is growing consumer awareness of, and interest in, alternative proteins. Meat has been the main source of protein in developed markets for years, and there has been an increased appetite for traditional protein in developing markets in recent years. However, changing consumer behavior and interest in alternative-protein sources—due in part to health and environmental concerns as well as animal welfare—have made way for growth in the alternative-proteins market.

Several entrants in the alternative-protein space are already rolling out new technologies and ingredients, and some are attempting to solidify their place in the market. Innovative food companies are able to mirror the customer experience of eating meat to a much higher degree. This is paralleled with strong social media marketing campaigns to gain traction for their products. Beyond Meat recently had a high-performing IPO, which signaled to investors that there is opportunity ahead in the alternative-proteins market.1 And numerous fast-food chains announced deals with alternative-protein producers to offer vegetarian options of popular menu items.2

This emerging shift could explain why even though aggregate consumption of meat-based proteins worldwide is increasing, the overall growth rate is expected to decline by half. Plant-based food (the largest source of alternative protein) sales rose 17 percent in 20183 and the use of alternative protein as a food ingredient in consumer products is predicted to continue growing. Currently, the market base for alternative protein is approximately $2.2 billion compared with a global meat market of approximately $1.7 trillion,4 making the growth rate of the alternative proteins marginal to the overall meat market. While there is significant headroom for consumer-packaged goods (CPG) companies and food manufacturers in the alternative-proteins market, many don’t have the necessary production capabilities to capture this market opportunity, nor do they know where to focus their efforts.

In response to these market forces and consumer concerns, industry leaders are rolling out a range of products and ingredients using different plant-based proteins (soy, pea), new animal sources (insects), and biotechnological innovations (cultured meat or fungal protein). In fact, a 2015 McKinsey survey of dairy-industry professionals showed that 21 percent of respondents believe the nondairy alternatives market, including plant protein, is “sizable and will continue to grow.”5

For CPG companies and food manufacturers to win market share in this fast-growing segment over the long term, they must invest in the capabilities required to develop and manufacture the most promising alternative-protein products.

Evolving consumer and market trends

Interest in alternative protein grew gradually up to and including 2007, only accelerating over the past decade. Several factors contributed to this evolution: increased consumer interest in health, price, and ethical considerations (such as where meat is sourced from and animal welfare) around different types of protein. Global populations and ethnic communities vary significantly in the amount and types of meat consumed. In the Middle East and much of Asia–Pacific, for example, most protein comes from legumes and seafood,6 while Chinese consumers mainly rely on beef, pork, and poultry. In China, approximately 50 percent of animal protein calories come from pork, compared with the Middle East, which reports minimal protein calories coming from pork but nearly 50 percent from dairy and eggs.7How the global supply landscape for meat protein will evolve.”

An analysis of consumer search queries found that the most popular food-and-beverage product search was for vegan products, with a 16 percent compound annual growth rate (CAGR). Dairy-free products (products free of milk proteins) drew increasing consumer interest, growing at a 22 percent CAGR (Exhibit 1). These findings are consistent with McKinsey’s 2018 Dairy Survey, which revealed that 73 percent of millennials and members of Generation Z reported purchasing a dairy-free alternative in the past 12 months.

Customer interests in alternative protein diets have evolved over the past 15 years.

In general, protein consumption has grown slowly in developed markets, while demand in developing markets is increasing more rapidly.8 As countries experience rising income levels and urbanization, for example, the demand for protein increases, whereas in developed markets protein consumption is a matter of market maturity. US residents, for example, consume almost twice the amount of beef protein compared with the global average.9 It is therefore likely that traditional protein consumption in the United States will continue to be robust and may include both conventional and alternative-protein products. However, consumer views on protein are shifting; the 2018 McKinsey dairy survey found that 82 percent of respondents rated plant proteinas healthy, and 74 percent viewed animal protein as such.10

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Food manufacturers are taking note of shifting consumer interests. The share of new products released with a protein claim grew from 2 percent to more than 5 percent from 2007 to 2016 (Exhibit 2). In addition, there was a surge in released products touted as vegan,11 dairy free, and ethical (meaning producers do not contribute to animal cruelty). As new trends grow, the landscape becomes more competitive with the presence of additional products.

New product releases in the alternative-protein categories have evolved to address customer interests.

Leading alternative-protein sources

Alternatives are protein-rich ingredients sourced from plants, insects, fungi, or through tissue culture to replace conventional animal-based sources (Exhibit 3). Four alternative-protein profiles offer promising opportunities for CPG companies:

Plant protein: This type of protein is the most well established and is derived from protein-rich seeds through dry or wet fractionation.12 The most popular types for consumers are soy, followed by pea and several niche types, such as chickpea, rapeseed, and lupin, among others.

Insect: Crickets are the most common source of edible insects and a good source of protein. In fact, some producers are already milling crickets for flour. However, it is currently cost prohibitive to isolate protein from the flour as the cost of the crickets is high, making the process difficult to scale. Food producers are also exploring using grasshoppers as an edible insect source, but development is still in an early stage.13 Other insects are more commonly used for the feed industry. Ynsect uses mealworm, while Protix uses black soldier flies.

Mycoprotein: This protein source is typically composed of whole, unprocessed, filamentous fungal biomass, commonly known as mold. It has been around since the 1980s and is produced through fermentation of biological feedstock. Fungi contain approximately 40 percent protein, are high in fiber, have limited carbohydrates, and contain no cholesterol.

Cultured meat: Scientists have been working on this protein since 2013, when the first lab-grown burger made its public debut.14 Cultured meat is made using tissue-culture technology (the process by which animal cells are regenerated using a single cell as the source) to propogate animal cells in vitro. This process creates muscle tissue that mimics animal muscles and has the same protein profile.

Customer interest in soy protein declined over a 15-year period, while interest in pea protein is growing.

Based on an analysis of search query data, consumer interest remains flat around mycoprotein and edible insects. Soy protein, which was an early leader in alternative protein, has declined by a CAGR of 6 percent. This trend is due in part to the development of other production options (such as pea protein) and concerns over allergenic and estrogenic effects from the soybean. However, recent studies have shown that these concerns are limited to only a small percentage of the public.15 In contrast, interest in cultured meat had a 16 percent CAGR, and interest in pea protein grew at a CAGR of 30 percent from 2004 to 2019. This growth signals that consumers are interested in protein sources that are consistent with a plant-based diet (Exhibit 4).

The value that each protein offers is a function of price and nutrition

Exhibit 5 showcases the viability of certain protein sources as measured by price per kilogram and protein digestibility-corrected amino acid score (PDCAAS)—a tool used to measure a protein by its amino acid requirements and the ability of humans to digest it. Soy and pea protein are leaders by price, while cultured meat and cricket powder are not yet economically viable on a large scale.

Soy and pea protein are the most competitively priced alternative proteins.

Where is the opportunity for alternative protein?

In general, pea protein and cultured meat show the most promise for market growth over the coming five to ten years, and plants are expected to be the largest source of alternative protein due to their limited environmental impact and healthy perception by customers. The economics of plant protein production are also advantageous because it avoids the feed-to-food conversion loss typical of other protein forms. For example, insect protein loss ratio is the lowest among animal protein at 1.7 to 1.0 and it is still higher than plant protein. Producers may need to balance plant-protein nutritional profiles with additional amino acids to make them competitive with the amino acid profile in animal proteins.16

However, with the projected growth of meat consumption in major developed markets, such as China, animal protein will likely maintain a significant market share. This type of protein has advantages: poultry, pork, and dairy-based proteins are relatively efficient in feed conversion compared with traditional meat protein (though not as efficient as plant-based proteins) and offer products and tastes that are familiar to most consumers. Nonetheless, producers should not discount alternative proteins, as they do have the potential to capture a share of the growing protein market.

Pea protein

Pea protein is expected to lead the alternative-protein market in the short and medium term, though the product does face certain challenges.

The past few years witnessed a limited supply of pea protein caused by a shortage in processing capacity. Processors responded and announced additional capacity: Roquette announced a $400 million project in Manitoba, while Archer Daniels Midland announced its own facility in North Dakota. For production to be economically feasible, food developers must identify a high-value application for pea starch, which makes up 60 percent of the pea volume but is not used in pea protein–based products. If the protein is sold but not the starch, or if the starch is sold at a low price point, then it becomes difficult for the process to be economically feasible. Thus, producers could make a profit by selling this protein if they don’t lose money on the starch. Producers of mainstream products such as veggie burgers who rely on soybean protein are likely to enjoy lower input cost and more stable feedstock supply. However, high-end products will likely use pea protein to cater to consumer expectations of a niche ingredient, which is a product that touts health claims and is on sale at a premium price.

How the global supply landscape for meat protein will evolve

How the global supply landscape for meat protein will evolve

Companies aiming to break into the pea-protein market should focus on producing a quality product with a minimal taste and color profile—a current challenge for producers. Improved processing technology and carefully developed pea protein sources will be critical to capturing market share. In fact, some industry players are already investing in an innovative seed technology to increase protein content.17 The demand for pea protein is expected to continue growing; analysis of online search query data shows that pea protein experienced a 30 percent CAGR from 2004 to 2019, suggesting that investing in this protein alternative will be worth the effort.

Cultured meat

The cultured-meat industry is well positioned for the future, even with major technical challenges to overcome, including the difficulties in the development of an immortal cell line, the recycling of culture media (the blood plasma used to produce the cells),18 small molecules to replace growth factors, and different reactors of design. Major progress has been achieved over the past five years. The industry received backing from innovators (including Bill Gates and Richard Branson) as well as industry players (such as Tyson Foods and Cargill).19

However, the price of cultured meat has already decreased significantly in the past nine years (the first lab-grown hamburger cost $325,200 in 2013 and then decreased to around $11 in 2015; one company estimates that by 2020 costs will be about $2.30 to $4.50 a pound).20 Industry leaders expect the product to enter the retail market in the next three to five years, with a preliminary introduction to consumers through high-end restaurants. However, the product may appeal to a limited segment mainly concerned with animal welfare and the environment rather than health, limiting the potential consumer market. If mass production is successful, this technology is best positioned to replace beef, since it is not as cost effective as conventional poultry production.

Animal protein will likely continue to dominate the market driven by key advantages such as customer familiarity. However, there is room at the table for plant-based products as evidenced by growing, shifting customer concerns around traditional meat protein. Companies are already investing in alternative proteins technology and will continue to do so in the coming years. And players that can market high-end products made from soy protein are likely to capture the largest margins. For CPG companies to win market share in the long term, they must place their bets and invest in the capabilities needed to meet their marketing strategy and the target consumer segments. Overall, alternative proteins present an exciting development for the entire food industry.

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