Thought Leadership, Future Food Finance

Alternative Protein – A Goldmine of Strategic Opportunities

More incumbent food firms are likely to make investments into the alternative protein market through acquisitions and partnerships as it gives them a strategic edge.

In 2021 we expect to see the beginning of a ‘goldmine’ of strategic opportunities in alternative protein for incumbent players in the food industry, particularly food processors and quick service restaurant operators.

There have been some examples to date of strategic initiatives by incumbent meat producers into alternative protein.

For example, Maple Leaf has been making acquisitions to position itself as a leader in the US plant-based protein retail market.

Producers such as Tyson Foods, JBS, Cargill and Smithfield, who believe they can capitalise on their existing capabilities and market reach to organically participate in the emerging alternative protein segment, have taken the in-house route.

Tyson, for example, created a meat replacement brand called Raised & Rooted.

Tyson also made some minority investments in lab meat companies such as Memphis Meats and Future Meat Technologies, as well as backed companies such as Mycotechnology through its VC arm, Tyson Ventures.

JBS created a plant-based protein brand Ozo via a new subsidiary, Plantera Foods.

Cargill created a plant-based protein brand called PlantEver, and Smithfield Foods created a meat-free brand called Pure Farmland.

Incumbent meat producers have experience in handling ingredients and buying crops, which can help secure the supply chain and provide synergies to build and expand their plant-based meat offering.

But there is a question as to how they can best do that - through acquisition and investment into other companies or whether they're going to do it in-house creating their own new subsidiaries and new brands, or both.

We believe strategic buyouts, strategic investments, and strategic acquisitions can provide the technology required to evolve into new protein providers, as well as secure the supply chain.

Incumbent meat producers are already investing in alternative protein, plant-based meat substitutes and healthy foods.

JBS claims to be the world's largest meat seller; they've embraced plant-based protein.

Smithfield, who claim to be the world's largest pork producer, has launched “bleeding” plant meat, and Tyson Foods, which claim to be the world's second largest meat producer, has unveiled alternative protein products.

Why would they want to acquire or partner with alternative protein companies? It’s quite straightforward – they can achieve a strategic edge.

They gain access to specialised alternative protein technology, often patented, and access to protected trade secrets.

They can get quicker access to niche target markets by investing in or partnering with these tech companies than by doing it themselves.

And through combining nascent in-house capabilities with specialised technology from the start-up specialist, they can aggressively acquire market share.

Finally, they can secure and improve the supply chain via vertical integration.

We believe incumbents will find it increasingly difficult to develop their own technology successfully in alternative protein.

Strategic acquisitions of controlling stakes in smaller companies could give faster access to the technology.

One case study is Cargill. Cargill is remodelling its entire portfolio with alternative protein to strengthen its foothold in this emerging market and diversify its protein offerings in an attempt to expand.

Cargill invested in the $17m (£12.2m) Series A round of 2017 and $186m (£134m) Series B round of 2020 of lab meat producer Memphis Meats.

Memphis Meats is considered one of the leaders in lab meat, and has attracted investors such as Bill Gates, Richard Branson, Atomico, SoftBank, Norwest, Temasek, New Crop Capital, Tyson Foods and Threshold Ventures.

Why would Cargill choose Memphis Meats? Memphis Meats released the world's first cell-based meatball in February 2016, and poultry in March 2017.

Memphis Meats is also accelerating the scale up of its cell-based meat production.

It's reducing production costs to levels it believes will be at par with conventional meat, and it's quadrupling its headcount.

It's already begun the process of growing its team of chefs, scientists, creative staff and business executive team.

Regarding Cargill’s investment in Memphis Meat Investment, Sonia Roberts, president growth ventures, Cargill, said: “We are committed to growing our traditional protein business and investing in innovative new proteins to ultimately provide a complete basket of goods to our customers.

“Our investment in Memphis Meats is an exciting way for Cargill to explore the potential in this growing segment of the protein market."

Cargill has also invested $12 million (£8.6m) in Aleph Farms, another leading lab meat company, participating in the Series A round in 2019.

It joined investors such as Strauss Group, M-Industry, Peregrine Ventures CPT Capital, New Crop Capital, and Jesselson Investments in this investment.

Aleph grows meat directly from beef cells using a 3D tissue engineering platform.

It grew the world's first steak directly from bovine cells in December 2018, and it plans to build bio farms and move towards a limited consumer product launch with steak grown under controlled conditions within only three to five years.

In summary, Cargill is pursuing an inclusive approach to the future of protein advancing both animal and alternative protein to meet the approximate 70 per cent growth in global protein demand over the next 30 years.

Another case study is Maple Leaf in Canada.

It established a vision in 2017 to be the most sustainable protein company on earth.

Acquisitions have played a key part of its focused efforts to attain the strategic edge in plant protein.

In 2017 it acquired Lightlife Foods for $140 million (£101m) from Brynwood Partners.

Lightlife at the time was the leading refrigerated plant protein brand and manufacturer in the US.

It reported 2016 sales of $40 million (£28.7m) with a 38 per cent market share in the US of the refrigerated plant protein market.

It manufactured over 30 innovative products, including plant-based tempeh, hot dogs, breakfast foods and burgers.

Maple Leaf believed at the time the acquisition of Lightlife would provide a leading market position and brand in the US, and a category that is outpacing growth in the broader packaged food sector.

Michael McCain, president and CEO of Maple Leaf, said at the time about the acquisition that "expanding into fast growing alternative proteins market is one of Maple Leaf's strategic growth platforms and advances our commitment to become a leader in sustainability”.

“We are committed to growing the business through investment in brand building, innovation, and leveraging our respective capabilities,” he added.

The following year, in 2018, Maple Leaf acquired a company called Field Roast Grain Meat Co. for $120 million (£86m).

The company was a leading brand in plant-based protein, building on the culinary heritage from Europe and Asia using grains, fresh vegetables, dried fruits, wine, and spices.

Its products are marketed across North America, and the reported sales of the company were $38 million (£27.3m) before the acquisition.

The company's offerings include a wide variety of fresh and frozen grain-based roasts and loaves, sausages and frankfurters, burgers, deli slices and appetisers and Chao brand vegan cheese slices and entrees.

McCain said of the Field Roast Grain Meat Co. acquisition that "it complements and expands our portfolio in the fast-growing North American market for alternative proteins. It also aligns with our vision to be a leader in sustainable protein and create shared value through making a positive social impact."

Indeed, over the next decade, Maple Leaf aims to create a 'highly profitable', $3 billion (£2.16bn) plant-based protein business.

There are other firms in the food processing market that are making moves in alternative protein.

Bell Food Group out of Switzerland, for example, is one of the leading meat and convenience food processors in Europe, and currently owns a minority stake in the lab meat company Mosa Meat.

Bell Food Group's product range includes meat, poultry, charcuterie, and seafood, with deep expertise in producing and marketing meat products.

What is Bell Food Group's strategic intent in investing in Mosa Meat?

The company plans to play a leading role in the emerging alternative meat market, and is also investing in new production technologies and trends for customer specific solutions.

Bell Food Group invested in Mosa Meat's Series A round in 2018, which totalled $8.7 million (£6.3m).

In 2020, Bell Food Group invested an additional $5.6 million (£4m) into Mosa Meat, and then contributed further in a Series B round in 2020, totalling $75 million (£54m).

Through its investment in Mosa Meat, Bell Food Group could participate in the commercial production and marketing of cultured beef, and would be more able to drive efficiency improvements in Mosa Meat through its sourcing and distribution capabilities to further bring down the price for cultured beef.

So, there are evident synergies with Mosa Meat's pioneering technology in the cultured meat market, complemented by Bell Food Group's strong foothold in the development of innovative nutrition concepts.

In summary, I believe that these are just some of the early moves by a selection of incumbent food processors into the alternative protein market.

Over the coming year or two we expect to see a greater degree of investment activity as food processors realise that in-house developments into the alternative protein market will not be enough.

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