Plant-Based Meat: The Biggest Risk is Not Facing Headwinds, But Ignoring Them

Former TiNDLE Foods CEO Andre Menezes on why plant-based meat industry founders need to start facing some hard truths.

Over the past few years, I have had the privilege of engaging with numerous founders, professionals, and investors in the plant-based alternatives sector. It is surprising how many of them still overlook the critical context of their industry, failing to recognize that the challenges they face go far beyond flawed marketing, price parity, ingredient list and product performance. While these areas undoubtedly need improvement, the real challenge is much larger, more complex, and deeper. Consumer adoption has proven to be more nuanced and difficult than initially anticipated, and their relationship with meat and the lack of motivation to reduce meat consumption at the time of purchase are significant barriers. This is the primary reason this sector’s growth has been both incredibly expensive and slow. In my opinion, this headwind is the most relevant, and this oversight is likely to lead to many-a-failed company.

It is undeniable that the plant-based alternatives industry is navigating troubled waters, similar to many disruptive sectors such as EVs have already faced. This doesn’t mean the industry will die or fail to grow from its current state, but it does mean that the environment and strategies need urgent adaptation.

From 2019 to early 2022, the industry experienced a race for rapid growth, fueled by excess liquidity. Profitability wasn’t a focus; the strategy was to grow as fast as possible, raise more funds, and continue investing to become a leader in one of the most promising and fast-growing categories at that time. Burning cash wasn’t an issue with the right unit economics and growth metrics, as more funds were always just around the corner. However, things have since drastically changed.

Venture funding was initially driven by the expectation that the plant-based alternatives industry would disrupt and capture a significant share of the $2 trillion meat and dairy market, promising huge growth, greater valuation, and substantial returns for investors. However, after an initial pop, growth in the category has stagnated, which means raising capital at previous valuations is no longer an option. This shift doesn’t spell doom for the industry. In fact, it might force the sector to become more sustainable and efficient. Profitability is no longer merely optional, it’s now a necessity. Companies with cash runway must urgently devise strategies to achieve profitability, potentially including inorganic consolidation. Failure to reach profitability will more than likely result in bankruptcy, or at best, a small exit that won’t satisfy shareholders, especially founders who have dedicated years of their lives to the business, usually without a plan B.

All of this should be apparent to anyone involved in the business, especially those who have been operating or investing in this sector for a few years. Surprisingly, certain founders and more than a few investors I have been speaking to still cling to outdated strategies and hypotheses. They continue to attribute the industry’s stagnation only to product issues and flawed marketing. While both of these do require significant improvement, the reality is that the investment, assortment, variety and attention this sector has received should have led to higher actual category growth.

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Geography and category examples highlight the importance of consumer readiness

There are enough elements, cases, and launch attempts to show that the most significant factor for adoption (or lack thereof) is not the product or the marketing itself, but consumer readiness in each market. On the product side, there are many applications where plant-based products are indistinguishable from their meat counterparts but still sell a tiny fraction of their animal counterparts – even when the price is close or at parity.

For instance, in my opinion, the Impossible Whopper from Burger King US is nearly indistinguishable from the chain’s regular Whopper. I invite you to go to any Burger King in the States and try an Impossible Whopper and a regular Whopper. Then drive 20 miles and do the same test at another Burger King location. You will likely find that the difference between the two beef patties from different locations is more significant than the difference between beef and Impossible meat in the same location, prepared by the same staff. However, if you ask the staff how many Impossible Whoppers they sell compared to beef Whoppers, you will be shocked at the discrepancy. When product quality, price, and marketing are equivalent, what could possibly explain the immense difference in their respective performances? In my opinion, this is where consumer openness and adoption at a societal level have been drastically overlooked.

In Germany, the situation is much better according to Burger King Europe’s own data, with 1 in 5 Whoppers sold being plant-based. While some might rush to conclude that the German product—made by Unilever Vegetarian Butcher—is superior or better marketed than its US counterpart, such an argument could easily be countered by the fact that other EU countries offering the same product do not perform at the same level. Germany has a longer history of education around sustainability and the environmental impacts of the food system than most countries in the world. Eco-friendly behaviours, ranging from recycling strategies and energy efficiency incentives to higher efficiency cars, are just some of the many examples of behaviours resulting from Germany’s decades of education around sustainability, matched with policies that encourage companies and individuals to consume fewer resources. In Germany, the environmental impacts of our food system are better understood, and consumers are increasingly trying to reduce their impact on the environment.

Interestingly, the plant-based milk sector has had more consistent success across most markets. If you enter any trendy urban coffee shop in a developed economy, you will find that plant-based milk often accounts for 50% or more of milk sales. This is despite plant-based milk being far more expensive and usually nutritionally inferior to cow’s milk in terms of protein, sugar, and other minerals. The success of plant-based milk brands shows that marketing, product quality, and price alone are not the sole determinants of market success. While I don’t believe there is one definitive answer to explain the relative success of this category, it is clear that there is less consumer resistance to switching from cow’s milk and fewer barriers to adoption despite the usually higher prices. Factors certainly include the prevalence of milk allergies and the fact that milk is not as aspirational an ingredient as meat, among others.

Shifting consumer behaviours requires more than product-market fit and better marketing

Shallow comparisons to companies like Tesla often emerge, suggesting plant-based meat companies should simply mimic Tesla’s approach to drive up the category adoption. While Tesla’s role in the EV revolution is category-making, comparing its growth across different markets shows that adoption requires more than a coveted product and great marketing. Relative EV market growth in the US compared to Norway or China illustrates that EV adoption involves a complex interplay of factors beyond just product appeal and marketing. Not only the funding for EVs has been multiple times higher than alternative proteins, but -most importantly- there were significant financial incentives targeted at driving demand coupled with consumer subsidies, privileged access to parking and city toll exemption. Further reading on the EV/Alt-Protein industry comparison can be found here. 

Recognising the headwinds and reshaping the strategy for success

While it feels comfortable for founders and their investors to look at failed attempts as being the result of flawed marketing or product quality while hoping that their companies are exceptional and that the headwinds won’t affect them, they should honestly ask themselves whether they will be able to raise funds on the same good terms and/or grow to profitability organically like most others haven’t been able to before they run out of cash. Founders and investors must reassess their strategies to align with the current environment. Without profitability, scale and growth, chances of successful funding rounds are slim and successful exits are highly unlikely as valuations increasingly rely on classic food business multiples, which are orders of magnitude less than the coveted SaaS/tech numbers.

Facing headwinds is a natural part of business, and resilience is an essential trait for a startup founder. However, this must not turn into stubborn blindness, and result in leading companies to failure or frustrating exits after years of hard work. Recognizing and adapting to the new normal is crucial for navigating the challenges ahead.

The good news is that category leaders often do emerge exactly in times like these, when businesses with the right scale, profitability and strategy can leverage the challenges faced by the broader category to solidify their presence, navigate troubled waters and point towards a brighter future.