A report published by the Good Food Institute in 2019 values the alternative protein market in China in 2018 at US$910m, growing 14% from 2017. When looking at this market, we could not help but wonder if the statements by Ethan Brown, CEO of Beyond Meat about “hyper-growth in China”, and Patrick Brown CEO of Impossible Foods about a “huge opportunity” are too ambitious. Both players are in a hurry to build their brand in China. Beyond Meat made the first step, announcing a partnership with Starbucks as well as launching pilots with KFC, Pizza Hut and Taco Bell to sell its products through their outlets. Nestle recently added to the buzz, announcing the construction of a US$100m factory dedicated to plant-based foods.
Given the current momentum as well as the scarce coverage of market dynamics, we decided to conduct a deep-dive into this truly exciting field. In our effort to understand the alternative protein industry in China, we interviewed the executives of three major Chinese companies: Zhenmeat, Green Monday Group (Omnifoods) and Avant Meats which will be introduced throughout our 4-part article series on market, competition and consumer preferences.
In our first part of the series we interviewed Vince Lu, founder and CEO of Zhenmeat. After graduating from the University of Illinois, Vince followed his interest in healthy foods and started Fuchouzhe, a business selling protein bars. His work in this field gave him an insight into food preferences of health-conscious Chinese consumers early-on. Upon witnessing the sheer force of the plant protein movement in the US, he decided to bring this new wave of food to China.
The company was founded in 2017 and currently employs around 10 full-time employees. Zhenmeat made its debut, launching Mooncakes containing alternative minced pork and is currently focused on expanding the consumer base for its pea-based products. The company has been expanding its product range ever since to include a variety of minced-pork products and just a few days ago announced it will be launching pork tenderloin as well as crayfish soon. Unlike its pea-based products the new offering will be based on sweet potato and seaweed respectively.
To reach as many consumers as fast as possible, Zhenmeat is distributing its products via three distinct channels. In addition to selling stand-alone products like alternative minced meat and pork patties directly to retail outlets, the company supplies larger food manufacturers to produce ready-to-eat solutions and quick meals such as microwaveable dishes, sandwiches or dumplings. Moreover, Zhenmeat targets restaurants and food chains to incorporate Zhenmeat’s plant-based pork in their products. Currently, Zhenmeat is selling its product for ¥78/kg to restaurants (~US$11).
Rather than becoming a premium lifestyle brand, Zhenmeat aims to build a “down to earth” image that portrays affordability, sustainability and healthy food. For the foreseeable future Vince aims to stay focused on developing products tailored exactly to local taste and scaling quickly.
Vince Lu, founder and CEO of Zhenmeat, holding Mooncakes filled with Zhenmeat’s plant-based minced pork
Why is China such an attractive market for alternative protein companies?
Vince and his company Zhenmeat have been covered abundantly by foreign media in the last several months. Based on his knowledge of the Chinese market and all the interaction with foreign observers we asked Vince what makes the Chinese market such a source of interest. He gave us five reasons.
Market size - Probably the most obvious reason is the sheer size of the Chinese market. With 1.4bn people, China has about 4x as many mouths to feed as the US, making it the largest single market for protein consumption in the world. The relative share of vegetarians in China is tiny (about 3.6%), but in absolute numbers equates to 50 million. To give some perspective, this would equate to having 75% vegetarians in the UK. Going back to the market size mentioned at the beginning of the article (US$910m) gives us a good idea about the huge untapped potential in this market.
Nascent infrastructure - The alternative protein movement around “fake meats” started years ago in the West and has only picked up steam in China in the last 1-2 years. Thus the infrastructure, both in terms of competitors and established supplier relationships is close to inexistent, giving players with established product lines and production capabilities such as Beyond Meat and Impossible Foods a significant advantage of capturing substantial market share in a short amount of time.
Consumer preferences - Chinese consumers have a long history of deriving their protein supply from plants. Tofu, for example, is found abundantly and in many different varieties in Chinese food. Even “low-tech” versions of plant-based meat alternatives have been around for decades, serving specifically the Buddhist community. This significantly reduces the hurdle to get consumers to try new versions of plant-based protein at scale, compared to countries that predominantly rely on meat as a source of protein, such as the US or many European countries.
Low protein penetration - The overall protein consumption per capita, says Vince, is, compared to more industrialised nations, still low in China. This means that the alternative protein market can not only substitute existing meat consumption but grow the market for protein consumption as a whole, making Chinese diets more protein-dense as a result.
Skyrocketing meat prices - First came the African swine flu and sent pig prices skyrocketing, then came Covid-19 and further exacerbated the situation. With the majority of animal protein consumption based on pork this translates into a major problem in the national food supply chain. This opens up an opportunity for plant-based pork alternatives to bridge the resulting gap between supply and demand and reach more consumers faster.
What does it take to win in China?
After his elaboration on the key drivers of interest in the Chinese market, we asked Vince what he sees as crucial to establish a sustainable position. Among multiple factors, he sees three core dimensions that need to be championed in order to have a successful business.
Catering to local palates - Everyone who made it to China and ate in a local restaurant probably knows this one. Chinese cuisine, including taste and the ingredients used, is very different from Western cuisine (and our concept of Chinese restaurants at home). Furthermore, Chinese consumers eat animal protein in a much broader variety. Intestines and eating meat off a bone for example are commonplace. To stay ahead of other incumbents, offering products that cater to Chinese consumption preferences will be key. Zhenmeat, for example, aims to provide products that will incorporate 3D-printed bones in the next five years. Omnifoods, as we will address in the next article, launched a luncheon meat alternative, a processed meat that is particularly popular in Asia.
Another factor here is the difference in the types of meats that are being consumed. In a 2018 publication, McKinsey summarized the share of household spending for different animal sources of protein. In China, pork accounted for more than 50% of household spendings on animal protein. Many Western nations spend the most for protein derived from cattle (beef, eggs, dairy). Specifically in the US, pork only comes third after an overwhelming share of cattle-derived protein and poultry.
The effect can be observed directly in the market. The majority of plant-based protein suppliers in the West championed beef-substitutes, while Chinese incumbents, such as Zhenmeat, Omnifoods and Starfield Foods all focus on pork. It is thus certainly not a coincidence that both Beyond Meat and Impossible foods launched a pork alternative while expanding into the Chinese market.
Building trusted brands - Branding in this new kind of protein offering will be key. While Western consumers have a relatively stable trust in their food supply chain, China has repeatedly witnessed scandals shaking up consumer trust in the food supply chain. Among dozens of scandals in the 21st century, some of the most prominent cases include the gutter oil scandal (recycled oil from sewers and slaughterhouse waste) and melamine-laced milk powder (hospitalizing 54.000 babies, with 6 lethal cases). Building a brand that reassures consumers that these novel products are consistently clean is paramount in securing a position in the market. Especially affluent millennials are willing to pay premiums for brands with a clean, sustainable image.
Low production costs - Beyond premium outlets in big cities, the disposable income of the general Chinese customer is not high enough to support premium prices on a “fancy new approach to protein”. A true mass-market product will need to make full use of the strong soy supply chain in China and build a product that can compete with cheap meat alternatives if customers outside of big hubs and Western food chains should be addressed. Thus, it is paramount that any incumbents consider where they want to stand in the trade-off between product sophistication and mass-market affordability. Work with abundant plant resources in the local supply chain when scaling will be a must.
To summarize, the market conditions with respect to competition, skyrocketing prices of substitutes and potential size are very favourable. Overall the factors outlined in this article all indicate that alternative meat is in China to stay. At the moment, most of the growth is driven by curious customers that are chasing trends and want to experience the taste and texture of plant-based meat. Consequently, repeat rates, as confirmed by Vince, are relatively low in the current situation. Nevertheless, with growing supply, variety and availability on the shelf, the alternative meat consumption will become more commonplace. Vince sees the latter rooted in a set of advantages that alternative protein products have. One example is the nutritional profile. Plant-based protein does not contain cholesterol and typically has significantly less saturated fat. Furthermore, sustainability is superior for plant-based protein sources: While 100 grams of beef, for example, produce 25 grams of CO2-Emissions on average, tofu and peas only produce 1.6 and 0.6, respectively.
Going forward it will be interesting to see whether foreign companies will be able to execute effectively on the winning factors. Local incumbents like Omnifoods and Zhenmeat have already demonstrated that they can offer products such as luncheon meat and pork tenderloin catered to local palates. Now it is the turn of Beyond Meat and Impossible Foods to follow.
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