China: Alternative protein market overview
The trends, the brands and the funds shaping the alternative protein landscape in China
By Murielle Gonzalez
With a population of 1.4 billion, China is the largest consumer country of protein globally both by volume and value. Lily Chen, programme manager at Shanghai-based consulting firm Lever Foods, estimates that the country will account for 35% of the global protein market in 2025. “Conventional animal protein will not be able to meet the growing demand in a sustainable and ethical way,” she says, noting there is an increasing consumer and governmental interest in having a diversity of protein sources – ones that are healthier, more sustainable and respect animal welfare.
The outbreak of African Swine Flu in 2019 and the current Covid-19 pandemic have been key drivers in changing consumer behaviour in China, putting food safety and health issues to the forefront of people’s concerns. The trend has seen many consumers cutting back on meat consumption while reaching out to alternatives.
A report by the Good Food Institute revealed that 87% of Chinese consumers surveyed last year said they had tried plant-based meat products, and 62% said they are very or extremely likely to buy plant-based meat. The study also registered 71% of positive associations towards meat substitutes.
China’s import of ginger and turmeric, ingredients associated with immunity, increased 95% in the first half of this year compared with the same period a year ago, proving health through functional food consumption is a top concern. Altogether, the rise in health and sustainability awareness in China has created a hotbed of food innovation.
“Currently, plant-based meats like beef, pork, chicken and fish have a huge potential because consumers need a new source of protein that is healthier and more stable, especially after experiencing Covid-19, Swine Flu and the US-China trade war,” says Chen.
Signs in the market are testimony of the trend. For example, fast-food giants KFC and Starbucks added plant-based meat to their menus this year, and Chen believes this move has played an important role in the uptake of alternative protein and growing consumer acceptance for plant-based meat products.
Starbucks teamed up with plant-based burger giant Beyond Meat in April, and a few months later, the US company secured shelf space with Alibaba’s Freshippo supermarkets in China.
Incumbent brands have reacted to the alternative protein trend by launching new product lines. Ready-to-heat noodle brand Ramen Talk partnered with Vesta to launch a plant-based meat spaghetti product, and snack company Baicaowei hit the market with several plant-based meat snacks and dumplings.
Nestlé has invested heavily to secure its place in the plant-based protein space – the launch of Harvest Gourmet, which is produced by a plant-based manufacturing facility in China, is the latest move into the category by the Swiss giant.
“The plant-based meat sector will continue to grow, especially when companies in the market are able to reduce the cost and improve product quality,” says Chen.
Consumer profile
Consumers in China are always connected online – brands reach out to consumers through social media platforms. Another way to target emerging-tier consumers is through influencers. “Social media has become one of the fastest-growing marketing forces in the country today,” says Chen, noting that 20% of internet users in China learn about new brands and products from endorsements by celebrities or well-known individuals, as opposed to the global average of 15%.
There is also an increasing interest in health among Chinese consumers, especially young shoppers and the rising middle class. “Tasty products with characteristics like low-fat, low-sugar, zero cholesterol, and antibiotics-free have become increasingly popular in China,” says Chen. “Consumers are also willing to pay for premium, high-quality products with good branding.”
Lever VC Alternative Protein Fund
Chen is the woman on the ground of Lever VC Alternative Protein Fund in China. The New York-based venture capital company has invested in 12 portfolio companies and announced the first close of $23 million this summer.
The fund invests in entrepreneurs and early-stage companies creating plant-based meat, egg or dairy products, as well as in companies creating real animal protein from cell cultivation, fermentation or crop modification, and related products and technologies.
Chen explains that the typical cheque size ranges between ¥350,000 ($53,000) and ¥2 million ($306,000), with the potential for follow-on funding up to ¥35 million ($5.3 million) from Lever VC. “Our affiliated Brinc Accelerator programme is an optional add-on that entrepreneurs and start-ups can go through in exchange for a portion of the investment amount and equity.”
Category disruptors
Lever VC has been an early investor in category disruptors the world over – cell-based milk producer TurtleTree Labs in Singapore, and plant-based cheese-maker Good Planet in the US, for example. The fund also invested in Grounded, a first-mover in the UK and Europe in functional plant-based protein drinks. In China, Lever VC invested in Avant, the country’s first cell-based seafood producer.
“Avant was formed in 2018 to promote a more sustainable approach to seafood and meat consumption,” says Carrie Chan, co-founder and chief executive of the foodtech start-up.
“As a vegan myself, I noticed it was a challenge to change people’s eating habits and steer them in the direction of veganism,” she adds. “It was then that I formed the idea for Avant Meats where we give people the option to enjoy these foods sustainably.”
Avant began with a focus on core patent-pending technology, which can produce large-scale cultivation of animal cells at an economically viable cost and environmentally sustainable way.
“We have made tremendous progress and have even recently launched our cultivated fish burger, which we unveiled at the 2020 Asia-Pacific Agri-Food Innovation Summit,” says Chan.
Avant obtained its original cell through a biopsy of a fish. “We took a tissue sample, and from there we were able to use our technology to cultivate the cells,” explains Chan, noting neither production nor the end product is genetically modified. She also explains that the company’s focus is on wild-caught premium species such as Grouper.
The company entered the market targeting the global food industry. “We are particularly interested in working with sustainable companies in the seafood value chain and are already in discussions with some of the key players in this industry,” says Chan, noting she’s not in a position to announce anything yet.
Chan explains, however, that the focus would be on licensing technology in collaboration with future partners. “[These agreements] will allow us to meet the demand of those partners be it small-scale or large-scale production.”
Chan is bullish on market opportunities for Avant’s cell-based fish production. “With the recent approval of cultivated chicken by the Singapore Food Agency, we can see progress being made in the industry and hope to see China follow suit,” she says.
Avant closed a $3.1 million seed funding round this month. The cash injection will support research and development efforts to continue lowering production costs and to bring products to market next year.
China market data
Retail sales of alternative protein in China have increased by 30% from 2016 to 2018, according to The Good Food Institute. While top sellers are ground beef plant-based products, Avant’s Chan believes the uptake of cultivated meat products will be a relatively fast process.
Chen concurs. She says plant-based dairy reached ¥120 billion ($18.3 billion) in sales in 2018, positioning China as the world’s largest market for plant-based dairy.
Numbers in the plant-based meat space are also buoyant. Sales reached ¥7 billion ($1 billion) last year, growing at an annual rate of 14%. China is tied with the US as the world’s largest market for plant-based meat.
Chan notes, however, that price is a pain point for alternative protein manufacturers. “The current cost of production is still higher than in conventional fish production,” she says. “Our target is that the future price of cultivated fish will be a premium to plant-based meat, but otherwise competitive in the premium seafood segment.”
Lever Foods’ Chen concurs that price is one challenging factor. She also recognises opportunities for alternative protein start-ups. She explains that most products in the market are ground beef or pork, hence there’s a wide variety of Chinese food categories that are unserviced, including seafood and whole cut of meats.
The drinks category is another buoyant segment in China. Tmall, a Chinese-language website for business-to-consumer online retail operated in China by Alibaba Group, has been tracking the growth in plant-based meat and plant-based drinks. Research into the latter led the company to launch the Plant-Based Drink Alliance with Hong Kong beverage company Vitasoy and Chinese dairy products producer Yili Group to promote the progress of plant-based products in the country.
According to the Plant-based Protein Beverage Innovation Trend released by Tmall this year, the plant-based protein beverage market grew 800% from the beginning of the year while shoppers turning to the category increased by 900%.
The report also revealed that plant-based drinks have contributed to the 15.5% growth in the beverage market this year. It concluded that oats, nuts and soybeans are top ingredients used to make the high-protein beverages that Chinese consumer love. Higher fibre and calcium content are top considerations for choosing these drinks.
Category focus: Egg supply chain
China is deemed the world’s largest producer and consumer market of eggs – individual egg consumption in urban households in China grew from 9.4 kg in 2013 to 11.5 kg last year. Hence, it’s not surprising to see Lever VC Alternative Protein Fund focused on investing and promoting innovation in this category.
“Shifting to using only cage-free eggs is a great way to provide increased food safety and the highest quality products for consumers. Therefore, helping food companies to switch to cage-free eggs is one of our major focuses,” says Lever Foods’ Chen. She notes that more than 50 leading retailers, restaurant chains, packaged foods brands, and other food companies have committed to using only cage-free eggs in their supply chain.
“Our team works with leading food brands to provide insight into the cage-free egg issue, and why and how to make the switch,” says Chen, noting Lever Foods offers a comprehensive guide to help companies find cage-free egg suppliers that are right for them.
Chen argues that with Lever Food’s support, restaurant and café chains in China, including Starbucks, Costa Coffee, and Subway, have committed to using only cage-free eggs in their supply chains.
Market opportunities for alternative protein in China
Chen says plant-based dairy is a large and expanding sector in China. Leading domestic dairy companies like Yili Group, Vitasoy, and Dali Group have all launched their own plant-based milk lines.
“While plant-based milk products have traditionally been made with soy, newer brands are also offering almond milk, oat milk, rice milk, and coconut milk,” says Chen. She notes that plant-based milk products that are made from simple and natural ingredients and free from additives will continue their rapid growth.
Chen also notes that in addition to milk, other plant-based dairy products such as plant-based yoghurt and cheese are starting to gain popularity.
“Cultivated meat technology and products certainly have a huge opportunity in China,” she says, noting that government grants have been issued to fund research into cultivated meat. “The market size [of cell-based products] is estimated to grow once it is ready for commercial-scale production.”
Funds on the radar
Business accelerators and venture capital funds in China are renewing efforts to attract innovative brands in the alternative protein space.
Bits x Bites, China’s pioneer foodtech venture capitalist, raised $30 million in the first close of its new $70 million agrifoodtech fund – protein alternatives is one of the verticals it wants to invest in.
The Plant-Based Food Innovation Contest is a Chinese initiative launched this year to support innovation in alternative protein. Backed by ProVeg International, it has engaged university students to create animal-free food alternatives across three categories, namely pre-packaged foods, main-course recipes, and animal-free ingredients.
Another fund that entered the market this year to invest in alternative protein brands in China was launched by cross-border impact investor Dao Foods. The fund will invest ¥500,000 ($75,000) in each selected company. It hopes to support 30 start-ups reaching a total of ¥15 million ($2.3 million) in the next three years.
Brands on the radar
Lever Foods has reported having 75 alternative protein brands on its radar – 53% are in the meat category. Brands in dairy-free represent 20% of the pool, and less than 5% are in cell cultivation technology and other areas.
The following list is NutritionInvestor’s top Chinese alternative protein start-ups to watch:
Zhen Rou. A pea protein meat developer, the company is committed to the research and development of artificial pea protein meat and related products. Lu Zhongxuan founded the company in 2017, having launched China’s first protein bar brand in China.
Mark Zhang invested an undisclosed sum in Zhen Rou’s seed funding last year.
Hey Maet. An early-stage start-up, Hey Maet uses pea, soy and rice protein to make beef and pork products. It’s working in partnership with Shuangta Food, a pea protein company that supplies Beyond Meat, and it has received investment from Shenzhen Tiantu Capital and UpHonest Capital, a venture capital fund founded by Silicon Valley angel investor Wei Guo.
Vesta Food Lab. Founded in 2019, Vesta claims to be the first venture-capital-backed foodtech company based in China to focus on plant-based substitutes. The executive team includes Zihan Xie, an experienced serial entrepreneur, and Zhan Bao, a macromolecular research chemist. Also in the team is a three-starred Michelin chef and a food engineering scientist.
It has raised a total of ¥16 million ($1.8 million) in funding over two rounds. The latest funding was raised in July from a Series A round.
ZhenMeat. Based in Beijing and founded in 2017 by Vince Lu, ZhenMeat produces plant-based ground meat made mainly from pea protein in both pork and beef flavours.
The company has raised a total of $140,000 in funding over two rounds. Its latest funding was raised in July from a seed round.
Hero Protein. An early-stage company, Hero is developing a range of plant-based chicken, beef and fish products. The company claims to select ingredients in a combination that reproduces the full-of-meat feel in the mouth with fibre simulation technology to mimic the muscle fibres of real meat.
Hao Foods. Led by chief executive Astrid Prajogo, Hao Foods has developed plant-based chicken products from peanut protein, delivering a rich, fibrous and meaty texture.
Marvelous Foods. A Beijing-based company, Marvelous Foods entered the market in 2018 to create attractive modern plant-based products and brands, targeting Chinese flavour preferences and consumption habits. Founder Christiana Zhu created Yeyo, China’s first dairy-free coconut yoghurt brand.
A portfolio company of Lever VC, Marvelous Foods is currently building China’s first production line for dairy-free coconut yoghurt, and is seeking investment to expand its offering.
