Food for Thought The Protein Transformation March 2021 By Björn Witte, Przemek Obloj, Sedef Koktenturk, Benjamin Morach, Michael Brigl, Jürgen Rogg, Ulrik Schulze, Decker Walker, Elfrun Von Koeller, Nico Dehnert, and Friederike Grosse-Holz Boston Consulting Group partners with leaders As a pure play global pioneer with privileged in business and society to tackle their most access in the Food 4.0 ecosystem, Blue Horizon important challenges and capture their greatest has shaped the growth of the alternative proteins opportunities. BCG was the pioneer in business market. The company aims to transform the strategy when it was founded in 1963. Today, global food industry through impact capital and we work closely with clients to embrace a value creation, and invests across the lifecycles transformational approach aimed at benefiting all of companies that are mission aligned to replace stakeholders—empowering organizations to grow, animal proteins with healthy and sustainable build sustainable competitive advantage, and alternative sources of protein. Blue Horizon was drive positive societal impact. founded by Roger Lienhard in 2016 and is based in Zurich. To date, the company has raised over Our diverse, global teams bring deep industry USD 650 million and invested in more than 50 and functional expertise and a range of companies in the alternative protein sector. Its perspectives that question the status quo and business model offers an attractive opportunity spark change. BCG delivers solutions through to invest in the evolution of the global food leading-edge management consulting, technology ecosystem while contributing to a healthy and and design, and corporate and digital ventures. sustainable world. www.bluehorizon.com. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place. Contents 01 Alternative Proteins in Context 25 Expanding the Protein Market 04 The Promise of Parity 29 Investing in Alternative Proteins: The Status Quo 08 A Fast-Growing Market 31 The Investment Outlook for Alternative Proteins 14 What’s for Dinner? • Technology Plays • Industrialization and Platform Plays 16 Developing the Protein Value • Challenges to Growth Chain • Plant-Based Alternatives 37 Conclusion • Microorganism-Based Alternatives • Animal-Cell-Based Alternatives 39 Glossary Alternative Proteins in Context n just the past few years, alternative proteins have The rise of alternative proteins is a transformation, not a Imorphed from a niche product to a mainstream phe- revolution. Several major incumbent meat companies are nomenon. Plant-based meats are now a fixture at fast- already redefining themselves as “protein” companies, food restaurants around the world, plant-based milk is a making and marketing their own alternatives. This makes household staple, and you can taste meat grown from sense, given the size of the prize. We estimate that alterna- animal cells in restaurants in Singapore and Israel. tive-protein revenues will reach $290 billion in 2035, with the profits distributed throughout the value chain: to the What we see today is only the beginning of the startups and incumbent food companies producing alter- protein transformation. natives, the upstream players providing the industry with the inputs and tools needed to unlock these revenues, and Based on our analysis, by 2035, every tenth portion of the investors willing to support their efforts. meat, eggs, and dairy eaten around the globe is very likely to be alternative. That’s a lot. If the alternative-protein Profits aside, the protein transformation can make an market were a country, by then it would be a top-50 econo- enormous contribution to the efforts to combat climate my, larger than Finland’s 2020 GDP. Is this unrealistic? Not change. In our base case, by 2035, the shift to plant-based at all. And it could be much more, if all four of the domi- meat and eggs alone will have saved more than 1 gigaton 1 noes now lined up were to tip over. of CO2-e. That’s the equivalent of Japan going completely carbon neutral for an entire year.2 Eating that much plant- The first domino is already falling: public concern for the based protein would save enough water to supply the city climate—and, more broadly, sustainability—is rife. Many of London for 40 years3 and make a major contribution to consumers want to reduce the amount of animal protein in food security and our planet’s biodiversity. their diets, especially if they can do it without sacrificing taste or paying more. In addition, fully 85% of investors Alternative proteins also open up an opportunity for indi- now incorporate environmental, social, and corporate viduals to contribute to the fight against climate change. governance (ESG) criteria into their investment strategies. For instance, every portion of spaghetti Bolognese made with plant-based meat avoids as much greenhouse gas as We predict that, taken together, these concerns will gener- a new car emits when driven 10 kilometers. ate enough consumer demand and investor interest to tip over the second domino: refinement and scaling of existing Nine out of ten of the world’s favorite dishes will technologies to unlock parity, when the taste, texture, and have a realistic alternative by 2035. price of alternative proteins closely match those of animal proteins. The first two dominoes are all that’s needed to So what does the protein transformation taste and feel allow alternative proteins to capture 11% of the global like, and how much will it cost the consumer? Good news: protein market by 2035, our base-case growth estimate. it will require few material sacrifices. As alternative pro- teins reach parity with animal proteins in taste, texture, What if the industry can generate even more momentum? and price, they can replace animal protein in 90% of the Step changes in alternative-protein technology, whether at world’s ten favorite dishes, from burritos to dim sum. incumbent food companies or startups and supported by These alternatives won’t require new recipes, change the public or private investment, could lead to rapid gains in taste of what people love to eat, or cost a lot. Making that production efficiency, better taste and texture, and lower Bolognese sauce with alternative meat will be just as easy cost. The result: the third domino falls, leading to earlier and taste just as good. It also won’t burn a hole in consum- parity and a 16% market share by 2035. ers’ wallets. The final domino could fall if regulators give it a push. Higher carbon prices and support for farmers transitioning from animal agriculture to alternative-protein inputs could boost consumption to 22% by 2035. At that rate, Europe and North America would reach “peak meat” by 2025, and then the consumption of animal protein in those markets would actually begin to decline. BOSTON CONSULTING GROUP X BLUE HORIZON 2 In this first-of-its-kind report, we crystallize the expertise of We also aim to answer key questions posed by all stake- the alternative-protein field, on the basis of a recently holders, including farmers, incumbent food companies, conducted survey and more than 40 interviews with indus- startups, investors, and consumers: How will parity deter- try veterans, researchers, and startup entrepreneurs. We mine the future growth of the market? What will be re- provide detailed forecasts of the growth potential of the quired to bring each type of alternative protein to parity, market for alternative plant-, microorganism-, and animal- and when will that happen? How can investors both sup- cell-based proteins that can directly replace conventional port and benefit from its growth? animal protein, excluding traditionally plant-based foods such as pulses, tofu, and tempeh. We support our model with deep dives into the relevant protein production tech- nology. From this body of knowledge, we then identify the most exciting investment themes along the value chain. 3 FOOD FOR THOUGHT The Promise of Parity Alternative proteins could soon match animal protein in taste, texture, and price, fueling widespread adoption. onsumers’ appetite for alternative proteins is growing, • Taste. Alternative proteins must effectively imitate the Cas animal-free protein emerges as a healthy choice. A well-known flavor—and smell—of meat, seafood, dairy, recent Stanford study, for example, showed that eating and eggs. plant-based alternatives instead of conventional animal proteins reduces cardiovascular-disease risk factors.4 The • Texture. Alternatives must also look and feel the same health of the planet stands to benefit, too, thanks to the as animal proteins. The experience of eating meat de- potential of these proteins to decrease greenhouse gas pends largely on its fibrous structure. Fish appears flaky, emissions as well as water and land use. (See the sidebar cheese feels hard or stretchy. Alternative eggs and dairy “Making Protein Sustainable.”) must also behave like real eggs and dairy when being cooked; eggs alone have up to 70 different uses, from Issues surrounding animal suffering and biodiversity loss scrambled to merengue to mayonnaise to cakes, and are also playing an important role in the shift away from alternatives must be able to be used in all these cases. animal protein. Concerns about the ethics of intensive animal farming have already increased demand for grass- • Price. At present, alternative proteins are usually not fed meat and free-range chicken and eggs. In addition, the bargain option, compared with animal proteins. If the risk of animal-borne illnesses such as mad-cow large groups of consumers are to repeatedly purchase disease has come into sharp focus in light of the COVID-19 alternative proteins, the cost must match or undercut pandemic. that of protein from animals farmed under nonorganic conditions.