Industry

Alternative protein companies are focused on balancing near- and long-term industry goals.

“Alternative protein manufacturers and suppliers,” defined as food manufacturers and suppliers focused primarily on alternative proteins, were surveyed with results from up to 168 participants. Many respondents stated their companies were financially stable, with 40 percent saying they had over a year of financial runway. Respondents skewed toward earlier-stage companies—45 percent of respondents’ companies raised less than $1 million in all-time funding. For companies seeking to reduce costs, respondents identified 1) new product expansion, 2) workforce, and 3) advertising and marketing as the areas most likely to be scaled back.

Respondents identified the key fundraising challenges in the alternative protein industry as 1) the relative lack of non-dilutive funding opportunities and 2) mismatches between long-term industry expectations and near-term company performance. While respondents highlighted strong unit economics, a healthy bottom line, and profitability as key priorities in the current environment, investors remain most interested in opportunities with sizable expected growth. As a result, many companies are simultaneously working to reduce costs in the near term while demonstrating long-term growth potential.

Although 68 percent of respondents working at companies involved in alternative proteins said their alternative protein revenues increased or held steady in 2023, 63 percent stated their alternative protein products performed below expectations.

The diversified food company audience area included meat and consumer packaged goods (CPG) companies, and as many as 46 respondents answered questions in this audience area. Roughly three-fourths of respondents worked at companies involved in the alternative protein industry. However, alternative proteins still comprised a relatively small portion of overall revenues in respondents’ companies, less than 5 percent of total revenues on average. 

The mismatch between product performance expectations suggests an opportunity for better alignment between near-term expectations and long-term optimism.

Investors are optimistic about alternative proteins’ long-term prospects but are uncertain about the immediate path ahead. 

As many as 56 respondents answered portions of the investor questions. Investors highlighted clear addressable markets, a path to sustainable unit economics, and differentiation from other companies as the most important factors when deciding whether to invest in alternative proteins. 

Investors’ outlooks for the sector differed based on the time frame in question. Of respondents already invested in alternative protein companies, 28 percent said they were optimistic about the alternative protein industry in the short term, while 100 percent of respondents said they were optimistic about alternative proteins in the long term. 

Roughly half of respondents already invested in alternative protein companies said they passed on an alternative protein deal in the past year after some diligence because they were either concerned about the individual company’s return potential or because they did not like the proposed valuation, and 41 percent said their alternative protein investments decreased in 2023. Bridging the sentiment gap is key to ensuring that companies with long-term growth opportunities survive near-term difficulties.

Restaurants and retailers are exploring how alternative proteins fit into their initiatives.

As many as 13 respondents answered questions in the restaurant and foodservice audience area, while as many as six respondents answered questions in the retailer audience area. The restaurants and foodservice companies planning to incorporate alternative proteins into their CSR initiatives were primarily doing so from a health and wellness perspective, not an environmental or animal welfare perspective. 

Although the majority of respondents in the retailer audience area stated that their alternative protein products met or exceeded expectations, roughly a third said products failed to meet sales targets. Ensuring near-term sales targets align with broader market expectations may support perceptions of the sector.

Investment, research and development, and regulatory concerns keep some suppliers on the edges of the alternative protein market.

As many as 64 respondents answered questions in the supplier audience area for those partially or not involved in alternative proteins. The amount of investment and research and development needed to enter the alternative protein space are barriers for these companies, and regulatory concerns are also keeping some suppliers at arm’s length. Opportunities, like partnerships, that offload these costs and risks to other organizations are likely good fits for these companies. 

Many suppliers are not primarily driven by sustainability. These companies prioritize appealing to more consumers or customers and staying competitive with other companies and brands.