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Future Food Now: China special
Welcome to another special edition of FFN.
In this one, I attempt a deep-dive into the latest developments in mainland China’s plant-based sector.
Just over the last few weeks in China:
KFC trialled plant-based chicken nuggets
Starbucks launched a new menu featuring Beyond Meat and other plant-based brands
Local plant-based startup Starfield brought its products to 300+ restaurant partners (soon adding another 300)
Prominent international and local VC funds invested in plant-based companies Zhenmeat and Starfield
The first dedicated new protein startup incubator by Dao Foods has been announced
Read on to learn more about each of these and hear from industry insiders on what can it all mean for the future of the sector.
Cheers - Michal
Introduction: is it finally happening in China?
When I have started reporting on ‘new protein’ business from the Asia-Pacific back in 2018, I have been surprised how slow things seemed to be moving in this industry in mainland China.
For the first year, there has been almost nothing to write about when it comes to Chinese plant-based and cell-based startups, funding, product launches etc. And that is while the whole sector has been experiencing a global momentum - including in APAC hubs like Hong Kong and Singapore.
With the recent developments and announcements, which I describe in detail below, the “plant-based 2.0” market in China is evidently picking up speed.
And it’s about time. After all, meat alternatives have been invented in China centuries ago, although became relegated to a relatively niche market of religious vegetarians. Following decades of rapid growth, China is now producing nearly as much animal meat as the US and EU combined, and it is still not enough to satisfy domestic demand - resulting in US$20b/year of meat imports. Not surprisingly this trend has a significant impact on health outcomes, environment and animal welfare.
KFC China trials plant-based chicken nuggets
Part of Yum China group, KFC is China’s largest fast-food chain with over 6600 locations and a bit more premium positioning than in the West. Arguably the most popular and most influential QSR in the country.
In late April, KFC China has run a limited trial of their first proper plant-based meat product: meatless chicken nuggets, made from a mix of soy, wheat and pea proteins with “a small amount of locally sourced water chestnut”.
Set of five nuggets has been offered over 3 days at three selected locations in Shanghai, Guangzhou, and Shenzhen, using pre-sale coupons for a promotional price of 1.99 RMB (~US$0.28). Standard chicken nuggets cost about 5 times more. Over 7000 coupons were purchased in total - and some sold out in an hour, according to the company.
Three participating stores have been given ‘a green makeover’:
Source: Yum China
In similar tests in the United States and Europe, KFC partnered with plant-based companies Beyond Meat and Quorn. But in China, the nuggets are provided by Cargill*, agribusiness giant and the largest privately held corporation in the US by revenue (US$113b in 2019).
The company has been present in China for decades, with various business lines including animal feed and animal protein, in recent years investing in building “fully integrated poultry supply chain”. According to my sources, Cargill has been a direct supplier of chicken meat to KFC and McDonald’s in China.
Following the KFC trial, Cargill has announced plans to introduce more plant-based food products to the foodservice in China, as well as introduce a new consumer brand called PlantEver at the end of June with both online and offline retailers. “The launch is just the beginning and we look forward to continuing to innovate”, said Jackson Chan, managing director of Cargill Protein China.
(*side note: Cargill has been one of the meat companies criticised for its handling of Covid-related workers safety in North America)
Yum China has not given a clear indication yet if and when plant-based nuggets will land on a permanent menu.
KFC showcasing the product, source: Dazhongdianping
What is the feedback from those who tried it?
I asked George Stiffman (Creation Foods), who has lived in China and speaks Mandarin to help me out with some basic ‘sentiment analysis’.
Conclusion? Reviews on Yelp-like app Dazhongdianping seem predominantly positive. One reviewer gave it 4.5/5 stars and wrote:
“Colour and flavour are honestly identical to the original […] can see ‘meat structure’ fibers, chew is stronger […] the “meat” insides also have large chunks of water chestnut […] and the texture is more interesting. Overall […] this plant-cultivated golden chicken nuggets deserve to be called an imitation that can pass for genuine.”
Users on vlogging platform Bilibili also pointed out how similar the plant-based nugget is to the one made using chicken meat. This video review had over 100,000 views, while in another one a female diner remarked: "I’m not a vegetarian [but] if the textures are about the same, I’d definitely pick the cheaper one”.
Here is another video review with a blind test, but from YouTube with English subtitles.
Plant-based nugget on the right, source: Bilibili
Starbucks introduces Beyond Meat, Omnipork & Oatly
Five dishes with plant-based meat (some contain dairy or eggs): Beyond Beef lasagna, wrap and pesto pasta, Omnipork Vietnamese-style noodle salad and Omnipork grain bowl with mushroom sauce are available at 3300+ Starbucks locations, while Oatly-based beverages - plus oat milk option for coffee with no extra charge - at all 4500+ outlets. Beyond and Omnipork dishes cost about US$8-10 each.
Starbucks China representative confirmed to me that GOOD GOOD menu is not a trial or seasonal offering and is here to stay.
Source: Starbucks China
For Beyond Meat this is a mainland China debut. Their products are available in other Asian markets including Hong Kong and Singapore via an exclusive deal with Green Monday Group, the company that also makes Omnipork. But in China, Beyond Meat is working with SINODIS, well established - and some say pretty “old school” - distributor of international brands, focused predominantly on foodservice.
Beyond Meat launched a dedicated Chinese website and social media accounts. A local agency helped to create a Mandarin brand name: 别样肉客. It follows a similar pattern as some other known international brands - first two characters (别样 or bie-yang) sound phonetically similar to English “beyond”, while the whole phrase can be translated as “different/unique meat [eater]”.
Beyond Meat previously said they are working on localised manufacturing in Asia by the end of 2020, citing scale required to conquer China market as one of the reasons. The company is already sourcing some of the pea protein used in their products from China-based Shuangta Food (it is worth noting that the raw material - yellow peas - is not grown in China, but imported from Canada). They have just signed a new contract, ordering 285 tones of this key ingredient from Shuangta - by my count enough to make ~14m burger patties. Shuangta also supplied pea protein for KFC/Cargill’s plant-based nuggets trial.
The other Starbucks’ partner, 2-year-old Hong Kong startup Omnipork has been present in mainland China for some time - the company told me that that the product has been available at around 500 foodservice locations prior to Starbucks launch. Their plant-based ground pork, designed with Chinese cuisine in mind, has been also sold online at Tmall, but it is not yet available in mainland supermarkets.
David Yeung, Green Monday Group’s co-founder and CEO, told Green Queen that partnership with Starbucks has been “almost one year in the making”.
Omnipork’s parent company operates several plant-based hybrid retail stores with deli/restaurant in Hong Kong under Green Common brand and they told me about plans to open one in Shanghai in the second half of 2020, likely offering retail packs of Omnipork to local consumers.
The company is also unveiling new products on May 18th. While details are not known, the press invitation I have received suggests it will be a “milestone-setting revolutionary food tech product” that consumers in Asia have “love-hate relationship with” with “400 million units sold across Asia” (presumably animal version of it). The new product(s) will launch initially in HK, followed by other markets in the region, including China.
The third product that Starbucks introduced, by Swedish brand Oatly, has had the most established presence in mainland China. In late 2016 the majority stake in the oat milk company has been acquired by JV between Verlinvest and Chinese state-owned conglomerate China Resources (CRC). In early 2018 they have established Oatly APAC HQ in Shanghai and started to build a team, led by CEO David Zhang.
Initially leveraging CRC-owned Pacific Coffee chain with over 320 locations in China and premium supermarket Ole’, as of late last year Oatly products has reportedly been available at 3000+ cafes, restaurants and stores in China.
Sentiment analysis for Starbucks GOOD GOOD menu indicates more mixed reaction compared to the KFC’s offering.
Reviewers from Bilibili (videos: 1, 2, 3) say this about Beyond Meat dishes: “the texture is right, but sauce is very thick, so you can’t clearly taste the meat’s flavour” and “[lasagna] has a little meat taste but is pretty bland”.
A journalist from online magazine Shine is more positive about lasagna (“feeling of beef is quite real”) and Omnipork noodle salad (“it’s meat-like and flavourful, the only problem - quite cold, tasteless and crumbly noodle”). On the other hand, the same YouTuber who liked KFC nuggets was not a huge fan of Omnipork dish (“it’s not bad, but it doesn’t taste like pork”).
Many users focus on price with one concluding: “if this dish had the same flavour as real meat, would I buy it? I can definitely say no: the price is basically 50% higher”.
Actual pic of plant-based dishes, source: Xiaohongshu
Impossible Foods and JUST also want a 'bite'
Other major American plant-based startups, JUST Inc. and Impossible Foods, have both expressed interest and made some moves in the China market during 2019.
JUST is the first international startup from this space to debut its product in Chinese market - almost exactly a year ago they launched a plant-based liquid egg substitute JUST Egg in selected supermarkets (HEMA, City'super) and online (JD.com, Tmall). According to the FoodNavigator the company has “10 people full time in Shanghai focused on distribution into China” and it is “the biggest focus market by far”. JUST has not announced any further expansion since initial rollout. According to the company’s representative, sales via online platforms continues to grow. I have not been able to confirm if JUST Egg is still available in supermarkets - or what might be the next steps for them China.
Impossible Foods uses similar language with CEO Pat Brown telling Reuters a few months ago “China is our highest priority for future expansion, full stop”. Its products are not yet sold in the mainland (unless you count one restaurant in Shenzhen that used to ‘unofficially import’ Impossible’s meat from HK).
Impossible Foods has brought its plant-based beef product to Shanghai CIIE expo in November 2019 as part of ‘California Pavilion’, distributed thousands of samples to visitors and used it as a media opportunity. In January in Las Vegas it showed a new product called Impossible Pork, featured in quite a few Asian dishes - but it has not started selling it yet, even in their home market.
To accelerate production, in 2019 the company partnered with meat processor OSI Group in the US. The same group has multiple facilities in China. Impossible is also advertising a position of China Development Director based in Shanghai and recently relocated its SVP International, Nick Halla to Hong Kong.
Impossible Foods claimed in March that is has already started the approval process with China’s food regulation agency. It is a lengthy process in any case, but the extra challenge might be that the product uses GMO ingredients (soy protein and soy leghemoglobin = “heme”). Some American GMO products are waiting seven years for the approval in China, according to Reuters. Additionally, Chinese consumers seem to have limited trust when it comes to GMO in food.
Impossible faced another challenge in China - a media backlash after CEO Pat Brown’s has been quoted with this comment in a recent New York Times story:
“Every time someone in China eats a piece of meat, a little puff of smoke goes up in the Amazon [rainforest].”
State-owned China Daily and other outlets accused Impossible’s CEO (and by proxy - his company and his country) of hypocrisy related to the fact that beef consumption in China is several times smaller than in the US. In fact, both sides stretched their arguments: while per capita number is indeed significantly lower, total beef consumed in China (in 2019 over 8b tons) is catching up quickly with the United States. On the other hand, only about 5% of beef eaten by Chinese consumers is imported from Brazil. Chinese media and users are also either not aware or conveniently ignoring the fact that Pat Brown has been equally outspoken about his fellow citizens’ beef consumption and its environmental impact. Nevertheless, it shows that Western companies walk on thin ice when it comes to communicating with Chinese media and consumers.
Impossible Siu Mai, source: the company
Homegrown startups and Dao incubator
The Chinese ‘new protein’ startup scene is still very nascent: there are no more than a few local companies that have already shown some products and attracted investors.
One of them is Shenzhen-based Starfield, launched in mid-2019, making a ground beef from soy protein with beet colouring at a co-manufacturing facility.
The company have recently had their major roll out at several restaurant chains: Papa John’s, Hong Li Village (红荔村), Nayuki Tea, Brut Eatery, Gaga Chef and Element Fresh. They are currently available at 313 foodservice locations across China and will add another partner with 300 locations in May.
As part of R&D, they work on “plant-based fat which can imitate the taste of the fat from animal products” which co-founder Cross Chen told me will “take their product to a new level”. When it comes to future formats, Starfield is developing “noodles with plant-based meat”, “protein bars/chips” as well as plant-based chicken nugget. The company also owns one invention patent: “a method for extracting glycophilic proteins from seaweed”.
For the upcoming Dragon Boat Festival, the company is planning to launch a plant-based version of traditional glutinous rice Zongzi, filled with Starfield’s diced ‘beef’.
Starfield's Zongzi, source: company
Starfield has been the first plant-based meat startup in China to receive funding from prominent local and international investors: New Crop Capital (NCC) and its China-focused investment partner Dao Foods, as well as Matrix Partner China and Joy Capital.
The amount has not been disclosed, but according to the press release, it’s the highest round for a startup from this sector so far (which does not mean much in a such a nascent market).
US-based NCC is a pioneer of new protein investments, having already invested in about 30 startups globally, including early funding round of Beyond Meat. Chris Kerr, Chief Investment Officer said: “We are incredibly excited about this investment in Starfield, our first in China. […] Each of the investors in this round brings significant strategic value, and we will contribute our international plant-based food expertise to the growth of Starfield”.
Joy Capital is a Chinese fund with nearly US$1.5b under management. It has funded a number of consumer and technology brands, including bike-sharing Mobike, electric vehicle NIO and NYSE-listed Luckin Coffee chain (which recently got in trouble after admitting to accounting fraud).
Matrix is one of the leading VCs in China with over 600 investments, including Ele.me, massive online food delivery company (16m orders a day), acquired by Alibaba, DiDi (top taxi-hailing app) and grocery startup Qingmai. Explaining its reason to invest and market outlook, Matrix said in the statement: “This is a leap in how protein is produced, in the context of many issues such as the global environment, poverty, human health etc. We are very optimistic about the new possibilities brought about by these technologies. Matrix will continue to pay close attention to new opportunities in the entire protein supply chain.”
Another startup that made headlines last months is Zhenmeat. Founded by Vince Lu, the Beijing company is about 1 year old. It originally launched plant-based ground pork-filled mooncakes, but Vince told me he since then shifted to plant-based ground beef which he calls his ‘2.0’ product.
Explaining his reasoning behind choosing beef (which Chinese consume 5x less of vs. pork), Vince gave two reasons. One, he believes early adopters for plant-based protein in China will be urban consumers that like to eat Western-style food. Two, customers are price-sensitive and it’s easier for him to compete on price with beef, with his product 20% cheaper than high-end imported beef, than with pork, which is still much less expensive. Even with recent increases due to African Swine Flu and Covid-19, the pork stands at ~50 RMB per 1kg in China - for comparison plant-based Omnipork at Tmall store is almost 5x more expensive (the ratio is a bit lower vs. imported pork).
Zhenmeat product is made from pea protein, sourced from Shuangta Food (previously mentioned KFC/Cargill and Beyond Meat supplier). It is available at about 50 restaurants in Beijing, mostly specialising in burgers (Plan B, Side Street) - according to Vince at one of the outlets Zhenmeat’s patty is responsible for 10% of burger sales.
Zhenmeat slider, source: CNBC
The company’s current focus is entirely on foodservice, but next generation product (‘3.0’) will be designed for retail as well. Vince said that due to coronavirus his priorities shifted and he expects his company to concentrate mostly on R&D in 2020.
Zhenmeat have raised 5m RMB (~US$700k) last year from undisclosed local investors and continues to fundraise to close US$2m seed round. One of the recent investors is Big Idea Ventures (BIV) with offices in New York and Singapore and number of investments in the plant-based startups in APAC, including Malaysian Phuture Foods, which also eyes China market. Zhenmeat will participate (remotely) in the upcoming cohort of BIV accelerator program.
I asked Andrew Ive, Managing Partner of BIV, why they have decided to invest in Zhenmeat and in China now - he explained: “There are a number of local players that are catering to Chinese tastes, which may give them an advantage. The millennials in China are aware of the impact of the animal protein industry on climate - we believe they are looking for great tasting alternatives and we aim to work with Chinese and Asian entrepreneurs to deliver them.”
To develop a local new protein ecosystem, Starfield’s investor Dao Foods launched Dao Foods Incubator - the first in China that is entirely focused on domestic plant-based and cell-based startups. It is offering 500k RMB (US$70k) cash and another 250k RMB in-kind support (the company has not disclosed what % of equity they are requesting from participants). After 6 months of incubation program (mostly remote), the startups have the opportunity to pitch to local and international investors. The incubator has started to accept first applications and the first cohort is scheduled to start in August. Albert Tseng, Dao Foods’ co-founder told me:
“We’re excited to launch the Dao Foods Incubator in China right at a time where there have been some high profile plant-based food launches by Starbucks/Beyond Meat, KFC/Cargill, and our portfolio company Starfield. We’re thrilled that the alternative protein sector is getting attention, but the China market is still very new with lots of completely open space opportunities for startups and large companies alike - from plant-based pork to plant-based chicken, plant-based seafood, etc. and also so many regional cuisines across different provinces that need to be explored. We are getting some great applications for the incubator already and are meeting some high potential entrepreneurs. It’s truly an exciting time to be working with mission driven plant-based entrepreneurs in China.”
What does it all mean for the market? (insiders view and my own take)
I asked some industry insiders with first-hand knowledge of China market to comment on these recent developments.
Graham Miao, General Manager of GFIC, a Shanghai-based consultancy focused on plant-based and cell-ag believes it is an important milestone:
“The early momentum of plant-based meat in China has been building in the last year and now these two big, almost simultaneous announcements [KFC & Starbucks] send a strong message to the mainstream market. Various QSRs [quick service restaurants] will now likely accelerate efforts to source and test plant-based products for their own customer bases.”
An industry insider who used to work directly with Starbucks China, but prefers not to be named, agrees:
“Starbucks is a trendsetter brand in China - and one could expect other QSRs to follow their lead when it comes to new product categories.“
Matilda Ho, founder and managing director of Bits x Bites, pioneering food tech VC in China offers additional perspective:
“The question is whether this attention has legs, whether a one-off buy for the novelty translates into repeat purchases and product loyalty. Especially in top-tier cities, Chinese consumers are known to be eager experimenters when it comes to adopting new trends, yet only some turn into sustained behavioural change.”
My ex-Starbucks contact points out the taste will be crucial in gaining mass-market popularity:
“This is still rather new category to Chinese consumers, so it’s important that first movers get it right when it comes to taste.“
Matilda from Bits x Bites agrees and talks about the nutritional profile as well:
"Most plant-based foods underperform in their nutrition and taste profile. You can see this from meat eaters’ complaints about plant-based products not meeting their expectations in taste, specifically flavor and texture. Others focus on the sodium level, not-so-clean-label ingredients. Unless environmental concerns are your main driver, if these products can’t match or exceed the taste or the health value of meat products, why bother to switch? And this is true for both Chinese local companies and international players.”
Lastly, there is a lot of chatter in the media about Covid-19 impact on the plant-based based sector - it is at times difficult to get to the bottom of it given PR spin of some of the players and to some degree a bias (or more often low journalistic standards) of some media outlets.
For China context, it is worth looking into the recent consumer sentiment research done by advocacy group Food Industry Asia and AI Palette between Jan and March (prior to the launches described in this newsletter), as reported by AgFunderNews. Two key conclusions:
The analysis suggests that “wet markets”, a topic widely commented in the Western media in the context of the pandemic, are not in any significant way connected by Chinese consumers with food safety and hygiene (the only criticism focused on lack of availability and distribution since the markets were temporarily closed during the lockdown)
The research seems to show no significant spike in interest in plant-based proteins in China related to Covid-19 (Impossible Foods has seen a +15% spike in January, but that’s like due to NYT article and local media backlash, as explained before)
Our own sentiment analysis indicates that the recent product launches by major brands in China have not been viewed by the public in a context of the pandemic - very few comments referred to it or other health & food safety concerns like ASF.
It is still too early to say how the virus might affect consumer behaviour long-term. In my view, there will be other major factors in play when it comes to wide-spread acceptance of plant-based proteins in China: namely taste&texture and price.
I also think the jury is still out when it comes to international vs. local plant-based brands in the mainland. While local brands might have a deeper understanding of the market, international players do not lack the appetite (driven by their global mission - and pressure from markets/investors), while they enjoy disproportional funding, economies of scale and can work with local Chinese corporate partners to accelerate the entry. The market is surely large enough to sustain multiple players, so likely it will end up with a mix of both.
Let me close with my personal perspective.
In my previous roles, I had a chance to work closely with some of China top technology startups - and to watch first hand how incredibly fast some of the concepts can take off in that market when consumer enthusiasm, technical readiness and significant funding align.
While there are many challenges ahead, I believe we are at the brink of that ‘perfect storm’ in the new protein sector in China. More local entrepreneurs and international players will launch ventures inspired by recent developments in China and the growth abroad, investors will be excited enough to pump millions and billions required to scale these projects and consumers will happily choose products that are certainly an improvement over what the current food system offers.
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