Future Food Now: COVID-19 special

Apr 8, 2020

Welcome to this special edition of the FFN newsletter.

In last few days I reached out to plant-based and cell-based entrepreneurs and investors across APAC region to ask them how the COVID-19 crisis affected their business so far and what are some of the coping strategies they are applying. Huge thanks to everyone who replied. The compilation of the answers and some other relevant data and facts below. Warning: it’s a long one!

If you find this newsletter interesting, help spread the word by sending it to your friends (forward or share on social media).

PS. A note due to unprecedented pace of change driven by the pandemic: all background research for this article has been conducted in early April 2020.

Food service vs. retail sales

Across the region, one COVID-19 trend is very obvious: food service sector is suffering, while retail food sales are booming.

David Yeung has a unique perspective as Hong Kong-based Green Monday Group that he co-founded is involved in all major sectors of the industry: operating retail stores, restaurants and distributing plant-based products like Beyond Meat and Omnipork to supermarkets and food service partners. He recently shared in an interview with Bloomberg that while the groups’ plant-based eateries in HK experienced 50% drop in sales between January and March, in the same period grocery sales in their own outlets and wholesale to supermarkets increased by 77%. Group’s online shop recorded even higher increase of 115%. David said he believes many Hong Kong ‘pure-play’ restaurants may not survive the crisis.

Sonalie Figueiras, the founder of GreenQueen, paints a similar picture:

“The last months have been a bruiser for Hong Kong’s F&B industry - six months of protests and three months of coronavirus has meant closings, cancelled openings, postponed launches and low to no traffic for restaurants and hotels.”

Yuan Oeij, who is running The Privé Group in Singapore told me that he has seen a gradual decline in foot traffic and sales as COVID-19 crisis developed:

“In early stages, it has been 20-30% drop, more recently 50-75% drop and since the lockdown has been imposed from April 7th we expect further decline, exceeding 80%. These numbers are representative for most of the restaurants in Singapore.”

Oeij expects to keep 2 out of his 8 Prive outlets open during the month-long lockdown when only take away and deliveries are permitted. His limited “best hits” take away menu is ~50% plant-based. As for delivery, he will be working with one of the online platforms and is also planning to set up his own logistics. Singapore’s government announced “Food Delivery Booster Package” in the last days, subsidising 5% of the delivery fee charged by the country’s three delivery platforms (GrabFood, FoodPanda and Deliveroo) during the lockdown. The typical fee is ~30%, so the subsidy will bring it down to 25%, which according to Oeij remains challenging for many low-margin eateries.

Like other restaurant owners, he says he is mostly focused on his staff and hopes that with Singapore’s government support, he will be able to retain them (the government is offering SG$600 ‘solidarity payment’ to each adult Singaporean and extra wage support).

While food service revenue is in free fall, supermarkets are seeing record sales numbers of food, as customers are stocking up and moving their spending towards retail.

According to my sources close to supermarket chains in Singapore and Australia, the sales of retail plant-based products in those countries is growing on par with other categories - unlike the US, where plant-based meat is reportedly noting much higher % growth rates than animal meat (of course from a much smaller base).

This shift in balance is confirmed by data from abillionveg, a platform with a user-generated reviews of plant-based restaurant dishes and consumer products. Founder Vikas Garg told me that in March majority of their growth came from product reviews, while typically the restaurant side of the platform has been stronger.

Some global leaders in plant-based products that are present in Asia are also reacting to these market dynamics. Impossible Foods told me that they are “in the process of lowering our prices to distributors in HK and SG this month onwards as we continue to reach record monthly production and new economies of scale” (in the US the wholesale prices were recently slashed ~15%). In the US, where company has very limited retail presence (~150 outlets), the company recently notified all their food service partners that they are now allowed to sell food service packs directly to consumers to cook at home, effectively dramatically growing their retail coverage and allowing restaurants to sell an unused stock. Impossible told me they “would like to explore the possibility of replicating this process across Singapore and Hong Kong”.

Plant-based startups

Early-stage startups adjusting go-to-market plans

Changing environment forced quite a few startups that have been planning to launch their products to reconsider what is the best way to bring them to the market.

Dan Riegler, co-founder of Karana, building meat alternative products from Asian whole food ingredients like jackfruit said:

“We will need to rethink our launch strategy as delivery has become the only option for many people in Singapore and around the world for the time being”

Michael Fox, co-founder and CEO of Fable, making plant-based meat from shiitake mushrooms and soy protein moved their launch online:

“Our initial plan was to build the brand through food service (now on hold), have consumers try the product at events (all postponed), and in store tasting (cancelled for the foreseeable future). We’re having to adapt so we decided to launch an online popup in two cities.”

Fable is planning to hire a refrigerated truck and deliver to local customers within 48h window, with options of 1kg ‘food service’ package of their plant-based ‘pulled-pork’ or one of the two ready meals.

Stuart Cook, co-founder of Flave - new Australian plant-based fast causal chain startup:

“We pivoted for the short term. Fortunately, we haven’t signed any retail leases, so we have moved into ready-meals through a new sub brand Flave Runner.”

Varun Deshpande, Managing Director of GFI India, non-profit supporting alt protein industry on prospects of Indian nascent plant-based industry:

"We were expecting several Indian alternative protein start-ups to launch or conduct market tests this year, and now expect significant delays in product development and launch.”

Disruption in operations and supply chains

Most of the plant-based startups are able to operate even under various local variants of lockdown as food is considered an essential service. Many say that their supply chains have not been significantly affected for now, but at least one startup from South East Asia that prefers not to be named said they need to find alternative ingredients due to virus-related disruptions. They also closed their manufacturing temporarily “due to the movement control orders”.

Nick Hazell, CEO of v2food in Australia, a startup currently supplying plant-based Rebel Whoppers to Burger King/Hungry Jack’s in ANZ said this about their plans:

"The food environment has changed drastically. HoReCa has stopped and retail is booming. We are pivoting to retail and pushing export. We are being realistic at the speed of response from partners who are in crisis mode. We are adjusting forecasts accordingly (some up, some down).”

Supply chain disruptions can affect various aspects of the finished product, like in the case of Fable - CEO Michael Fox explains:

“Manufacturing has been OK, but sourcing retail packaging has become harder with our supplying factory in lock down in Malaysia, so we’re in the process of finding a new packaging supplier.“

Cell-based startups

R&D continuity

All cell-based startups are in the research & development phase, so I was curious how COVID-19 affected their ability to conduct R&D work.

Tim Noakesmith, co-founder of Sydney-based VOW (developing cultured meat from pork to ‘exotic’ species like a kangaroo) said:

“We have introduced strict isolation protocols to ensure the safety of our team. Currently, this means we have one scientist in the lab at a time, and shortly this will be two scientists working in seperate labs adjacent to each other. We have also set up semi-aseptic ‘lab spaces’ in scientists homes meaning they are able to complete some lab work from home. This all means we’re actually still able to maintain ~70% of pre-COVID R&D momentum.”

VOW has also seen an impact on the hiring process. “We had signed contracts with two talented scientists from the UK that can unfortunately no longer enter the country” - said Noakesmith. They also had other individuals midway through the hiring process from the USA and Shanghai.

Carrie Chan, co-founder of Avant Meats from Hong Kong (focusing on cell-based seafood):

“Our team can keep on working in the lab on a daily basis throughout this time. We have invested in extra PPE (personal protective equipment) for the team. Overall, we are sticking to our progress.”

Nick Beaumont, the founder of Australian startup Heuros, working on technology enabling cell-based meat production decided to shut down the lab work couple of weeks ago:

"We felt we had to self-isolate to reduce the spread of the pandemic. It’s inconvenient to shut down and then start up research projects again - but it’s not a major disruption.”

Availability of lab components/ingredients

Is there any impact so far on materials that are needed for the lab work? Carrie Chan (Avant) said they did experience roughly 1-2 week delays in material delivery.

Tim Noakesmith (VOW):

“When it comes to inventory, we addressed the COVID situation extremely early, stocking up on the lab consumables we get from China before the pandemic spread heavily outside of Wuhan. But we’re seeing an impact in access to things that are tied up in the crisis: ethanol, PPE (face masks, disposable lab coats), cleaning supplies (viraclean, detergent)“.

He also said they noticed price increased in some things like FBS [Fetal Bovine Serum] but added: "luckily we’re successfully growing cells in serum free media which has dramatically reduced any reliance we have on FBS.”

Nick Beaumont from Heuros points to storage as a potential challenge if self-isolation is required for a longer period:

“The cells are stored in liquid nitrogen - which will have to be replenished at some stage. It would be difficult if supplies were disrupted. Also, power-outages could spoil storage of temp-sensitive materials.”

Noakesmith (VOW) is also concerned about the progress in regulating cell-based products: “Government resources will be stretched addressing the immediate problems, which threatens to slow the development of regulatory frameworks for cell-based meats.”

Investors

What do investors that have been involved in this space have to say about the changing landscape and what suggestions they have for plant-based and cell-based startups?

On funding

Samantha Wong, Partner at Blackbird, generalist VC firm from Australia/NZ that invested in Fable, Heuros and Sunfed Meats:

“There is more hesitancy in the market generally but we and all the other venture funds are still investing. When the COVID-19 crisis has died down, we think the need for affordable, high quality meat alternatives will be even more obvious and potentially give momentum to a market already growing quickly.”

Christian Cadeo, Managing Partner at Big Idea Ventures, hybrid accelerator/VC focused on alternative proteins, based in Singapore and New York (invested in Phuture Meat, Karana, Shiok Meats):

“Some VCs are holding back on deploying capital to see what shakes out. But we are also seeing some that have the foresight to continue to invest. We are still accepting applications for our accelerator.“

Phil Morle, Partner at Main Square Ventures, a venture arm of CSIRO, Australian federal government research agency (invested in v2food, supplier of Rebel Whopper to Burger King/Hungry Jack’s):

"We are actively working on new deals in this space. At this stage, we believe it is more attractive than ever. ”

Tim Noakesmith, co-founder of VOW adds a different perspective that might be applicable to cell-based (cultivated) meat startups:

“There are definite threats to companies reliant on substantial rounds of investment to survive as funds may seek to rebalance their portfolios to include companies more immediately focused on revenue generating.”

Tips for startup founders

Samantha Wong (Blackbird) on raising funds now vs. later:

“If you are wondering whether to try and raise in the next 6 months or 12 months from now I would suggest that it will likely be harder to raise 12-18 months from now. The reason is that there are still funds that have been raised in the last 12 months with ‘dry powder’ to invest in new companies. A year from now most of the capital in the system will have been invested but fewer funds will be able to raise again, making capital that much more scarce.”

Christian Cadeo (Big Idea Ventures) on managing cash burn:

"Be extremely capital prudent and be able to convey that to investors. Discuss how you can minimize burn yet hit milestones. Have a back-up for any potential disruption in your supply chain or distribution.”

Samantha Wong (Blackbird) adds on the same topic:

"My recommendation to all companies is to have a minimum of 12 months and ideally 24 months runway so that they can see out the downturn.”

Phil Morle (Main Square Ventures) about investor mindset:

“Investors know that the world will be different as we move into rebuilding mode on the other side of Covid19 so it is important to articulate why your company is relevant in that world.”

The final tip for entrepreneurs from Christian Cadeo (BIV) is about resilience:

“You will have to hustle and your hit ratio will be low in this environment. Keep at it and don’t get discouraged as there are macro issues out of your control.”

China

Mainland China operates on a different timeline as the coronavirus has hit there first and social distancing was in place as early as January. Now that pandemic appears to be under control, restrictions are gradually lifted. To some extent, it can give an idea what the “new normal" will look like post-pandemic in the rest of the region and the world - with caveats as China is in many respects a quite different market.

According to Christiana Zhu, founder of Beijing plant-based startup Marvelous Foods, “many parts of China have re-opened shops and malls. Beijing has the strictest rules around closure and distancing, but most other cities are seeing a rapid return of social activity.“

She believes that prevailing strict sanitary and health screening measures have turned some away from offline food shopping and combined with the convenience factor, online grocery trend will continue even now that the most severe lockdown is over.

Graham Miao, general manager of GFIC, an alternative protein consultancy firm is based in Shanghai, told me his city “feels about 50% back on track” as of early April. Restaurants see guests returning for dining in, although temperature and travel history checks are common.

He points out that food delivery apps fuelled by billions of dollars of investment have already seen very high rates of consumer adoption pre-covid. It’s not clear if their volumes actually increased as Chinese consumers seem to choose to cook at home in the time of lockdown. According to China Cuisine Association, only 11% of restaurants have seen their take away orders value increased YoY in February and most have seen a quite dramatic drop.

China "wet markets”, which some experts have linked to COVID-19 spread, mostly reopened. Miao believes we will soon see stricter food safety regulations on the markets and likely improvements of the cold chain supplying them with fresh meat/seafood. But any major restrictions are unlikely as a significant part of the population (Miao’s estimate: 30-40%) is relying on them for their daily grocery needs.

Nicolas Stoekert, from Shanghai-based FEAST (they help emerging food brands to enter China market) told me he has not seen any "structural shift in consumer mindset so far” when it comes to plant-based alternatives in relation to the crisis. One consumer survey suggests that fresh meat and seafood purchases dropped by 30-60% in February, but likely replaced by frozen products (+23%) as well as dairy and eggs (up 24-30%).

Stoekert remains optimistic that "general awareness of the role of healthy balanced diets for strong, resilient immune systems will ultimately benefit the next-gen plant-based movement in China”. Miao agrees, adding that consumers will be even more cautious of what they eat and food safety will become even more of the concern among the general population.

A similar sentiment is expressed by Albert Tseng from Dao Foods. In March they announced their investment in a plant-based startup Starfield, together with New Crop Capital, Matrix Partners China and Joy Capital, which is a first known case of Chinese startup from the sector raising money from major local and international investors. Albert said: "COVID19 has certainly caused disruption for Chinese companies and entrepreneurs in the plant-based food sector. However, we remain excited about the prospects for the sector, particularly as we believe this situation is opening people’s minds to considering different ways to eat and live.”

He pointed to Starfield’s “Virus Fighting” campaign in February and said the startup is about to announce “several alliances with various major restaurant chains”.

Dao Foods is indeed confident: in mid-April it will start accepting first applications for new Dao Foods Incubator (道夫子孵化器), providing capital and support to 5 China-focused alternative protein companies every 6 months (more details expected soon via their LinkedIn and WeChat:DaoVentures).

What's on the other side?

Finally, I asked everyone about their views on how the industry landscape might change post-pandemic.

Michael Fox (Fable) talked about the way people will shop for food:

“There might well be long term impacts to consumer behaviour in food shopping. Many restaurants are doing very reasonably priced and high-quality ready meals, as well as focusing on takeaway and delivery. Those offers might remain after the crisis abates and could drive some sales away from supermarket ready meals. Meal kit companies and online ready meal companies are booming if they can hang on to these new customers that might be a long term boon for them.“

Nick Hazell (v2food) mentioned changing perceptions about animal meat:

There seems to be some questioning of intensive meat production associated with the Covid crisis. Being in a sustainable industry that addresses a global meat shortage problem is not a bad place to be. Also making sure that our proposition is affordable.

Nicolas Stoekert (FEAST) offered China perspective:

We believe that imported and local brands with compelling plant-based product formats will be able to take advantage of this broader narrative and awareness that Covid-19 has triggered in China.

Should we expect more governments support and more investment in the alternative protein industry after the crisis? Christian Cadeo (BIV) thinks so, at least for Singapore:

"Yes, without question [Singapore government] is putting all their force behind plant-based/cell-based as it is one of the pillars to hit their goal of 30 by 30 (30% of food production domestically produced by 2030). This is even more applicable as we start to see other countries cut off which means that food security is paramount.”

Phil Morle (Main Square Ventures) hopes for a change of tune in Australia:

“I think that Australia can launch valuable new industries out of this and I am hopeful that the country will be more open to trying.”

Tim Noakesmith (VOW) expects more investors will be interested in this space:

“COVID-19 will likely breed a new set of altruistic investors, hell-bent on solving the sources of these huge problems”

Overall, the industry insiders remain positive for the long term prospects. Nick Beaumont (Heuros) expects that “most of the sector in Asia-Pacific will bounce back”, adding: “You have to be pretty resilient to start up in food tech [in the first place]”.

Christian Cadeo (BIV) said:

“Call me an unabashed optimist but this was the shock to the system that will just accelerate the movement to plant/cell-based foods.”

Personally, I am also optimistic. I believe we will ultimately get back to the momentum behind the new protein industry with potential extra boost coming from shifting consumer perspectives and increased focus on safe, healthy foods. What is less clear for me is a short- to mid-term impact. Majority of consumers buying plant-based goods consider themselves “flexitarians”. In the time of the looming recession, will they continue to purchase these products, that tend to be more expensive? Or rather shift back to more affordable and easily available animal proteins for the time being? The winners in a short-term might be the plant-based companies that are able to achieve price parity (or close to) with animal-based equivalents.

Want to share your opinion or extra insights on the COVID-19 impact? Please comment here.