Traditional food companies are turning to acquisitions as a way to enter the alternative protein market. Here's how they do it.
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In the past years, many corporates and investors have entered the alternative protein sector via minority investments, partnerships and first initiatives for their own product development.
However, to not only enter the stage but also to grow and "move the needle", traditional food companies, investors and new market entrants like biotechnology, chemical and other company types have a range of options to enter and grow in the alternative protein sector.
As outlined below, different companies have executed each option depending on their current position and capabilities:
For companies with an existing trusted brand and consumer target, launching plant-based products is an effective strategy. The German company Rügenwalder Mühle is a good example: they leveraged their existing brand and reputation.
In 2020, for the first time in its 186-year history, it made more revenue from plant-based meat analogues than traditional meat after launching its plant-based product line in 2014.
Only once companies have a substantial product range in one market should they consider international expansion: the more methodical an expansion, the better.
For example, Unilever launched and expanded Vegetarian Butcher in the Netherlands in 2018, then launched in the UK in 2019 and Germany in 2020.
Meatless Farm followed a similar path, building a solid product and brand in the UK before considering international expansion.
Companies must recognize the need to localize products and flavouring when expanding internationally.
For example, part of the reason for Nestle's low sales performance in the UK (removing Garden Gourmet after nine months) was a lack of localization.
Co-manufacturing is one of the most effective methods for quickly launching products with minimal capital expenditure.
The challenge, however, is to build defensibility. If you have a strong brand, this may be enough.
But you should be aiming for a technology or product differentiator, for which the co-manufacturer needs to include exclusivity and no "knowledge drain".
Moving Mountains, for example, has outsourced manufacturing and distribution in the EU with their production partner Dalco and distribution partner Jan Zandbergen, while simultaneously keeping an in-house tech team.
Licensing a specific technology allows more defensibility than simple co-manufacturing because you can negotiate an exclusive market or time for using the technology.
If you are tying your product range to this technology, however, you must have strong long-term strategy aligned or have the plan to build these capabilities internally.
Companies like Solina and Firmenich are successful at driving the licensing strategy.
One of the best ways of building internal capabilities and defensibility is M&A.
Acquirers must take care not to stifle innovation, however, Garden Gourmet and Vegetarian Butcher exemplify this usefully. Unilever has allowed the Vegetarian Butcher team to stand largely outside of the core Unilever organization while providing the funding and marketing needed to expand the brand.
They have seen strong growth across European markets and continue to push product innovation.
By contrast, Nestle has struggled to integrate and support Garden Gourmet, leading to less innovation, exiting the UK market and facing de-listing in the Netherlands.
JVs allow companies to forgo the large CAPEX outlay of M&A while building strategic alliances. JVs are most likely to be seen with B2B players, such as we saw with the products of Kerry Foods and brand Ojah. Strong strategic alignment and long-term commitment from both sides are vital to success.
All in all, the optimal growth option depends on several factors and requires careful assessment.
As always, when executing growth options, timing is critical. The alternative protein space is increasingly competitive.
More companies are launching new products and opening new markets, and new startups and corporates enter on a seemingly daily basis.
While companies need to select the right option, the key is to focus on rapid execution while building capabilities, brands, platforms, and technologies that allow them to succeed in the long run.
If you're considering M&A as a viable growth option for your organization, read the last part of this five-piece article series. We'll take an in-depth look at lessons learned from industry leaders. We will provide you with detailed recommendations on how you can successfully navigate a potential merger or acquisition in this rapidly changing field.
