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FoodTech (Q2 2023): USDA serves up cell-cultured success

Plant-based Meat

Aug 17, 2023

Plant-based Meat

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By Keshawa Perera · Aug 17, 2023

FoodTech (Q2 2023): USDA serves up cell-cultured success

This Insight covers quarterly updates on food technology and focuses on our coverage of Plant-based Meat, Plant-based Dairy & Egg, Cell-cultured Meat, upcycled foods and beverages (covered under the Food Waste hub), and other alternative foods (covered under Novel Foods) industry hubs.

Key takeaways

Regulation: Cultivated meat is officially allowed to enter the US market. The USDA approved Upside Foods’ and Good Meat’s sale of cultivated chicken products in the US, allowing them to initially serve their food in restaurants. Previously, Singapore was the only country that allowed sales of cultivated chicken.

New product launches and market activity: Plant-based dairy and egg (PBD&E) thrive, cultured meat rises, and plant-based meat stalls. New product introductions increased (up 14% YoY), fueled by growth in PBD&E and cell-cultured sectors. New egg alternatives from Float Foods and Schouten Europe and various plant-based cheese options from Babybel, New Culture, Violife, Oatly, and Climax Foods were the main debuts. In the cell-cultivated space, innovations from UPSIDE Foods and Steakholder Foods, as well as Aleph Farms’ involvement in several product-oriented partnerships, were key highlights.

Despite plant-based meat’s (PBM) continued domination of total activity, product launches were slow and limited to new menu selections for food service establishments rather than the product advancements or technological developments seen previously. However, Abbott's Butcher's partnership with Dot Foods drove nationwide food service expansions amid cautious retail growth this quarter.

Partnerships: Plant-based focuses on menu expansion, while cell-cultured remains R&D-centric. Partnerships in the plant-based meat, dairy, and egg sectors mostly centered around introducing new menu items for food service. Furthermore, multiple disruptors secured nationwide agreements for both food service and retail across the US (Abbot’s Butcher, Miyoko's Creamery) and the UK (Juicy Marbles). In the emerging cell-cultured segment, a focus on R&D was evident, led by Aleph Farms' involvement in several product-oriented partnerships.

M&A: Activity limited to the PBM industry and centered around British startups. British PBM startups like VFC Foods and Wicked Kitchen demonstrated their prominence through acquisitions. VFC Foods rescued Meatless Farms, while Wicked Kitchen expanded by acquiring California-based Current Foods. Additionally, UK-based Moolec Science's acquisition of ValoraSoy in Argentina underlined its global expansion strategies.

Funding: Investments slump across the board, in line with broader VC activity. Startups within our FoodTech coverage raised USD 185 million across 22 funding rounds, down more than 70% both QoQ and YoY. PBM dominated funding, securing a significant portion (~60%) across 13 rounds. The average size of funding rounds also dropped by 58.2% QoQ and 49.0% YoY. Conversely, the recent approval for the sale of cell-cultured meat in the US could potentially provide the industry with a boost in funding in the short to medium term.

Outlook: We anticipate developments in the cultivated meat industry to align with consumer preferences and pricing expectations. Initial cell-cultured meat offerings may prioritize value-oriented products like burger patties, driven by cost-cutting through cell suspension adoption. While this boosts efficiency, it falls short in terms of crafting complex meats that need unproven techniques like forming or 3D printing. Funding for cultivated meat producers is expected to rise, considering the substantial USD 30 million–100 million production investment.

Amidst the complex landscape for plant-based protein alternatives, marked by macroeconomic pressures, glimmers of hope emerge, as the fundamental drivers remain firmly in place. According to a recent study conducted by Credit Suisse, a remarkable 66% of young consumers around the world anticipate an increase in their spending on plant-based products. Notably, these aspirations exhibit their strongest resonance across emerging markets.

Regulations: USDA approval of cultivated chicken sets stage for cell-cultured meat industry advancement

Analyst Take: The USDA’s approval of cultivated chicken marks a milestone for the whole cell-cultured meat industry. Previously, Singapore was the only country that allowed the sale of cultivated chicken. The endorsement should instill confidence within the industry, assuring players that a viable path into the US market exists. Nevertheless, scaling production poses significant hurdles, driven by concerns over costs and profitability.

The key challenges include reducing growth media expenses, enhancing cell yield, and tackling product differentiation. As per the Good Food Institute, cultivated meat could achieve cost equivalence with traditional meat on an industrial scale, which was demonstrated by the reduction in average production expense for a cultivated meat burger from USD 100/lb in 2021 to USD 3.67/lb in 2023.

Multiple governments supported and endorsed alternative meat products:

In June, UPSIDE Foods and GOOD Meat received approval from the USDA to sell their cultivated chicken products in the US. The USDA issued a grant of inspection (GOI) for their production facilities after receiving a "no questions" letter from the FDA confirming the safety of their cultivated chicken for consumption. However, despite obtaining regulatory approval, cultivated meat may not be widely available immediately. Initially, Upside Foods' chicken will be limited to Bar Crenn in San Francisco, while Good Meat's product will be introduced at a single restaurant, China Chilcano, owned by José Andrés, in Washington, DC.

The Netherlands is also set to permit tastings of cultivated meat—a significant development for the country known as the birthplace of this technology. The first official tasting is slated for later this year.

Additionally, in April, Israeli biotech company Remilk became the first to receive approval from the Israeli Ministry of Health for its precision fermentation-derived milk protein, making way for innovative dairy alternatives to enter the market.

The Netherlands to increase tax on plant-based milk: The Netherlands plans to increase the consumption tax on non-alcoholic beverages, including plant-based milk, from 1 January 2024. The tax will almost triple to EUR 26.13 (~USD 28.20) per 100 liters from EUR 8.83 (~USD 9.53).

New products: Promising plant-based dairy and cell-cultured meat launches

Analyst Take: PBD&E and the emerging cell-cultured industries showcased several notable product launches/announcements during the quarter. Product launches in the PBM industry remained relatively consistent compared with the previous year. However, PBM maintained a significant presence in the landscape of FoodTech product debuts. In upcycled F&B, the trend of introducing upcycled snacks for retail persisted, while other alternative food launches primarily centered on vegan chocolate products during the quarter.

Noteworthy entries included new plant-based egg launches from Float Foods and Schouten Europe as well as cultured meat innovations from UPSIDE Foods and Steakholder Foods. New cell-cultured meat launches are likely to gather momentum following the US authorization. According to a recent survey, ~75% of cultured meat companies plan to introduce products within the next two years.

Plant-based meat, dairy, and egg

We observed 31 new product launches, with plant-based beef (12) and pork (12) being the most prominent categories. PBM launches remained largely consistent with the previous year, except for the plant-based poultry segment, which saw a significant 44% YoY drop in activity.

Motif Foodworks’ BeefWorks Plant-Based Burger Patties, Impossible Foods’ premium Indulgent Burger, Beyond Meat’s Smashable Burger patty, and Squeaky Bean’s crumbed ham-style slices were among the noteworthy product releases.

The PBD&E launches (14) more than doubled compared with the same period last year. This growth was primarily driven by the plant-based egg and cheese segments, which saw a surge in activity.

We observed new plant-based egg launches from Schouten Europe, with its plant-based egg white “No Egg White”; Float Foods, with a plant-based poached egg and egg yolk; Crackd, with a new range of vegan quiches featuring its plant-based liquid egg product, No-Egg Egg; and Plantible, with Rubi Whisk, a plant-based egg replacement for commercial use.

The notable plant-based cheese launches were Babybel, with its plant-based white cheddar; New Culture, with its animal-free mozzarella; Violife and Oatly, with their plant-based cream cheese; and Climax Foods, which debuted a plant-based casein replacement.

Cell-cultured meat

Cell-cultured meat remains unapproved for retail sale in most countries. However, several companies have been actively working on creating prototypes and initial versions of potential meat substitutes. There were seven new product announcements in Q2 2023, covering a diverse range of cell-cultured meat products, including alternatives for beef, pork, poultry, and seafood.

Notable cell-cultured meat product announcements:

UPSIDE Foods introduced a new range of ground meat products made from animal cells, including chicken sausages, chicken sandwiches, and dumplings. These products are pending regulatory review. The regulatory process for UPSIDE's ground meat products will be separate from that of its first product, an adherent tissue-based process, for which the company previously received FDA approval.

Steakholder Foods announced that it has successfully produced the world's first ready-to-cook cultivated grouper fish product using its 3D bioprinter technology. This was a result of the partnership between Steakholder Foods and Umami Meats. The product uses 3D bioprinting technology and customized bio-inks to develop a scalable method for producing structured cultivated fish products.

Mewery Meat unveiled the first cultivated burger made with pork and microalgae cells. It consists of 75% pork cells and 25% microalgae cells and claims to eliminate the need for fetal bovine serum (FBS). FBS, as a growth medium in cultured meat production, is associated with ethical concerns, animal welfare issues, contamination risks, and inconsistent supply. The company expects to launch its first commercial product within two years, pending regulatory approval.

Upcycled food and beverages

The trend of launching upcycled snack products aimed at retail channels continued.

Rind introduced a new upcycled trail mix product line. The product combines Rind’s upcycled dried fruit snacks made from fruit peel with roasted nuts, upcycled ingredients, and fruit seasonings.

Upcycled Foods collaborated with Stone & Skillet to introduce an upcycled English muffin to the market from the grain waste originating from beer production.

Other alternative foods

Alternative chocolate launches were also notable during the quarter.

WNWN introduced two new products: alternative milk chocolate and chocolate Easter eggs. Both products are cocoa and dairy free and use fermentation to transform plant-based whole foods like grains and legumes into sustainable alternatives to cocoa beans, avoiding issues such as child labor, deforestation, and the carbon footprint of chocolate production.

Vegan chocolate pioneer LoveRaw introduced a new Peanut Caramel Bar, consisting of roasted peanuts, nougat, and caramel, coated in LoveRaw's m:lk chocolate, which is free of dairy and palm oil.

Please refer to Appendix 1 for the complete list of new product launches.

New market developments: PBM momentum halts; PBD&E gains ground in the US

Analyst Take: Retail expansions in the PBM industry remained wary but Abbott's Butcher partnership with Dot Foods to secure nationwide distribution pushed foodservice expansions in the US. The PBD&E industry continued to gain ground in the US, mainly within food service, although advancements were notably sluggish across other channels.

Market activity during the quarter showed minimal YoY growth. In both the PBM and PBD&E industries, we tracked 31 company expansions that occurred by entering new markets or penetrating existing ones in Q2 2023.

North America and Europe continued to be the most active. Outside the US and Europe, the only observable market activity was Burger King Colombia’s launch of the NotCo-powered veggie menu.

The distribution network expansion of plant-based meats in the US was mainly driven by growth in the foodservice channel, with the addition of 5,214 new establishments in the sector. The total distribution expansion was notably lower than the previous year (-48.8% YoY) but a substantial improvement from Q1 2023 (+210% YoY). The surge in distribution within the foodservice segment was largely attributed to Abbott's Butcher, which secured nationwide distribution through a partnership with Dot Foods, the US’ largest re-distributor, with access to 5,000+ foodservice distributors.

Expansion of distribution channels outside the US experienced a relatively subdued quarter, with 2,985 new additions in the retail and foodservice sectors. This represented a notable decrease over the previous year (-22.0% YoY) and a substantial decline from Q1 2023 (-78.6% QoQ). Notably, Germany contributed to ~66% of the new additions, with the majority (1,679) in the foodservice channel. This expansion in Germany can be attributed to significant partnerships, such as Wamame Foods partnering with the Eat Happy Group and BettaF!sh's successful launch at Müller Stores in Germany, Austria, and Spain.

The PBD&E segment in the US had an exceptional quarter, marking the second consecutive period of high distribution expansion. The distribution network expanded by 14,021 locations, a 146% YoY growth. The foodservice channel played a significant role in this expansion, with a record 5,632 additions, primarily driven by Miyoko's Creamery's partnership with Dot Foods for national distribution. The retail segment also witnessed some improvement from the previous year, with notable new additions from NotMayo (4,630), Elmhurst (1,381), and Misha's Kind Foods (1,097).

However, outside the US, the activity in the segment was virtually non-existent. We only observed 412 new locations added in the retail channel, indicating a significant decrease from the previous year (-90% YoY) and an even bigger drop from Q1 2023 (-94.6% QoQ).

Partnerships: Product collaborations take center stage

Analyst Take: Partnerships in the plant-based meat, dairy, and egg sectors mostly centered around final products, with several firms like Blackbird Foods, Squeaky Bean, The Plant Based Manufacturer (Seafood) Co., and Top Tier Foods collaborating to introduce new menu items for foodservice. Furthermore, multiple disruptors secured nationwide agreements for both foodservice and retail across the US (Abbot’s Butcher, Miyoko's Creamery) and the UK (Juicy Marbles). In the emerging cell-cultured segment, a focus on R&D was evident. This was led by Aleph Farms' involvement in several product-oriented partnerships.

Our FoodTech coverage saw a total of 15 distribution partnerships, 28 product collaborations, and one sales partnership during the quarter. PBM saw the highest number of partnerships with 25 (56.8%), followed by PBD&E with 12 (27.3%).

Plant-based meat, dairy, and egg

Product collaborations with foodservice establishments were common. Disruptors Blackbird Foods, Squeaky Bean, The Plant Based Manufacturer (Seafood) Co., Green Monday Holding, and Top Tier Foods partnered with Daring Foods, Chicago Town, PLNT Burger, 7-Eleven Hawaii, and Panago Pizza, respectively, to introduce new plant-based menu items.

Collaborations among PBM and PBD&E disruptors were notable. The EVERY Company entered into a joint development agreement with plant-based frozen food company Alpha Foods for the latter to use EVERY's alternative egg product as a binding ingredient for alternative meat developments. In the meantime, JUST Egg partnered with Next Level Burger to launch a plant-based brunch burger with a smashed patty and JUST Egg Folded.

The development of mycelium-based alternative meat products was the focus of at least two partnerships. Quorn Foods partnered with Prime Roots to develop mycelium-based alternative meat products. Mycorena partnered with RIP (Rich In Plants) Foods, a Spanish plant-based meat producer, to develop mycelium-based street food targeting mainstream customers.

Several disruptors also secured key supply agreements. At least two disruptors partnered with Dot Foods, the US’ largest re-distributor, with access to 5,000+ food service distributors. These include Abbot’s Butcher (foodservice) for its plant-based meat products and Miyoko's Creamery (food service) for its plant-based cheese and butter.

Additionally, Eat JUST partnered with Barnes & Noble Cafés to sell its JUST Egg Breakfast Sandwich at 500 locations, while Vgarden (foodservice), an Israeli plant-based brand, partnered with MCT dairies to enter the US market. Meanwhile, across the pond, Wicked Kitchen partnered with Booker, a leading UK F&B wholesaler, while Juicy Marbles secured a long-term supply deal with British supermarket chain Waitrose for its plant-based filet mignon.

Cell-cultured meat

Aleph Farms took an active role in product collaborations, partnering with Thermo Fisher Scientific and Enzymit to advance growth media and related technology and collaborating with chef Marcus Samuelson to create cultivated steaks.

Other notable partnerships:

Believer Meats and Archer Daniels Midland (ADM) partnered to develop and commercialize cultivated meat products.

Stakeholder Foods and Umami Meats collaborated to unveil a 3D-printed cultivated grouper fish.

Upcycled F&B

Upcycled Foods engaged in multiple partnerships: 1) Kroger to jointly create an upcycled bread line for Kroger's private label brand and 2) Stone & Skillet to develop a super grains English muffin.

Please refer to Appendix 2 for the complete list of partnerships.

M&A: UK PBM startups lead in strategic acquisitions pursuit

In June, British PBM startup VFC Foods acquired Meatless Farms, saving the latter from going into administration. Meatless Farms, a British plant-based meat producer, offers a diverse portfolio of products such as plant-based burgers, sausages, ground meat, hot dogs, and ready meals. Its products are available in various regions, including the UK, the US, the Netherlands, and Singapore.

In April 2023, Wicked Kitchen, a UK-based PBM developer, acquired California-based Current Foods (formerly Kuleana), a plant-based seafood manufacturer, in an all-stock deal. Current Foods creates plant-based seafood products using a mix of bamboo, potato, radish, tomato, algae, sunflower oil, and peas.

UK-based molecular farming company Moolec Science acquired ValoraSoy, a company focused on functional soy proteins, for USD 6 million. The deal was closed in April. ValoraSoy operates modern industrial facilities in Argentina with a processing capacity of 10,000 tons and has a global presence in over 14 countries across three continents. Its soy-based protein ingredients are used in various end products, including plant-based hamburgers, sausages, and other products in traditional and alternative food industries.

Funding: FoodTech faces a funding slump; cell-cultured meat approval may boost investment

Analyst Take: Investments in PBM startups have reached their lowest levels since 2018 due to factors such as declining sales, exemplified by PBM trailblazer Beyond Meat experiencing a 30.5% YoY decline (in Q2 2023) in its top-line. Meanwhile, the retail sales of plant-based meats witnessed a 1% decline in 2022, following stagnant growth in 2021. Alongside such market woes, macroeconomic factors such as a less robust economic projection and rising interest rates have further hindered overall funding.

Funding activity for the PBD&E segment was subdued, marked by only two funding rounds. This was in stark contrast to the USD 400 million+ investment attained in Q1 2023. Conversely, in light of the recent approval for the sale of cell-cultured meat in the US, the industry could potentially pave the way for increased funding over the short to medium term.

Q2 2023 funding summary

Our FoodTech coverage saw USD 185 million raised across 22 funding rounds in Q2 2023. This represented a significant decrease of 73.1% QoQ and 75.5% YoY. The decrease in funding somewhat accentuated the overarching pattern of diminished funding prevalent in the North American VC market. The funding landscape was mostly led by PBM, securing a share of USD 109 million (58.9%) across 13 funding rounds.

The average funding round size saw a substantial 58.2% QoQ decline in Q2 2023, along with a notable 49.0% decline YoY. Meanwhile, the median funding round size in Q2 2023 showed a decrease of 3.2% compared with the previous quarter but displayed a positive YoY increase of 22.5%.

Growth-stage funding rounds were conspicuously absent during the quarter. In contrast, the previous four quarters registered an average of ~52% of total funding going toward growth-stage rounds. Early-stage funding took precedence in the cell-cultured meat segments, with five companies raising Series A rounds, including Bluu Seafood, CellMEAT, CellX, Joes Future Foods, and Uncommon.

Plant-based meat, dairy, and egg

Plant-based meat, dairy, and egg products collectively underwent a notable decline in funding of 54.5% YoY. Specifically, PBM witnessed a decline of 35.3% YoY, while PBD&E experienced an even steeper decline of 90.6% YoY.

The median funding round size for both PBM and PBD&E experienced a decline compared with the previous quarter. PBM saw a decrease from USD 9.5 million to USD 6.5 million, while PBD&E declined from USD 5.5 million to USD 4.3 million. Among the notable funding rounds were Prime Roots (USD 30 million, Series B), Neat Burger (USD 18 million, Series B), and MyForest Foods (USD 15 million, Series A).

Cell-cultured meat

Cell-cultured meat saw an even more substantial decline, with a total of USD 67.1 million raised during the quarter, indicating a significant contraction of 85.6% YoY. It's worth noting that when excluding mega funding rounds (USD 400 million Series C for UPSIDE Foods) in Q2 2022, the decline in funding levels moderates to 37.3%.

However, during the same period, cell-cultured meat witnessed an increase in the median funding round size, rising from USD 6.5 million in Q1 2023 to USD 13.0 million in Q2 2023. The significant funding rounds during the quarter included Uncommon (USD 30 million, Series A), Bluu Seafood (USD 17.5 million, Series A), and CellX (USD 6.5 million, Series A).

Upcycled F&B

We did not observe any notable funding rounds during the quarter for this segment.

Other alternative foods

The sole disclosed round was Chi Botanic Inc.’s USD 175,000 grant funding. This represents a significant decrease from the USD 45 million raised in Q1 2023.

Cellular agriculture company Chi Botanic Inc. was awarded the competitive USDA Small Business Innovative Research grant to create an affordable Vanilla planifolia plant cell culture that can grow in diverse environments, producing significant amounts of vanillin and a range of other natural vanilla flavor and fragrance compounds.

Summary of new FoodTech startups added in Q2 2023

A total of eight new FoodTech startups were added to our coverage.

Appendix

Appendix 1: Market activity, market distribution, and new products

Appendix 2: Disruptor partnerships

Featured companies

UPSIDE Foods

UPSIDE Foods (formerly known as Memphis Meats) develops meat produced directly from animal cells without the need to raise and slaughter actual animals. This approach requires significantly less water,...

HQ:

Berkeley, CA

Funding:

USD 581.0 million