On a recent morning in downtown Shenzhen, Lingyu queued up to order her go-to McMuffin. As she waited in line with other commuters, the 50-year-old accountant noticed the new vegetarian options on the menu and decided to try the imitation spam and scrambled egg burger.
“I’ve never had fake meat,” she said of the burger — one of five new breakfast items that McDonald’s introduced last week in three major Chinese cities featuring luncheon meat substitutes produced by Green Monday.
Lingyu, who works in her family business in Shenzhen, is exactly the type of Chinese customer that imitation meat companies want to attract beyond the young, trendy, eco-conscious urbanites. Her yuan means potentially more to meat replacement companies because it advances their business and climate agendas both. Eating less meat is one of the simplest ways to reduce an individual’s carbon footprint and help fight climate change.
McDonald’s hopes that its pea- and soy-based, zero-cholesterol, luncheon meat substitutes will carve out a piece of China’s massive dining market. Longtime rival KFC, and local competitor Dicos introduced their own plant-based products last year. Partnering with fast food chains is a smart move for companies that want to promote alternative protein to the masses, because these products are often pricey and are usually aimed at wealthy urbanites.
2020 could well have been the dawn of alternative protein in China. More than 10 startups raised capital to make plant-based protein for a country with increasing meat demand. Of these, Starfield, Hey Maet, Vesta and Haofood have been around for about a year; ZhenMeat was founded three years ago; and the aforementioned Green Monday is a nine-year-old Hong Kong firm pushing into mainland China. The competition intensified further last year when American incumbents Beyond Meat and Eat Just entered China.
Although some investors worry the sudden boom of meat-substitute startups could turn into a bubble, others believe the market is far from saturated.
“Think about how much meat China consumes a year,” said an investor in a Chinese soy protein startup who requested anonymity. “Even if alternative protein replaces 0.01% of the consumption, it could be a market worth tens of billions of dollars.”
In many ways, China is the ideal testbed for alternative protein. The country has a long history of imitation meat rooted in Buddhist vegetarianism and an expanding middle class that is increasingly health-conscious and willing to experiment. The country also has a grip on the global supply chain for plant-based protein, which could give domestic startups an edge over foreign rivals.
“I believe, in five years, China will see a raft of domestic plant-based protein companies that could be on par with industry leaders from Europe and North America,” said Xie Zihan, who founded Vesta to develop soy-based meat suitable for Chinese cuisine.
Meat varieties
Lily Chen, a manager at the Chinese arm of alternative protein investor Lever VC, outlines three categories of meat analog companies in China: Western giants such as Beyond Meat and Eat Just; local players; and conglomerates such as Unilever and Nestlé that are developing vegan meat product lines as a defense strategy. Lever VC invested in Beyond Meat, Impossible Foods and Memphis Meats.
“They all have their product differentiation, but the industry is still very early stage,” said Chen.
Beyond Meat sells its iconic meat patties in China via Starbucks and select KFC locations. Eat Just has its own fast-food partner, Dicos, which features the Californian company’s imitation eggs in its breakfast menu.
The Chinese players provide more localized options. For example, in addition to burgers, Hey Maet offers dumplings, which are likely to hold greater appeal for Chinese consumers. Starfield similarly has a selection of Western and Asian dishes, from pizzas to meaty steamed buns.
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Some companies market their products directly to consumers at high-end grocers, while others rely on restaurants for distribution, which could be more effective for educating a nascent market. Green Monday has a more holistic approach than most of its Chinese rivals — offering in-house as well as third-party products through a web of online channels and its own trendy retail locations as well as restaurants.
“We want to create a scenario for people to experience plant-based meat,” said David Yeung, founder and CEO of Green Monday. “We offer not just products but also a total lifestyle.”
Factory of the world
China’s command over supply chains extends well beyond smartphones and augmented headsets. The country is a major producer of protein extracted from peas and soybeans — two main ingredients for alternative protein products sold around the world due to their low cost and versatility.
Beyond Meat, for example, agreed to buy 628,320 pounds (285 tons) of pea protein from Chinese supplier Shuangta last year. Eat Just’s imitation eggs use mung beans, a part of the legume family, like soybeans, that are sourced from countries including China.
In 2019, Shuangta alone produced nearly 40% of the world’s pea protein, making it the world’s largest supplier of the ingredient, according to a report by financial services firm TF Securities. Like its peers in the eastern Chinese province of Shandong, Shuangta cut its teeth making mung bean vermicelli in the ’90s, but in recent years moved focus to protein extraction as global demand for alternative meat rose.
China, however, suffers from an undersupply of peas and soybeans. In fact, Shuangta sources some of its raw ingredients from Canada and Russia and processes them back in China to utilize the country’s labor and manufacturing advantages.
One reason behind China’s soy shortage is the local populace’s growing appetite for animal protein, said Jack Ellis, a research leader at AgFunder, a venture capital firm focused on agritech. Most of the soybean that China grows and imports ends up as animal feed for meat production, he said.
Environmental changes are also a factor to contend with. Desertification, and soil and water degradation across large swathes of the country have resulted in a lack of land to grow soybean locally, Ellis added.
“Replacing that much animal meat with the kind of plant-based meat analogs available today will still require large amounts of soy and other cereals and legumes. So it isn’t clear that a substantial reduction in animal meat consumption would substantially reduce China’s reliance on external sources of soybeans.”
Same pea, different meat
Most of the analog meat currently available in China uses some type of plant-based protein. Since China controls much of the industry’s supply chain for the ingredients, room for product differentiation can be limited, a Taiwan-based food-tech investor argued.
“What Chinese companies do instead is focus on brand and marketing,” the investor said, asking for anonymity.
Chen of Lever VC also said many meat analog startups in China are hemorrhaging cash on marketing and are far from profitability. But the half-dozen entrepreneurs TechCrunch spoke with were quick to disagree that their products are little more than marketing.
“What determines the final product is not just the protein, but also a variety of additives, flavors, and even the production equipment and technology involved,” said Xie from Vesta.
After being isolated from the plant, the protein needs to undergo a mechanical process to achieve the taste and mouthfeel of genuine muscle meat. An advanced method called high moisture extrusion is used by mature companies like Beyond Meat to alter the structure of plant protein to be more meatlike.
But few Chinese companies have mastered the technology, said Chen, and the country overall lacks the top-tier talent for developing alternative meat.
Taste also matters. Imitation patties, bacon, steak and other Western food might not be as popular in China as in their home markets. Meanwhile, the wide range of Chinese cuisines can inspire “innovation and differentiation” among local candidates, said Ron Cao, a founding partner of Sky9 Capital, an investor in Starfield.
Some companies try to differentiate by using alternative plants. Haofood, for example, uses peanuts as its main ingredient, but relies on a similar processing method as its pea or soy rivals.
After speaking to around 100 chefs in China, Haofood founder Astrid Prajogo learned that soy-based meat tastes like tofu to many consumers. In comparison, “peanuts have a good taste and don’t have the tofu experience. It’s very mild compared to wheat and pea,” Prajogo said.
In the end, prices will determine analog meats’ adoption in China. Most existing meat alternatives cost much more than real meat, said Hey Maet founder, Hong Xiaoqi, though she is confident that over time her company “could make plant-based meat much more affordable.”
Cao echoed that belief, saying, “China has a foundation in processing soy protein. Its complete supply chain allows for large-scale, intensive production, which paves the way for lowering the price of plant-based meat below real meat.”
Carbon footprint
Since China is a major supplier of plant-based protein, some of the ingredients used by Beyond Meat and Eat Just may have to travel a long way.
Beyond Meat declined to comment for this story, but it noted in its IPO prospectus that it has a supplier of yellow peas sourced from Canada and the supplier “based in China exports the pea protein it processes into the United States to an intermediary facility before it is shipped to our facilities in Columbia, Missouri.”
Eat Just currently sources mung bean protein from around the world and not just from China, the firm’s spokesperson, Andrew Noyes, told TechCrunch.
“In addition to sourcing mung beans from around the world and then processing protein in the U.S., we’ll be processing protein in Germany at Emsland for the European market and, once our Singapore factory has been completed, it will serve our manufacturing and distribution partners across Asia,” Noyes said.
Carbon footprint aside, the long supply chain also jacks up costs. Chinese startups, in contrast, enjoy their proximity to suppliers and can price their products more competitively, said Hong, whose company is backed by Shuangta.
Both Beyond Meat and Eat Just are trying to procure manufacturing capacity in China. The former is putting up a production facility in a city near Shanghai, while Eat Just is on the hunt for downstream manufacturing partners.
A cellular future
In the West, a handful of startups are already working on the next phase of analog meat that uses stem cells taken from the muscles of animals. Companies investing in this field are still scant in China due to high R&D costs and a long development cycle, but several investors TechCrunch spoke to believe cell-cultured meat is the real moat for alternative protein companies in the long run.
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Two startups from eastern China that are operating from government-backed high-tech zones — Joes Future Food and CellX — have announced their ambitions to grow meat in a lab. These firms might be the next to watch for in the alternative protein space in China, which not only needs to attract eco-minded consumers and health enthusiasts but also picky eaters.
“The texture is a bit grainy and if you chew carefully, it has a slightly bitter taste,” Lingyu said after a few bites of her fake spam burger from McDonald’s. “It’s acceptable, but I still prefer the classic sausage McMuffin.”
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