A New Taste in Shenzhen: Exploring Plant-Based Alternatives

Recently, in the heart of Shenzhen’s downtown area, Lingyu joined the queue to purchase her usual McMuffin. While waiting alongside fellow commuters, the 50-year-old accountant observed the newly added vegetarian choices on the menu and opted to try the burger featuring imitation spam and scrambled eggs.

“This was my first experience with fake meat,” Lingyu commented regarding the burger – one of five new breakfast offerings McDonald’s launched last week in three major Chinese cities. These items utilize luncheon meat substitutes produced by Green Monday.

Targeting a Broader Consumer Base

Lingyu, who is employed in her family’s business within Shenzhen, represents the precise demographic that companies specializing in imitation meat aim to attract. They are looking beyond the younger, trendsetting, and environmentally aware urban population. Her purchasing power holds significant potential for meat replacement companies, furthering both their commercial objectives and climate-related goals.

Reducing meat consumption is recognized as a straightforward method for individuals to lessen their carbon footprint and contribute to the fight against climate change.

McDonald’s and the Expanding Market

McDonald’s anticipates that its pea- and soy-based, cholesterol-free luncheon meat alternatives will secure a portion of China’s substantial dining market. KFC, a long-standing competitor, and the local chain Dicos introduced their own plant-based products last year.

Collaborating with fast-food chains is a strategic approach for companies seeking to promote alternative protein to a wider audience. These products are often relatively expensive and initially targeted towards affluent urban consumers.

The Rise of Alternative Protein Startups

The year 2020 may very well have marked the beginning of alternative protein’s growth in China. Over ten startups secured funding to produce plant-based protein for a nation experiencing increasing demand for meat.

Among these, Starfield, Hey Maet, Vesta, and Haofood have been operating for approximately a year. ZhenMeat was established three years prior, and Green Monday, a Hong Kong-based company with nine years of experience, is expanding into mainland China.

Competition intensified further last year with the entry of American companies Beyond Meat and Eat Just into the Chinese market.

Market Potential and Investor Confidence

While some investors express concerns that the rapid growth of meat-substitute startups could lead to a market bubble, others maintain that the market is far from reaching saturation.

“Consider the sheer volume of meat consumed in China annually,” stated an anonymous investor in a Chinese soy protein startup. “Even a replacement of just 0.01% of that consumption could create a market valued at tens of billions of dollars.”

China as an Ideal Testing Ground

In numerous respects, China provides an optimal environment for the development of alternative protein. The country boasts a long tradition of imitation meat, stemming from Buddhist vegetarian practices, and a growing middle class that is increasingly focused on health and open to experimentation.

Furthermore, China holds a strong position in the global supply chain for plant-based protein, potentially giving domestic startups a competitive advantage over international rivals.

Future Outlook

“I am confident that within five years, China will witness the emergence of numerous domestic plant-based protein companies capable of competing with industry leaders from Europe and North America,” predicted Xie Zihan, the founder of Vesta, a company dedicated to developing soy-based meat tailored to Chinese cuisine.

Meat Varieties

Lily Chen, who manages the Chinese operations of alternative protein investment firm Lever VC, identifies three distinct types of companies involved in meat analog production within China. These include established international companies like Beyond Meat and Eat Just, domestic Chinese enterprises, and large food corporations – such as Unilever and Nestlé – that are proactively developing vegan meat options as a strategic measure.

Lever VC has made investments in prominent companies including Beyond Meat, Impossible Foods, and Memphis Meats.

Chen notes that while each company possesses unique product characteristics, the overall industry remains in a preliminary phase of development.

Beyond Meat’s signature meat patties are currently available in China through partnerships with Starbucks and select KFC restaurants. Eat Just collaborates with the fast-food chain Dicos, featuring its egg substitutes on the breakfast menu.

Chinese companies are focusing on more regionally tailored offerings. Hey Maet, for instance, extends beyond burgers to include dumplings, a food item with strong appeal to Chinese palates.

Starfield provides a diverse range of dishes, encompassing both Western and Asian cuisine, from pizzas to steamed buns filled with meat alternatives.

Distribution strategies vary among companies. Some prioritize direct-to-consumer sales through upscale grocery stores, while others concentrate on restaurant partnerships, potentially proving more effective in educating consumers about this emerging market.

Green Monday distinguishes itself with a comprehensive strategy, offering both its own products and those from other brands via online platforms, its own fashionable retail spaces, and affiliated restaurants.

“Our aim is to provide opportunities for consumers to experience plant-based meat,” explains David Yeung, founder and CEO of Green Monday. “We present not only products, but a complete lifestyle approach.”

Global Supply Chain Dominance in Alternative Proteins

China’s influence over global supply chains isn't limited to electronics. The nation has become a significant producer of protein derived from peas and soybeans. These are key components in alternative protein products sold internationally, prized for their affordability and adaptability.

Companies like Beyond Meat have demonstrated this reliance. Last year, they entered into an agreement to purchase 628,320 pounds – equivalent to 285 tons – of pea protein from the Chinese supplier, Shuangta.

Eat Just, known for its plant-based eggs, utilizes mung beans, which belong to the same legume family as soybeans. These beans are sourced from various countries, including China.

Shuangta: A Leading Producer

According to a report by TF Securities, Shuangta controlled nearly 40% of the global pea protein market in 2019. This established them as the world’s largest supplier of this crucial ingredient.

Initially, Shuangta, along with other companies in Shandong province, specialized in producing mung bean vermicelli during the 1990s. However, with the increasing global demand for meat alternatives, they strategically shifted their focus to protein extraction.

Despite its production capacity, China faces a deficit in domestic pea and soybean supplies. Shuangta, for instance, imports raw materials from Canada and Russia.

These imported ingredients are then processed within China, leveraging the country’s competitive labor costs and established manufacturing infrastructure.

Factors Contributing to Soy Shortage

Jack Ellis, a research leader at AgFunder, attributes China’s soy shortage to the increasing local demand for traditional animal protein. A substantial portion of both domestically grown and imported soybeans is utilized as animal feed.

Furthermore, environmental challenges are exacerbating the issue. Desertification, alongside the degradation of soil and water resources across extensive areas of the country, has diminished the available land for soybean cultivation.

Ellis notes that a significant shift towards plant-based meat alternatives will still necessitate substantial quantities of soy and other legumes. Therefore, a considerable reduction in animal meat consumption may not drastically decrease China’s dependence on external soybean sources.

• Key Ingredients: Peas and soybeans are central to alternative protein production.
• Major Supplier: Shuangta dominates the pea protein market.
• Import Reliance: China imports raw materials from Canada and Russia.

The situation highlights the complex interplay between global demand, domestic production, and environmental factors in the burgeoning alternative protein industry.

Similar Foundation, Varied Approaches

The majority of alternative meat products presently available within China utilize a plant-based protein source. Given China’s dominant position in the ingredient supply chain for this industry, opportunities for significant product differentiation are often constrained, according to a food-tech investor based in Taiwan.

This investor, requesting anonymity, noted that Chinese companies frequently prioritize brand building and marketing efforts as a result.

Chen, from Lever VC, also indicated that numerous meat alternative startups in China are experiencing substantial financial losses due to marketing expenditures and are not yet achieving profitability. However, entrepreneurs interviewed by TechCrunch – a group of six – quickly countered the assertion that their offerings are primarily driven by marketing.

Xie, of Vesta, explained that the ultimate product quality isn’t solely determined by the protein source. A diverse array of additives, flavorings, and the production technology itself all play crucial roles.

Following extraction from the plant, the protein requires mechanical processing to replicate the texture and flavor of authentic meat. Companies like Beyond Meat employ a sophisticated technique known as high moisture extrusion to modify the structure of plant proteins, enhancing their meat-like qualities.

However, Chen stated that relatively few Chinese companies have fully mastered this technology, and the nation as a whole currently lacks sufficient highly skilled personnel for the advancement of alternative meat development.

Palatability is also a key factor. Imitation versions of Western meat products like patties, bacon, and steak may not resonate as strongly with Chinese consumers as they do in their originating markets. Conversely, the breadth of Chinese culinary traditions presents opportunities for “innovation and differentiation” among domestic companies, as highlighted by Ron Cao, a founding partner at Sky9 Capital, an investor in Starfield.

Certain companies are attempting to distinguish themselves through the use of unconventional plant sources. Haofood, for instance, centers its products around peanuts, while still employing a processing methodology comparable to that of pea or soy-based competitors.

Astrid Prajogo, founder of Haofood, discovered through conversations with approximately 100 chefs in China that soy-based meat often evokes a tofu-like flavor for many consumers. In contrast, “peanuts offer a pleasant taste and avoid the tofu association. They are milder in flavor compared to wheat and peas,” Prajogo explained.

Ultimately, the widespread acceptance of alternative meats in China will hinge on pricing. Currently, most alternatives carry a higher price tag than conventional meat, according to Hong Xiaoqi, founder of Hey Maet. She remains optimistic, however, that her company will eventually “make plant-based meat significantly more affordable.”

Cao shared this perspective, asserting that “China possesses a strong foundation in soy protein processing. Its comprehensive supply chain facilitates large-scale, intensive production, creating a pathway to reduce the cost of plant-based meat to below that of real meat.”

Carbon Footprint Considerations

Given China’s prominent role as a provider of plant-based proteins, a significant distance may be involved in the transportation of certain components utilized by companies like Beyond Meat and Eat Just.

Beyond Meat chose not to provide a statement for this report; however, their initial public offering documents detailed a Canadian source for yellow peas.

The prospectus indicated that this supplier, located in China, exports the processed pea protein to the United States via an intermediary facility before final shipment to Beyond Meat’s Columbia, Missouri plant.

Eat Just currently obtains mung bean protein from various global locations, not exclusively China, as confirmed by spokesperson Andrew Noyes in a statement to TechCrunch.

Noyes further explained that, alongside U.S. protein processing, Eat Just will also process protein in Germany at Emsland to serve the European market.

Additionally, the completion of their Singapore factory will facilitate manufacturing and distribution throughout Asia.

Beyond the environmental impact, extended supply chains contribute to increased expenses.

Conversely, Chinese startups benefit from their geographical closeness to suppliers, enabling more competitive product pricing, according to Hong, a representative of Shuangta-backed company.

Both Beyond Meat and Eat Just are actively seeking to establish manufacturing capabilities within China.

Beyond Meat is currently constructing a production facility near Shanghai, and Eat Just is actively searching for downstream manufacturing collaborations.

The Dawn of Cultured Meat

Several pioneering companies in Western nations are currently focused on advancing the development of next-generation analog meat, utilizing stem cells sourced directly from animal muscle tissue.

While investment in this specific area remains limited within China, attributed to substantial research and development expenses coupled with extended development timelines, numerous investors interviewed by TechCrunch posit that cell-cultured meat represents a sustainable competitive advantage for alternative protein businesses in the future.

Emerging Chinese Startups

Joes Future Food and CellX, two startups based in eastern China and operating within government-supported high-tech zones, have publicly declared their intentions to cultivate meat in a laboratory setting.

These companies are poised to become key players in China’s evolving alternative protein landscape, a market that must appeal not only to environmentally conscious individuals and health-focused consumers but also to those with discerning palates.

Consumer Feedback on Plant-Based Alternatives

Lingyu shared her experience after sampling a plant-based spam burger from McDonald’s, noting, “The texture is somewhat grainy, and a slight bitterness is detectable with careful chewing.”

She continued, “While it is passable, my preference remains with the traditional sausage McMuffin.”