Companies working in the plant-based protein space can expect to see large growth once their meat alternatives achieve price parity, a new report from management consultancy firm Kearney has found.
According to data collected for the report, a 1% decrease in price is linked to a 3% increase in market share for plant-based patties. A similar trend can be predicted for other types of meat alternatives.
Kearney estimates that once price parity is achieved, some plant-based meat sub-categories could have a potential for up to a 20% category share.
Cost is one of the biggest barriers currently facing plant-based protein companies, alongside supply chain profitability, taste, and consumer acceptance.
Prices for realistic ‘like-meat’ alternatives are still 50% to 300% higher at retail, according to the report.
Of those Kearney surveyed who said they were not planning to purchase plant-based protein alternatives in the next 12 months, one third reported it was because they were prohibitively expensive.
One of the main reasons as to why plant-based meat alternatives are priced so much higher comes down to their company’s funding models, Kearney says.
“Lowering the price is hard, especially for venture-backed companies that — because of constant shareholder demands for returns — find themselves forced to maintain higher price points while continually investing in R&D,” comment report authors Corey Chafin and Brett Larson.
This means that even though food processing costs have largely decreased as technology has improved, translating this to the consumer price point is hard – particularly for smaller companies, despite the fact the plant-based protein sector has seen record investment over the last two years. Furthermore, the price of intensively farmed meat is currently very low.
However Kearney’s analysis shows this is a quickly developing situation, and that there are several reasons for an optimistic future for the sector.
Because of increasing inflation occurring around the world, the cost of animal-sourced protein is beginning to rise. This is a contrast to plant-based meats, which the report says, “have yet to see inflationary pressures”.
“Prices of traditional meats are up more than 10% relative to the same time last year, while the price of meat alternatives is lower than it was this time last year,” Chafin and Larson explain.
Some plant-based meat companies are already beginning to drop their prices. Impossible Foods cut their consumer prices by 20% last year, and Beyond Meat has announced plans to undercut the price of animal protein in at least one category by 2024.
At the current rate, Chafin and Larson predict price parity will be achieved in the next “five to seven years”.
However, they add that if the right agreements are made between supermarkets, manufacturers and brands, this time could be reduced.
Supermarkets like Aldi, for example, which have lower marketing costs, reduced R&D spending and scaled production and distribution capacity already are able to sell their own-brand meat alternatives much cheaper.
Chafin and Larson say: “There’s no reason why that timeline can’t be shortened if manufacturers and retailers can agree to put consumer needs and preferences ahead of margin.”