Thanks for the fascinating comments! As an initial matter, it seems like you know more than I do about plant-based meat production costs, so I hope you’ll write something publicly on this. (Or let me know where it is if you already have.) On your questions:
Production efficiency: you make a good point about this being a limited share of the pie. I guess my thinking is ~25% of $3.6 is still 90c/lb., and if we’re ever going to compete with commodity chicken at <$1/lb, we’ll need to make progress on this piece. But I agree there’s no silver bullet here and other factors may be more important.
Cheaper ingredients: I don’t have a good sense on the scope to bring down flavor costs. Given many of the flavors are already being supplied by big mature companies, like Givaudan, I would expect there’s not huge scope. But maybe they’re viewing this as a niche premium product and achieving scale would bring in more competition on the flavor side and drive down prices? My guess is the biggest thing we could do here is ditch novel proteins in favor of soy and wheat, and see if there are ways to use a greater portion of cheaper less concentrated versions (e.g. some wheat gluten, instead of just protein concentrates).
Other: I’m curious what you think the other most important innovations are, and what the remaining ~35% of the cost pie is? I’ve heard distribution and retail inefficiencies are a major challenge on the retail price. But hear less on other factors that could reduce COGS.
Let me know if you’d be up for a chat some time—I’m interested to learn from your experience on this.
Distribution and retail inefficiencies: I would concur that those are issues. For example, retailers and distributors typically take higher margins on plant-based products vs animal-based ones. I can’t really give a good benchmark number here because it changes a fair bit based on country, how the retailer is positioned etc. That being said, I think the question worth asking is whether this is a tractable issue at all. My own take is that it isn’t particularly tractable (at least in the next decade or two). In my opinion, there are largely two broad scenarios (neither near term) in which a retailer/distributor/foodservice player would have downward margin pressure on plant based meat products:
i) The product’s price, in particular, is literally bringing people into the store that otherwise wouldn’t be there (so essentially operating somewhat like a “loss leader” product). Realistically, I think it’s unlikely that the average American/European (not the vegans and vegetarians) is going to be picking their retail store based on plant-based meat’s price any time soon.
ii) The production prices come down to a point where it enters the consideration of consumers with higher price elasticities of demand. In other words, today’s plant-based consumers are relatively price-insensitive so there’s little incentive to drop margins as an intermediary because you’re not really losing significant sales from keeping margins high. If one can get the base product prices to a point where the people considering purchase are more price-sensitive, then intermediary margins start to come under more pressure (but more on getting the base product price down below). In the case of beef in the US, I suspect that the key price point where it realistically enters this price elastic consumer’s mind is probably a little under the price of retail store beef. I’m fairly uncertain about whether that price point is attainable though I would lean towards the proposition that it is (with just beef though)
Important innovations: I’ll preface by saying that while I think it’s possible that plant-based meat can undercut beef on price in the next decade, I also think it’s fairly unlikely that plant-based in the rough form of Beyond/Impossible will ever be price competitive with something like chicken in the US (even at scale). That’s largely because of what I informally call “sidestream inefficiencies”. Here’s a quick sketch of how I see the larger system working. (simplified so please forgive any minor omissions though please let me know if you think I’ve majorly missed something)
Plant based industry
Even in my conception of the most “efficient” system, the price of your plant-based meat (let’s ignore non ingredient costs for the moment) is actually fairly dependent on how your ingredient provider is monetizing the sidestreams of your ingredients [This issue has already been highlighted by both McKinsey and Breakthrough with the case of pea starch].
So to price compete with chicken in the US, ultimately you need one of two scenarios to play out (I can’t think of other ways but anyone else who looks at this area, please feel free to add):
i) Find a plant that with minimal side stream creation and additives can be processed straight into a good chicken analogoue (maybe this plant exists but I’d deem this fairly unlikely naively). I’m skeptical that a simple soy/wheat flour product can do a good enough job here in terms of product performance but I could be wrong.
ii) Find a strain of fungi/algae/bacteria that happens to taste like chicken with minimal processing and side streams, is high yielding, isn’t a very “picky eater” when it comes to feed AND/OR chance upon a high quality feed which is currently a sidestream that is produced in large quantities, and maybe hated by the producer of the sidestream (for regulatory or other reasons) to the point where they may even pay you to take it off their hands (or at least give it away for close to free). This is a really high bar to reach but more likely than i) in my opinion.
Summary: In summary, I think it’s worth having more explicit conversations about waste sidestreams/cheap feed pathways and associated organisms that might work well with them. Often people working on these kinds of pathways can be hard to fund from a venture capital perspective because with a totally new organism that the consumer is eating as a whole (in other words NOT Perfect Day’s whey or Impossible’s heme) the regulatory pathway can be quite challenging/long/uncertain in many jurisdications because there’s just no safe history of consumption of the organism.
TLDR Humans are really picky eaters and tend to create inefficiencies/waste or low value streams when they eat plants posing as alternatives (making it expensive). So we need to find another relatively not so picky eater (like chicken but not sentient) that can turn low-value things into delicious protein with little waste to compete with animals on price.
Thanks for the fascinating comments! As an initial matter, it seems like you know more than I do about plant-based meat production costs, so I hope you’ll write something publicly on this. (Or let me know where it is if you already have.) On your questions:
Production efficiency: you make a good point about this being a limited share of the pie. I guess my thinking is ~25% of $3.6 is still 90c/lb., and if we’re ever going to compete with commodity chicken at <$1/lb, we’ll need to make progress on this piece. But I agree there’s no silver bullet here and other factors may be more important.
Cheaper ingredients: I don’t have a good sense on the scope to bring down flavor costs. Given many of the flavors are already being supplied by big mature companies, like Givaudan, I would expect there’s not huge scope. But maybe they’re viewing this as a niche premium product and achieving scale would bring in more competition on the flavor side and drive down prices? My guess is the biggest thing we could do here is ditch novel proteins in favor of soy and wheat, and see if there are ways to use a greater portion of cheaper less concentrated versions (e.g. some wheat gluten, instead of just protein concentrates).
Other: I’m curious what you think the other most important innovations are, and what the remaining ~35% of the cost pie is? I’ve heard distribution and retail inefficiencies are a major challenge on the retail price. But hear less on other factors that could reduce COGS.
Let me know if you’d be up for a chat some time—I’m interested to learn from your experience on this.
Hey Lewis,
Sorry for the delayed and long-ish reply here.
Distribution and retail inefficiencies:
I would concur that those are issues. For example, retailers and distributors typically take higher margins on plant-based products vs animal-based ones. I can’t really give a good benchmark number here because it changes a fair bit based on country, how the retailer is positioned etc.
That being said, I think the question worth asking is whether this is a tractable issue at all. My own take is that it isn’t particularly tractable (at least in the next decade or two). In my opinion, there are largely two broad scenarios (neither near term) in which a retailer/distributor/foodservice player would have downward margin pressure on plant based meat products:
i) The product’s price, in particular, is literally bringing people into the store that otherwise wouldn’t be there (so essentially operating somewhat like a “loss leader” product). Realistically, I think it’s unlikely that the average American/European (not the vegans and vegetarians) is going to be picking their retail store based on plant-based meat’s price any time soon.
ii) The production prices come down to a point where it enters the consideration of consumers with higher price elasticities of demand. In other words, today’s plant-based consumers are relatively price-insensitive so there’s little incentive to drop margins as an intermediary because you’re not really losing significant sales from keeping margins high. If one can get the base product prices to a point where the people considering purchase are more price-sensitive, then intermediary margins start to come under more pressure (but more on getting the base product price down below). In the case of beef in the US, I suspect that the key price point where it realistically enters this price elastic consumer’s mind is probably a little under the price of retail store beef. I’m fairly uncertain about whether that price point is attainable though I would lean towards the proposition that it is (with just beef though)
Important innovations:
I’ll preface by saying that while I think it’s possible that plant-based meat can undercut beef on price in the next decade, I also think it’s fairly unlikely that plant-based in the rough form of Beyond/Impossible will ever be price competitive with something like chicken in the US (even at scale). That’s largely because of what I informally call “sidestream inefficiencies”. Here’s a quick sketch of how I see the larger system working. (simplified so please forgive any minor omissions though please let me know if you think I’ve majorly missed something)
Even in my conception of the most “efficient” system, the price of your plant-based meat (let’s ignore non ingredient costs for the moment) is actually fairly dependent on how your ingredient provider is monetizing the sidestreams of your ingredients [This issue has already been highlighted by both McKinsey and Breakthrough with the case of pea starch].
So to price compete with chicken in the US, ultimately you need one of two scenarios to play out (I can’t think of other ways but anyone else who looks at this area, please feel free to add):
i) Find a plant that with minimal side stream creation and additives can be processed straight into a good chicken analogoue (maybe this plant exists but I’d deem this fairly unlikely naively). I’m skeptical that a simple soy/wheat flour product can do a good enough job here in terms of product performance but I could be wrong.
ii) Find a strain of fungi/algae/bacteria that happens to taste like chicken with minimal processing and side streams, is high yielding, isn’t a very “picky eater” when it comes to feed AND/OR chance upon a high quality feed which is currently a sidestream that is produced in large quantities, and maybe hated by the producer of the sidestream (for regulatory or other reasons) to the point where they may even pay you to take it off their hands (or at least give it away for close to free). This is a really high bar to reach but more likely than i) in my opinion.
Summary:
In summary, I think it’s worth having more explicit conversations about waste sidestreams/cheap feed pathways and associated organisms that might work well with them. Often people working on these kinds of pathways can be hard to fund from a venture capital perspective because with a totally new organism that the consumer is eating as a whole (in other words NOT Perfect Day’s whey or Impossible’s heme) the regulatory pathway can be quite challenging/long/uncertain in many jurisdications because there’s just no safe history of consumption of the organism.
TLDR
Humans are really picky eaters and tend to create inefficiencies/waste or low value streams when they eat plants posing as alternatives (making it expensive). So we need to find another relatively not so picky eater (like chicken but not sentient) that can turn low-value things into delicious protein with little waste to compete with animals on price.