Future Food Now: Asia-Pacific (#10) COVID-19 special

Across the region, one COVID-19 trend is very obvious: food service sector is suffering, while retail food sales are booming.

David Yeung has a unique perspective as Hong Kong-based Green Monday Group that he co-founded is involved in all major sectors of the industry: operating retail stores, restaurants and distributing plant-based products like Beyond Meat and Omnipork to supermarkets and food service partners. He recently shared in an interview with Bloomberg that while the groups’ plant-based eateries in HK experienced 50% drop in sales between January and March, in the same period grocery sales in their own outlets and wholesale to supermarkets increased by 77%. Group’s online shop recorded even higher increase of 115%. David said he believes many Hong Kong ‘pure-play’ restaurants may not survive the crisis.

Sonalie Figueiras, the founder of GreenQueen, paints a similar picture:

Yuan Oeij, who is running The Privé Group in Singapore told me that he has seen a gradual decline in foot traffic and sales as COVID-19 crisis developed:

Oeij expects to keep 2 out of his 8 Prive outlets open during the month-long lockdown when only take away and deliveries are permitted. His limited “best hits” take away menu is ~50% plant-based. As for delivery, he will be working with one of the online platforms and is also planning to set up his own logistics. Singapore’s government announced “Food Delivery Booster Package” in the last days, subsidising 5% of the delivery fee charged by the country’s three delivery platforms (GrabFood, FoodPanda and Deliveroo) during the lockdown. The typical fee is ~30%, so the subsidy will bring it down to 25%, which according to Oeij remains challenging for many low-margin eateries.

Like other restaurant owners, he says he is mostly focused on his staff and hopes that with Singapore’s government support, he will be able to retain them (the government is offering SG$600 ‘solidarity payment’ to each adult Singaporean and extra wage support).

While food service revenue is in free fall, supermarkets are seeing record sales numbers of food, as customers are stocking up and moving their spending towards retail.

According to my sources close to supermarket chains in Singapore and Australia, the sales of retail plant-based products in those countries is growing on par with other categories – unlike the US, where plant-based meat is reportedly noting much higher % growth rates than animal meat (of course from a much smaller base).

This shift in balance is confirmed by data from abillionveg, a platform with a user-generated reviews of plant-based restaurant dishes and consumer products. Founder Vikas Garg told me that in March majority of their growth came from product reviews, while typically the restaurant side of the platform has been stronger.

Some global leaders in plant-based products that are present in Asia are also reacting to these market dynamics. Impossible Foods told me that they are “in the process of lowering our prices to distributors in HK and SG this month onwards as we continue to reach record monthly production and new economies of scale” (in the US the wholesale prices were recently slashed ~15%). In the US, where company has very limited retail presence (~150 outlets), the company recently notified all their food service partners that they are now allowed to sell food service packs directly to consumers to cook at home, effectively dramatically growing their retail coverage and allowing restaurants to sell an unused stock. Impossible told me they “would like to explore the possibility of replicating this process across Singapore and Hong Kong”.

Changing environment forced quite a few startups that have been planning to launch their products to reconsider what is the best way to bring them to the market.

Dan Riegler, co-founder of Karana, building meat alternative products from Asian whole food ingredients like jackfruit said:

Michael Fox, co-founder and CEO of Fable, making plant-based meat from shiitake mushrooms and soy protein moved their launch online:

Fable is planning to hire a refrigerated truck and deliver to local customers within 48h window, with options of 1kg ‘food service’ package of their plant-based ‘pulled-pork’ or one of the two ready meals.

Stuart Cook, co-founder of Flave – new Australian plant-based fast causal chain startup:

Varun Deshpande, Managing Director of GFI India, non-profit supporting alt protein industry on prospects of Indian nascent plant-based industry:

Most of the plant-based startups are able to operate even under various local variants of lockdown as food is considered an essential service. Many say that their supply chains have not been significantly affected for now, but at least one startup from South East Asia that prefers not to be named said they need to find alternative ingredients due to virus-related disruptions. They also closed their manufacturing temporarily “due to the movement control orders”.

Nick Hazell, CEO of v2food in Australia, a startup currently supplying plant-based Rebel Whoppers to Burger King/Hungry Jack’s in ANZ said this about their plans:

Supply chain disruptions can affect various aspects of the finished product, like in the case of Fable – CEO Michael Fox explains:

All cell-based startups are in the research & development phase, so I was curious how COVID-19 affected their ability to conduct R&D work.

Tim Noakesmith, co-founder of Sydney-based VOW (developing cultured meat from pork to ‘exotic’ species like a kangaroo) said:

VOW has also seen an impact on the hiring process. “We had signed contracts with two talented scientists from the UK that can unfortunately no longer enter the country” – said Noakesmith. They also had other individuals midway through the hiring process from the USA and Shanghai.

Carrie Chan, co-founder of Avant Meats from Hong Kong (focusing on cell-based seafood):

Nick Beaumont, the founder of Australian startup Heuros, working on technology enabling cell-based meat production decided to shut down the lab work couple of weeks ago:

Is there any impact so far on materials that are needed for the lab work? Carrie Chan (Avant) said they did experience roughly 1-2 week delays in material delivery.

Tim Noakesmith (VOW):

He also said they noticed price increased in some things like FBS [Fetal Bovine Serum] but added: “luckily we’re successfully growing cells in serum free media which has dramatically reduced any reliance we have on FBS.”

Nick Beaumont from Heuros points to storage as a potential challenge if self-isolation is required for a longer period:

Noakesmith (VOW) is also concerned about the progress in regulating cell-based products: “Government resources will be stretched addressing the immediate problems, which threatens to slow the development of regulatory frameworks for cell-based meats.”

What do investors that have been involved in this space have to say about the changing landscape and what suggestions they have for plant-based and cell-based startups?

Samantha Wong, Partner at Blackbird, generalist VC firm from Australia/NZ that invested in Fable, Heuros and Sunfed Meats:

Christian Cadeo, Managing Partner at Big Idea Ventures, hybrid accelerator/VC focused on alternative proteins, based in Singapore and New York (invested in Phuture Meat, Karana, Shiok Meats):

Phil Morle, Partner at Main Square Ventures, a venture arm of CSIRO, Australian federal government research agency (invested in v2food, supplier of Rebel Whopper to Burger King/Hungry Jack’s):

Tim Noakesmith, co-founder of VOW adds a different perspective that might be applicable to cell-based (cultivated) meat startups:

Samantha Wong (Blackbird) on raising funds now vs. later:

Christian Cadeo (Big Idea Ventures) on managing cash burn:

Samantha Wong (Blackbird) adds on the same topic:

Phil Morle (Main Square Ventures) about investor mindset:

The final tip for entrepreneurs from Christian Cadeo (BIV) is about resilience:

Mainland China operates on a different timeline as the coronavirus has hit there first and social distancing was in place as early as January. Now that pandemic appears to be under control, restrictions are gradually lifted. To some extent, it can give an idea what the “new normal” will look like post-pandemic in the rest of the region and the world – with caveats as China is in many respects a quite different market.

According to Christiana Zhu, founder of Beijing plant-based startup Marvelous Foods, “many parts of China have re-opened shops and malls. Beijing has the strictest rules around closure and distancing, but most other cities are seeing a rapid return of social activity.“

She believes that prevailing strict sanitary and health screening measures have turned some away from offline food shopping and combined with the convenience factor, online grocery trend will continue even now that the most severe lockdown is over.

Graham Miao, general manager of GFIC, an alternative protein consultancy firm is based in Shanghai, told me his city “feels about 50% back on track” as of early April. Restaurants see guests returning for dining in, although temperature and travel history checks are common.

He points out that food delivery apps fuelled by billions of dollars of investment have already seen very high rates of consumer adoption pre-covid. It’s not clear if their volumes actually increased as Chinese consumers seem to choose to cook at home in the time of lockdown. According to China Cuisine Association, only 11% of restaurants have seen their take away orders value increased YoY in February and most have seen a quite dramatic drop.

China “wet markets”, which some experts have linked to COVID-19 spread, mostly reopened. Miao believes we will soon see stricter food safety regulations on the markets and likely improvements of the cold chain supplying them with fresh meat/seafood. But any major restrictions are unlikely as a significant part of the population (Miao’s estimate: 30-40%) is relying on them for their daily grocery needs.

Nicolas Stoekert, from Shanghai-based FEAST (they help emerging food brands to enter China market) told me he has not seen any “structural shift in consumer mindset so far” when it comes to plant-based alternatives in relation to the crisis. One consumer survey suggests that fresh meat and seafood purchases dropped by 30-60% in February, but likely replaced by frozen products (+23%) as well as dairy and eggs (up 24-30%).

Stoekert remains optimistic that “general awareness of the role of healthy balanced diets for strong, resilient immune systems will ultimately benefit the next-gen plant-based movement in China”. Miao agrees, adding that consumers will be even more cautious of what they eat and food safety will become even more of the concern among the general population.

A similar sentiment is expressed by Albert Tseng from Dao Foods. In March they announced their investment in a plant-based startup Starfield, together with New Crop Capital, Matrix Partners China and Joy Capital, which is a first known case of Chinese startup from the sector raising money from major local and international investors. Albert said: “COVID19 has certainly caused disruption for Chinese companies and entrepreneurs in the plant-based food sector. However, we remain excited about the prospects for the sector, particularly as we believe this situation is opening people’s minds to considering different ways to eat and live.”

He pointed to Starfield’s “Virus Fighting” campaign in February and said the startup is about to announce “several alliances with various major restaurant chains”.

Dao Foods is indeed confident: in mid-April it will start accepting first applications for new Dao Foods Incubator (道夫子孵化器), providing capital and support to 5 China-focused alternative protein companies every 6 months (more details expected soon via their LinkedIn and WeChat:DaoVentures).

Finally, I asked everyone about their views on how the industry landscape might change post-pandemic.

Michael Fox (Fable) talked about the way people will shop for food:

Nick Hazell (v2food) mentioned changing perceptions about animal meat:

Nicolas Stoekert (FEAST) offered China perspective:

Should we expect more governments support and more investment in the alternative protein industry after the crisis? Christian Cadeo (BIV) thinks so, at least for Singapore:

Phil Morle (Main Square Ventures) hopes for a change of tune in Australia:

Tim Noakesmith (VOW) expects more investors will be interested in this space:

Overall, the industry insiders remain positive for the long term prospects. Nick Beaumont (Heuros) expects that “most of the sector in Asia-Pacific will bounce back”, adding: “You have to be pretty resilient to start up in food tech [in the first place]”.

Christian Cadeo (BIV) said:

Personally, I am also optimistic. I believe we will ultimately get back to the momentum behind the new protein industry with potential extra boost coming from shifting consumer perspectives and increased focus on safe, healthy foods. What is less clear for me is a short- to mid-term impact. Majority of consumers buying plant-based goods consider themselves “flexitarians”. In the time of the looming recession, will they continue to purchase these products, that tend to be more expensive? Or rather shift back to more affordable and easily available animal proteins for the time being? The winners in a short-term might be the plant-based companies that are able to achieve price parity (or close to) with animal-based equivalents.