Your target market(s) may change over time, and that’s okay

In part two of our new scale-up series, we highlight the importance of finding the right market for your product at every stage of growth.

9 July 2024

A cartoon plant-based steak carrying a briefcase and walking along the road to success.
Image created using DALL-E

Competing in the food industry

The food industry is a notoriously difficult market to break into and succeed. Newcomers have to battle stiff competition, develop marketing and brand recognition, understand consumer needs, comply with regulations, the list goes on. One of the main challenges we see alternative protein companies face is achieving scale and price parity. Conventional meat, seafood, eggs, dairy and bulk food ingredients are commodity businesses, meaning they function on high volumes and low margins. For alternative protein businesses that have not fully scaled up their operations, it is extremely difficult to offer low margins and be profitable. It’s a catch-22: mass market consumer adoption requires alternative protein companies to scale and reach price parity, but for them to scale and reach price parity they need to have sufficient consumer demand. So what can companies do? 

Identify markets you can win at every stage of your business

Just because commodity markets may be your company’s end goal, that doesn’t mean it needs to be your starting point. Instead, it may mean identifying smaller, niche markets where consumers are willing to pay more for your products. This could be high-end meat and seafood cuts, or high-value dairy – an approach we’ve seen startups like Redefine Meat, BlueNalu, and Helaina take.

Or, if you’re focusing on ingredients, it may mean finding end-product applications where your ingredient has a cost-in-use advantage over competing ingredients, like being more functional in performance attributes that buyers care about, such as solubility or purity. The EVERY Company has been successful in this approach, with the development of their highly-soluble egg protein that can be used to fortify beverages with protein.

For some companies, it may even make sense to first target niche markets outside of the food industry. The underlying technologies of alternative proteins are also relevant in the pharmaceutical, cosmetic, and nutrition industries to name a few. The US-based startup Geltor has taken this approach, developing collagen and gelatin for the cosmetics industry, where there are higher margins, as well as for the food industry. This type of portfolio strategy, which targets multiple markets and applications with a variety of margin, pricing, and volume characteristics, is also a way to derisk your business. 

“Growing Geltor’s capacity isn’t just about making skin care vegan or gelatin kosher. It’s about using their technology to produce other proteins, too. ‘We want to make the appeal of Geltor’s bio-designed products so obvious from a performance and sustainability standpoint that choosing something else extracted from petroleum or animal byproducts is simply unimaginable’.”

ALEXANDER LORESTANI, CEO AND CO-FOUNDER OF GELTOR, AS QUOTED BY JONATHAN KAUFFMAN IN THE NEW YORK TIMES

Nevertheless, pursuing commodity markets is a worthwhile goal and can make strategic sense to target from the start for some startups. If your company does take this route, there are two key things to keep in mind: 1) build for low-cost and large scale from the beginning and 2) you will still need to find markets where consumers are willing to pay more for your products (and there are still significant volumes) and focus your efforts there initially. A great example of this is the approach Oatly took when introducing their oat milk. They first partnered with baristas at high-end, artisanal coffee shops across the United States, which helped drive brand awareness and position Oatly as the go-to plant-based milk. This allowed them to scale up and, in time, expand to all coffee shops and eventually enter retail. 

Whichever market(s) you decide to target, think about how your early markets can help you pave the way to reaching your end goal. We can take inspiration from the solar industry, where, as Gregory G Nemet writes in How Solar Energy Became Cheap, early markets included “navigation aids on offshore oil rigs, buoys, lighthouses, telecom repeater stations, satellites, calculators, radios, toys, and off-grid houses. Each of these markets was trivial compared to the 1% of electricity supply that solar serves today, never mind the 10-50% that solar could potentially contribute. However, these niche markets were important because they created a path. They occurred in succession and generally increased in size and decreased in willingness to pay.”

Dare to pivot

At the end of the day, it’s difficult to find a market where consumers are willing to sustainably pay a premium. For the alternative protein industry to achieve its goal of feeding a growing population and fostering a more sustainable, secure, and just food system, products need to be affordable. That’s why, together with identifying the right market, companies have to be laser-focused on bringing down costs from the start, and if there are no pathways to bringing down costs, then it may be time to pivot. 

Case study: TurtleTree

TurtleTree was founded by Fengru Lin in 2019 with the ambition of bringing cultivated milk to the market. But early on the team realised that it would be really difficult to compete with conventional milk that sells at $2/gallon, and that cultivated milk wouldn’t be commercially viable in the short-term. So TurtleTree pivoted to focus on producing lactoferrin via precision fermentation. 

Lactoferrin is one of the most valuable ingredients in milk, known for its functional benefits for immunity, iron regulation, and gut health. Unfortunately, milk only contains tiny amounts of lactoferrin, which also makes it extremely expensive (retailing between $600-$2000/kg). TurtleTree therefore identified it as the ideal market to target first, enabling it to generate profits and scale in the short term, supporting their long-term ambition of developing cultivated milk.

“Commercialisation is the name of the game,” says Fengru. “Lactoferrin is just the start. It’s a vital step in realising our broader commercialisation strategy and in enhancing access to milk’s most powerful ingredients.” 

In conclusion, identifying and successfully exploiting the right gap in the market for your product is easier said than done, but flexibility and pragmatism are key features to help sustainably scale in alternative protein startups. 

This is part two in our new Scale-Up series. You may also be interested in part one, exploring key principles for start-ups looking to scale. Check back soon for part three, where we explore how to build a force-multiplying team.

Author

Carlotte Lucas – photo by Barbara Evripidou/FirstAvenuePhotography.com

Carlotte Lucas Head of Industry

Carlotte supports the food industry to make delicious and affordable plant-based meat available across Europe, and prepare the sector for the arrival of cultivated meat.