Industry Report: Labor’s Long Reach Creates Challenges Beyond Processing

Cultivated meat gains approval

California-based cultivated meat brands Upside Foods and Good Meat were granted the final step of USDA approval in June to sell their chicken products commercially in restaurants and retail, and are the first two in the U.S. with that regulatory clearance. The companies had already received approval from the Food and Drug Administration (FDA), as both USDA and FDA approval are needed in the U.S. to sell cultivated meat. Good Meat previously received approval to sell its chicken in Singapore in 2020, the only other country until now to do so.

 While the expense of producing cultivated meat currently keeps it from reaching price parity with meat harvested from live animals—particularly the cost and availability of media to feed animal cells while they grow in tanks—two high-profile restaurateurs have partnered with the companies to sell cultivated chicken on their menus. Chef Dominique Crenn will serve Upside’s chicken at her Bar Crenn in San Francisco, and Chef José Andrés will serve Good Meat’s chicken at his China Chilcano restaurant in Washington, D.C.

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Generally speaking, cultivated meat is grown from primary animal cells in cultivators similar to fermentation tanks for breweries, with some companies using edible scaffolding made of substances like soy or algae, for cells to latch onto and grow into an undefined piece of meat. Because cultivated meat doesn’t grow into specific animal parts, like chicken legs or thighs, for example, the finished mass of meat is formed later into whatever the company wants to sell, like nuggets, tenders, or even whole-muscle slabs.

Watch for more USDA/FDA approval in this space over the next year, particularly in the cultivated seafood segment.

Investment in emerging brands wanes

Plant-based brand Tattooed Chef, which started in 2017 and had reached wide distribution across grocery and wholesale outlets, including Costco, filed for bankruptcy this year as sales of plant-based foods dropped, cost of materials rose, and investors pulled away from funding the company. Tattooed Chef is an example of a newer brand—plant-based or otherwise—that relies on investors to get through financial rough patches like 2023, and this year, investment across the industry in startup and emerging brands has fallen.

At the recent Global Midwest Alliance conference in Chicago, I spoke to Shayna Harris, co-founder and managing partner at Supply Change Capital, about the market conditions for startups and emerging CPG brands, how she approaches this segment of the industry as an investor, and also how she knows when it’s time to stop funding a company.High prices have hit the still-nascent plant-based foods industry in 2023, as consumers shopped for bargains instead. This has had a ripple effect on the investment community for startups and emerging brands, as funding for those companies has waned.Getty

“We do initial checks at pre-seed and seed stage, and then in select instances, we’ll follow with capital,” she explains. “We’re not set up to write the first check all the way to the last check as a $40 million fund. So, we’ve got a diversified portfolio strategy, and with each check, we’re evaluating as if it was a new investment opportunity. Initially, that’s the fear to make an investment today vs. making a new investment in a totally fresh company with a different business plan. Obviously, the comparative set shifts year to year based on what companies you’re evaluating, market dynamics, and pricing for early-stage companies. We’re evaluating each time and it’s delicate and challenging, because when you’re investing early stage in food and food technology, what you need is a combination of equity and debt. And that can be difficult unless you already have equipment to finance or other assets that you can either finance or borrow against.”

Harris mentioned one company in her portfolio that didn’t succeed very early on. “It was really frustrating,” she says. “It was at a time where they were about to close their Series A funding and then the market turned. So, had that been a different market environment or a year or two earlier, we think the outcome would have been different.”

Environmental goals

While global brands like PepsiCo, General Mills, Cargill, Kraft Heinz, JBS and others publicized their corporate sustainability initiatives this year in areas like recycling, the circular economy, energy-efficient factories, methane gas conversion, reducing beef emissions, phasing out plastic use, moving to paperboard packaging, and more, 2023 has been the year where some sustainability goals set years prior and earmarked for completion timelines like 2025 may have been underestimated, and might serve as a lesson for current and future sustainability goal setting.

At the interpack show earlier this year in Düsseldorf, Germany, I watched a panel of global sustainability experts unanimously agree that global recycling initiatives for CPG packaging were nowhere close to meeting a previously set 2025 goal, and doubted those goals would be accomplished on time. Those on the panel also mentioned that a combination of wildly different rules and guidelines from state to state in the U.S., coupled with general consumer indifference to do the work it takes to recycle properly (like separating materials into different bins), and the overall lack of a proven business model to invest in recycling infrastructure and make it profitable, means it’s unlikely some near-term recycling goals will be met.

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The panel concluded that broadly defined sustainability goals—which look good on paper—are not as effective as working within a “silo of sustainability” with a clear focus on one objective to help achieve those ambitious goals on time.  

From a consumer standpoint, consulting firm Kearney reported the emerging awareness of “climavorism,” which can be defined as shoppers making conscious choices about what food and beverage they buy based on climate impacts in producing/distributing those products, with the overall intent of benefitting the planet through their purchases. Kearney mentioned that inflation has slowed down the adoption of climavorism this year, but predicts it will gain momentum again when prices return to normal.

Plant construction pipeline

Several food and beverage plants are slated to begin construction or expansion this year, including:

·     Upside Foods is building a $140 million, 187,000-sq-ft cultivated meat plant in Glenview, Ill. It’s Upside’s first commercial facility since gaining USDA approval to sell cultivated meat in the U.S. No timetable has been announced for construction.

·      JBS is building its first commercial-scale cultivated meat plant in San Sebastian, Spain, for $41 million. The plant—expected to open in 2024—will have the capability of producing 1,000 metric tons of cultivated meat per year, with room to expand to 4,000 metric tons. 

·      A subsidiary of Ferrero Group (Wells Enterprises) plans to double the size of its Dunkirk, N.Y., manufacturing facility, where frozen treats like Blue Bunny ice cream and Bomb Pop are made. The expansion is scheduled to be finished in 2025.

·      Anheuser-Busch is investing $22.5 million into its Houston brewery, upgrading the facility’s internal systems to improve energy efficiency and workplace safety. Work on a new cooling system as part of the project is expected to be completed by the end of 2023.

·      Heineken Mexico is building a $460 million greenfield brewery in Yucatán, with construction scheduled to be finished by 2026.

·      Campbell Soup is investing $160 million at its Richmond, Utah, plant to expand production of Goldfish snack crackers by 5 million per hour and double the bakery’s output by 50%. The project is expected to be completed in 2024.

The USDA granted approval this year allowing two U.S. cultivated meat companies to sell their products to the public. This regulatory breakthrough means other cultivated protein products like seafood could also gain approval in the near future.Getty

Mergers and acquisitions

Among the biggest announcements at the corporate level of food and beverage manufacturing was Kellogg splitting its business into two separate entities: a snacking brand called Kellanova, and a cereal brand called WK Kellogg Co.

Kellogg was a rare example of a company expanding internally, while much of the industry was growing through mergers and acquisitions. Here are some of the most prominent M&As in 2023 so far:

·      Campbell Soup purchased Sovos Brands, maker of Rao’s pasta sauces, for $2.7 billion.

·      Anheuser-Busch sold eight beer and beverage brands to cannabis company Tilray Brands for an undisclosed amount. The beverage brands acquired by Tilray include Shock Top, Breckenridge Brewery, and Redhook Brewery.

·      Keurig Dr. Pepper paid $300 million to acquire 33% of La Colombe Coffee Roasters.

·      Molson Coors acquired Blue Run Spirits for an undisclosed sum.

·      In the grocery industry, Aldi acquired 400 Winn-Dixie and Harveys Supermarket locations in the southeast U.S. for an undisclosed amount.

·      In foodservice, Subway was sold to Roark Capital for just over $9 billion.

·      Marie’s and Dean’s dips—both part of Ventura Foods—were sold to Brynwood Partners for an undisclosed price. The brands will become part of Brynwood’s West Madison Foods.

·      Plant-based company Livekindly Collective acquired plant-based brand Alpha Foods. Financial terms were not announced.

·      Lactalis Canada bought dessert brand Marie Morin Canada. Financial terms were not disclosed.