Investment in SA’s plant-based food sector is intensifying as several JSE-listed companies venture into a niche segment likely to benefit from consumer demand for healthy eating.
Plant-based alternatives are more expensive than meat because, amid lower demand, they do not have the economies of scale of animal protein production.
Yet multinationals such as Nestlé and Unilever are stepping up production of plant-based products while even the likes of McDonald's and Burger King are offering vegan options.
According to a Bloomberg Intelligence report last year, plant-based foods could make up to 7.7% of the global protein market by 2030, with a value of more than $162bn (R2.4-trillion), from $29.4bn in 2020.
Small Talk Daily analyst Anthony Clark said this week South African companies in the plant-based food sector, which caters to upper-income consumers, faced a tough task — their products were unlikely to gain mass market traction “until we get significant volume of scale and the price points match, or are lower than, the equivalent mass-produced animal protein”.
He doubts this will happen in SA, where more than half the population of 60-million rely on social grants to survive and face price hikes of more than 30% for staple products such as maize. Given a choice between meat or a more expensive plant-based alternative, consumers would always opt for the animal protein.
But players in the sector hope this will change over time as investment increases and consumers turn to plant-based foods for health and other reasons.
Tiger Brands’ Venture Capital Fund, which last week announced it had bought a minority stake in Cape Town-based Herbivore Earthfoods for an undisclosed amount, hopes economies of scale can be achieved over the long term and that plant-based foods gain traction in the mass market as competition intensifies with new entrants.
Citing an African plant protein market report, Tiger Brands said the market — dominated by SA with a 57% share — is estimated to grow 6.5% a year to reach $560m by 2023.
But the Ukraine war has created additional challenges as prices of key agricultural commodities such as wheat, and sunflower oil and palm oil have soared, raising the question of whether now is the right time to invest.
Where we are seeing the traction is at a brand like Spur. There are volume increases in the 'beyond beef' burger and other plant-based options
— Spur CEO Val Nichas
Venture Capital Fund director Barati Mahloele acknowledges it is a difficult time for the food sector.
“Our consumers at the bottom end of the market are feeling it the most and food inflation is really high and it is going to get a little bit worse before it gets better unfortunately.
“But this investment is very much with a long-term horizon and so what we hope to do is over the next couple of years work together with Herbivore Earthfoods to bring down the price of plant-based products.
“For us the real investment we see here is not on how much of this niche market share can we get, it is about how do we transition from being a niche play to mass market.”
RCL Foods — which has a joint venture with Livekindly Collective, the global plant-based food company that bought Durban-based Fry Family Food in 2020 — believes now is the right time to invest as there is potential for lower pricing over the long term as more people opt for plant-based alternatives.
The Livekindly joint venture is based on a strategy in which products from Fry’s factory are distributed via RCL’s platform, along with Livekindly’s imported products from Oumph! and LikeMeat.
Stephen Heath, group corporate affairs director at RCL Foods, said the group is “taking a longer term view that by scaling up, the goal of reaching price parity with current protein sources can be achieved”.
“Looking at the current supply chain for protein production, plant-based food is used to feed animals which are used to feed humans. As in any supply chain, removing one element reduces cost, so by removing the animal component — which is also the most costly part of the supply chain — the costs of production will reduce.
“And by scaling up on this basis, at least parity with current protein prices should be achieved. So our view is that while it might seem the wrong time to be investing, it is actually the right time to invest and scale up, given the longer term goal,” he said.
Late last year, Spur Corp launched pilot outlet Modrockers in Rosebank, Johannesburg, serving items such as plant-based burgers, nuggets and shakes.
The group has also added more plant-based items to menus at such chains as Panarottis and the Spur brand itself, which has almost 300 restaurants in SA, said CEO Val Nichas.
She said the main thrust of the group’s approach was to give customers options and that prices would drop over time as demand boosted volumes.
“Where we are seeing the traction is at a brand like Spur. There are volume increases in the 'beyond beef' burger and other plant-based options, and that is why I do believe there is going to be scale over time.”
As the menu options for plant-based food grew at its larger brands, the company would reap the “benefit of volume and better purchasing power around ingredients”.
Nichas said some of the ingredients in plant-based foods are relatively inexpensive but the large-scale manufacturing process can be costly.
Famous Brands, which is buying a 51% interest in Lexi’s Healthy Eatery for an undisclosed amount, believes there is potential to expand the plant-based dining group’s reach.
Lexi’s operates four outlets in Johannesburg, Pretoria and Cape Town.
“While historically plant-based food was regarded as a privileged way of life … there has been a marked expansion of the demographics of Lexi’s customers,” Famous Brands said in a statement.
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