Published May 25, 2023
One of the few genuinely revolutionary developments in retailing in recent years has been the development and rapid growth of products like plant-based milk, plant-based meat, and other alternatives to traditional dairy and meat products. Plant-based products are gaining space on supermarket shelves as consumers, especially those under 40, seek ethical and sustainable alternatives to the foodstuffs they grew up with. While there has always been a market for those with lactose intolerance, the growth in the plant-based food market represents a significant sea change in the sector that retailers at all levels need to understand and grasp. In many ways, this food revolution has only just started in North America, and worldwide.
Let's explore all this in more detail.
There have been alternatives to dairy products available for many years. Still, these have only typically been available in specialty stores catering to those especially interested in healthy lifestyle issues.
They were rarely widely available in supermarkets, let alone corner stores or gas stations.
All this is changing fast.
Firstly, large dairy producers and FMCG (Fast-moving consumer goods) businesses are either developing their brands or buying up the start-up producers who helped pioneer the consumerization of plant-based milk as a practical alternative to dairy-based milk.
Another trend is the development of plant-based meat products. Previously, items like tofu or nut roast were considered 'alternatives' to meat. But now, we can make effective meat substitutes from plants.
This is driven by the same ethical and sustainability drivers amongst consumers as vegan and flexitarian lifestyles move from the fringe to the mainstream.
We have now reached the point where large corporate businesses like Tyson, Kellogg and Kraft Heinz are providing offerings, with other private label manufacturers also offering products too. This adoption is being driven by vendors like Taco Bell, Chipotle, Jamba Juice, and Starbucks, adding plant-based products to their offerings.
The plant-based food market is expected to grow three times between 2023 and 2033, from $11.3bn to $35.9bn, as more people adopt vegan and flexitarian lifestyles. That equates to about 12% growth per year.
As we've already touched on, this growth is impacting all retail channels. The major brands are tweaking existing brand offerings or creating new ones to meet the demand. Private-label producers are creating offerings like almond, coconut, and rice milk for retail chains looking to bolster their own brand offerings. Restaurant and coffee chains must now offer vegan options for their food service and also their beverages; otherwise, consumers with money to spend will go elsewhere. Even in the wholesale sector, shelf space is being cleared for vegan options in the expectation that small-scale retailers like gas stations and corner stores will increase their sales too.
Related: Private-label brands: A new source of profitability?
The good news is that the speed of growth and the investment needed to deliver it is now driving economies of scale, reducing the price point of what were previously expensive items.
It's quite clear that the market in recent years has shifted significantly and fast. Research shows that 42% of households purchased plant-based milk in 2021, with 76% of plant-based milk buyers making multiple purchases. These numbers suggest that the demand for products like rice milk and oat milk is moving from its core demographic into the mainstream, at least initially.
For plant-based meat products, the results are equally stark. Around 19% of households purchased plant-based meat in 2021, up from 18% in 2020. 64% of buyers bought plant-based meat more than once during the year. These numbers, albeit at a lower level, again suggest that the consumption of plant-based meat products is going increasingly mainstream too.
That's not to say that traditional milk and meat products will disappear - far from it. But it does highlight the need for retailers to understand that plant-based products are going mainstream fast, with many consumers seeing it as just another product that they would expect to see in any retail outlet.
From the points we've already highlighted, it is clear that the market for plant-based dairy products will grow rapidly.
It is fair to assume that plant-based meat alternatives will go through a similar growth path as it becomes increasingly normal for people to consume these products without inviting comments. Issues around climate change, sustainability, food miles and much else will drive acceptance of milk and meat alternatives. It is now a question of how long it will take and what scale of investment across the retail grocery sector will be needed to manage these changes.
That said, it will not be plain sailing for everyone.
This rapid growth of plant-based milk is already raising many ecological issues that will likely grow over time. Almond milk, for example, is proving hugely popular. Still, its main ingredient uses a great deal of water in its growing cycle in regions, especially in California, already subject to ongoing issues with their water supply.
There will be issues over land use, as crops grown for normal food compete with crops grown to feed animals for dairy and meat alternatives. Water use in all this will be a significant challenge, especially as climate change starts to impact land use.
This also brings into play issues around crop yields and the use of genetically modified plants in production.
Other uses of plant-based products are emerging, too, as they feature in medical products and food supplements, which will further change the market.
In all likelihood, the market will become extremely complex. Currently, companies only promote dairy milk, albeit in low-fat, semi-skimmed, and full-fat variants, for example. With plant-based dairy alternatives, the market will become much more complex as producers promote the virtues of almond milk over rice milk, or coconut milk, or the next 'big thing,' for example. Some producers will use GM crops, and others will promote products that do not. This is before we get into value, standard, and premium product positioning.
Other challenges will emerge. 'Lab-grown meat' will likely emerge as a viable business in the next few years, again offering alternatives to traditional meat and plant-based alternatives.
If all this seems confusing, bear with us because it will likely be more confusing in the future. There will be a range of microbrands and micro offerings - albeit offered under the umbrella of a few megabrands in the FMCG space. For retailers, the challenge will be understanding which brands and offerings their customers want and ensuring they always have them in stock. With people expecting a broader range of niche products, retailers will have to weigh carefully what space is allocated to dairy and dairy-like products and which will be allocated to their other products. They are already very skilled at this, but with more complexity, having a detailed understanding of the demographics of the local population that can support the viability of a store location will be more important than ever.
David Wilkinson, President, NCR Commerce on the Future of Self-Checkout, POS & more