This story is part of a series of pieces looking at the trends in the industry. Read more about Big Beer's race to innovate as iconic beer sales languish.
If food and beverage companies want 2020 vision, then they will have to look to the past to plan for the future.
Although this year's trends will build on a lot of the growth areas the industry has already seen, innovation in these categories could dramatically shift what companies produce over the next 12 months and beyond.
The growth of alternative products will continue to accelerate in 2020, but the space will expand beyond the plant-based burgers and beef products that dominated last year with items imitating chicken, fish or pork. While faux burgers will likely still be popular, companies will experiment with ingredients outside of pea proteins — think mushrooms and chickpeas, for example — to fill out the patty. And in the dairy space, alternative products could see better innovation in texture, nutrition and ingredients, spelling out more challenges for its already troubled traditional competitors.
The industry experts and analysts Food Dive spoke to also pointed to technology and collaborations that will lead to the development of more functional foods loaded with fiber, probiotics or other beneficial ingredients. Cannabis will continue to infiltrate the food and beverage scene, but this year more companies may be honing how they talk about the substance to clearly communicate its appeal to consumers. And on the M&A front, smaller deals will dictate where Big Food is heading in the future.
Here are Food Dive's six trends expected to impact food and beverage in 2020.
1. More than a burger
Plant-based burgers became ubiquitous in 2019. In grocery stores, at restaurants nationwide and even at theme parks, consumers could easily pick up plant-based options that look and taste like something made from ground beef.
The plethora of plant-based burger options is welcome news to vegans and consumers looking to reduce their meat intake alike. However, burgers and ground beef are just one small sector of the meat options out there. As 2020 dawned, there were few options for consumers looking for other alternatives, like products imitating chicken or fish.
Plant Based Foods Association Executive Director Michele Simon told Food Dive there are good reasons the plant-based sector has been dominated by burgers so far.
“America has had a love affair with burgers for decades, and, you know, it's sort of the quintessential item at a fast food restaurant,” she said. “...The fact that it's ground gives companies the ability to simulate that texture and so forth with various ingredients."
But in this new decade, consumers will be looking for different meat alternatives to fill the centers of their plates. And several companies are getting ready to make that happen. As the year started, Impossible Foods announced its newest product, Impossible Pork. Nuggs, a plant-based chicken nugget startup, launched last year with a $7 million investment round led by frozen potato giant McCain Foods. Rebellyous Foods is working to bring down the cost of plant-based chicken nuggets, a product it’s selling to some foodservice outlets in the Seattle area. Kellogg’s MorningStar Farms is launching vegan Incogmeato Chik’n nuggets and tenders this year. And Beyond Meat — which actually started with plant-based chicken strips in 2013 and quietly discontinued them last year — says it is working on plant-based chicken again. A trial last summer of the reformulated Beyond Fried Chicken at KFC sold out in five hours.
As these companies get more capital and products on shelves and menus, consumers will have more exposure to this category. And while it’s important for plant-based chicken to replicate the experience of eating the real thing — plant-based burger companies make pink patties that brown when cooked and “bleed” with pink centers — some people in the business say there is more that the category needs to do. In an editorial in Food Dive, Rebellyous founder and CEO Christie Lagally detailed the size and economic volume of the poultry industry. Success for plant-based chicken depends on being able to financially beat that system, she wrote.
Simon said that aside from the all-American aura of the burger, what really made plant-based burgers catch on was their widespread appearance on menus.
“I think that's probably what we're going to have to see to know that the plant-based chicken nugget has arrived,” she said.
Another thing that will shift consumers’ perception of plant-based meat is seeing it included in other products in the grocery store. Nestlé announced it will be adding its plant-based ground beef product — Awesome Grounds — to some of its iconic products, including DiGiorno Pizza and Stouffer’s Lasagna.
"Plant-based protein, plant-based meats are going to be the future of meat, more and more," Ryan Riddle, R&D specialist of vegetarian meal solutions at Nestlé USA, told Food Dive in December 2019. "I fully expect that this is just the beginning of incorporating plant-based meats into our prepared meals."
2. Telling a story with cannabis
Although in 2019 cannabis started to inundate the food and beverage scene, 2020 could be the year the big players distinguish themselves from the pack.
Despite the regulatory issues, analysts predict that companies will push past that by developing a marketing strategy that tells a story about the substance and educating consumers on the different types of cannabinoids.
Kara Nielsen, an expert in food and beverage trends, told Food Dive that there's pent up demand for cannabis, but companies will need to talk about the quality of the hemp ingredients and continue to inform consumers so that when the legal landscape shifts, there will be more high-quality products.
Although the 2018 Farm Bill legalized hemp cultivation and an increasing number of states are making their own laws about cannabis legalization, the substance is still in a regulatory gray area. The FDA held a public hearing to determine if there could be a pathway to market last year, but the agency came out and firmly told manufacturers in December that cannabis was not Generally Recognized as Safe for use in food.
As regulation remains complicated in the U.S., many companies and regulators will be watching the cannabis space in Canada this year since the country started to allow cannabis-infused products — edibles, beverages, topicals and extracts — to be sold in stores in December. The results of that roll out could impact the future of the space in the U.S.
There's some companies gearing up to be legitimate winners in these spaces, despite regulation, but there still is not enough clinical research about what CBD really does for people, Nielsen said. Manufacturers that provide that research in the upcoming year could lead the space.
“It's very anecdotal,” Nielsen said. “So that also has to catch up a little bit.”
Rich Maturo, vice president of the cannabis practice at research firm Nielsen, told Food Dive in an email that the company predicts the U.S. hemp-based CBD market could be a $2.25 billion to $2.75 billion industry in 2020. These projections are conservative because they account for hampered FDA rulings and other possible speed bumps, he said.
“While the regulatory roadmap remains ambiguous, one thing is clear: The next decade for the hemp-based CBD market has the potential to be a game changer for the traditional CPG and retail industry,” Maturo said.
3. Bigger isn't necessarily better
After large-scale purchases in 2018 — such as Conagra Brands’ $10.9 billion purchase of Pinnacle Foods, Campbell Soup closing its $5 billion purchase of snacking giant Snyder's-Lance and General Mills doling out $8 billion for natural pet food maker Blue Buffalo — the food industry turned last year to jettisoning underperforming brands or acquiring smaller ones.
Analysts interviewed by Food Dive predicted a similar M&A pattern this year as companies focus on adding to the fold brands that expand their reach in a particular geography or increase their presence in trends popular with consumers, such as bars and snacking.
“CPGs are still super focused on how to grow, not how to cut costs so I think these big industry consolidations are not necessarily going to return in 2020,” Randy Burt, a managing director at AlixPartners, told Food Dive. “I think you are going to continue to see people shift their portfolios to kind of have more of a connection across them to get to a place where their portfolio has a better overall exposure to an attractive macrosegment.”
For years, big food companies bulked up by acquiring other large companies and brands. But in February, Kraft Heinz slashed its dividend and wrote down the value of its Kraft and Oscar Mayer brands by $15.4 billion — casting a further pall on similar deals, according to analysts.
Still, that hasn’t stopped companies from adding businesses that can help their broader operations. Ferrero, which has aggressively expanded its U.S. presence in recent years, spent $1.3 billion for the snacks portfolio from Kellogg in July that includes brands such as Keebler and Famous Amos. For Kellogg, the sale allowed it to unload products that were dragging down growth.
Other deals in 2019 included Hershey purchasing One Brands for $397 million; Good Foods Company buying Quest Nutrition for $1 billion; and in June, Mondelez International taking a majority stake in Perfect Snacks.
“Activity is strong,” Jeff Cleveland, managing director of investment banking at D.A. Davidson, told Food Dive regarding M&A. “It’s a little bit of a tale of two markets where if you’ve got a really high-quality asset you’re going to have a lot of demand for it, a lot of interest in it and if an asset is viewed to be less interesting, less profitable, less protected, your reaction in the market will be very different."
4. Beyond peas
In 2019, consumers embraced plant-based meats, ensuring this way of eating is not just a fad. But this growing movement will see a shift beyond the current “it” ingredient: pea protein.
While soy has been a common meat analog for decades, pea protein has been a vital building block to many plant-based meat items recently. It’s the foundation of Beyond Meat’s products and is also the base for Lightlife’s Plant-Based Burger and Nestlé’s Awesome Burger.
Pea protein has an impressive nutritional profile, is inexpensive to grow and process, and is easy to supply. Grand View Research estimated the global pea protein market would be worth $313.5 million by 2025, increasing at a compound annual growth rate of 17.4%.
But Maria Velissariou, chief science and technology officer for the Institute of Food Technologists, told Food Dive existing producers of pea protein are getting stretched by increasing demand.
“We're going to see other forms of protein from other sources coming into the market, so new innovation will probably rely not just on pea protein, but will rely on other similar sources,” she said. “... We’ll see alternatives coming into play as long as the alternatives deliver against the texture and they deliver against the flavor. And, of course, the price has to be right, though at the moment, consumers are prepared to pay a higher premium for this product.”
Mushrooms are getting more popular, especially in meat-like snack applications. Other legumes, like chickpeas, are bound to also find themselves in the mix. Outside of the realm of meat, companies have found other diverse substitutes to simulate products from animals, like the wide varieties of nuts and grains in plant-based milk, Siggi’s partially macadamia nut-based vegan Icelandic yogurt, and Just’s mung bean-based Just Egg.
And while other legumes may be brought into the plant-based meat puzzle, up-and-coming offerings are from extremely diverse places. Sustainable Bioproducts is working to turn a high-protein fungus found living in a volcano into food products that could hit the market this year. Prime Roots plans to start selling its meat and seafood alternatives made from koji, a fungus commonly used in Japanese cuisine to create an umami taste, online at the beginning of the year. Ingredient company Noblegen recently achieved self GRAS status on a flour made from one-celled organism euglena, which can be used in many alternative protein products. And Air Protein is exactly what its name sounds like: A startup that uses cellular processes to turn carbon dioxide into edible, nutritious protein.
Even the bigger players in the space like Beyond Meat and Impossible Foods are constantly reformulating their products with the goal to improve taste, nutrition profile, appearance and slim down ingredient lists, while others are perfecting formulations for 2020 launches.
5. Hey, food, what’s your function?
For decades, consumers picked their food based on characteristics such as how it looked, tasted or smelled. Increasingly, shoppers are picking what they buy and consume depending on the role it plays in reducing the risk of disease and promoting good health.
So-called functional foods have been sold in grocery stores and specialty outlets for years — think calcium-fortified Tropicana orange juice or Activia loaded with probiotics — but a growing push by consumers to eat healthier and watch what goes into their bodies has increased demand for items that deliver an added benefit.
“It’s really poised to grow significantly now because word is getting out more and more,” Bob Bauer, president of the Association of Food Industries, told Food Dive. “Even if the rest of what we eat perhaps isn’t what it should be, we feel better about ourselves if we do have some things on occasion that we would consider functional foods or that would help us out.”
Bauer said functional foods loaded with fiber, probiotics or other beneficial ingredients have grown in part because the technology has been developed to make products that contain them taste better or have a more pleasant mouth feel. With functional foods being added into portable products such as bars and yogurts, Bauer said they could make their way into more convenient channels such as vending machines.
Food companies such as Nestlé, Hormel Foods and Danone also are incorporating nutritional therapy or medical uses into some of their products. Some smaller companies have tapped into the niche space, too. Thrive, based in Florida, makes ice cream and gelato that provides nutrition such as protein, vitamins and minerals for people like the elderly, hospitalized or picky eaters.
According to a study released in March by Kerry, 65% of consumers seek functional benefits from their food and drink. The top five ingredients perceived to deliver these kinds of benefits were omega-3s, green tea, honey, coffee and probiotics.
For food companies, most notably large CPGs desperate for ways to rejuvenate sales and profits, functional foods could be a lucrative way. Zion Market Research estimated the global functional ingredients market was worth $64.9 million in 2018, and is expected to reach nearly $100 million by 2025.
Becca Hary, a spokesperson at Ingredion, said the ingredients supplier has witnessed growth in functional foods infiltrate multiple parts of its business, including plant-based proteins or clean and simple ingredients.
Functional foods are “very on trend for consumers, (something) that they’re looking for,” Hary told Food Dive. “That is really shaping the food industry and it’s impacting our customers.”
6. Innovation could elevate the alternative dairy space
The alternative dairy trend may have started out primarily to address allergen issues, but now it has “taken on a life of its own,” Kantha Shelke, a member expert at IFT, told Food Dive.
Today, the dairy aisle is crowded with alternative products, from oat and almond to hemp and soy, and that growth is expected to accelerate in 2020 with better innovation in texture, nutrition and ingredients.
This year, in particular, Shelke says companies will develop alternative milk and yogurt products that have better nutritional properties, like protein.
“There's going to be new ways of making these products and also new ways of making these products deliver on the promises of the original that they are mimicking,” Shelke said. “I think that's the opportunity right now, and I believe everyone is getting on board for that.”
In an Innova Market Insights report on top trends for 2020, the plant-based dairy category is expected to diversify as consumer interest grows. In a survey conducted by the group, about 32% of consumers said they bought dairy alternatives simply “because they’re healthier” and 27% said they bring variety to their diet.
Consumers are not only looking for healthier-seeming products, they also want satisfying taste and texture, which could come by innovation in ingredients and technology, Shelke said.
Already, food tech startup ChickP introduced a line of chickpea isolates designed for plant-based dairy alternatives, and Swebol Biotech, a food technology firm, developed a patented quinoa milk.
“At the moment we've got oats and coconuts and peas, but I believe that you're going to see other seeds and nuts that are going to come into the fray,” she said.
In terms of tech, Perfect Day uses fermentation to make milk without a cow and just closed a $140 million funding round in December, showcasing how lab-created dairy is of growing interest in the industry.
"It's really bringing that pride back to dairy," Ryan Pandya, co-founder of Perfect Day, told Food Dive last year.
These startups join big name companies like Chobani and Danone in unveiling more products in the alternative space as traditional dairy struggles and more of those launches will likely appear in 2020.