Plant-Based Dairy is Maturing, Booming and Full of Opportunities

Plant-based food sales reached $8 billion in 2022, an increase of 6.6% from the previous year, according to statistics from SPINS and reported by the Plant Based Foods Association and the Good Food Institute.

Most categories saw sales increase. Plant-based milk, which is the largest category in the space by far, grew 8.5%, tallying $2.8 billion in sales. Three categories saw sales drop: plant-based meat, which decreased 1.2%; ice cream, which fell 4.5%; and cheese, which was down 2%.

Last year was difficult for all food makers, as intense inflation and supply chain issues increased prices and impacted supplies. Many plant-based meat companies had an especially bad 2022, with layoffs, operating losses and company closures.

In its report, PBFA said the numbers from 2022 show plant-based food is a resilient category with real staying power.

Last year was not easy for any food company, and inflation hit the plant-based sector especially hard. Because these companies are relatively small and don’t have the same massive scale as more traditional items, plant-based prices tend to be more expensive. As inflation led consumers to cut back on spending, the report shows they didn’t cut out plant-based items.

“This success is a testament to the dedication of consumers who are looking for plant-based options for every eating occasion, and the innovative brands and marketplace partners who are working to meet growing demand for sustainable, healthy, and delicious options,” PBFA CEO Rachel Dreskin said in a written statement.

The study, which includes several different data points on plant-based sales and consumer behavior, shows plant-based consumers have grown more entrenched through the years. Overall, plant-based foods have a 60% household penetration, and an 80% repeat purchase rate.

Plant-based milk, which has long been the largest category in the segment, made up 15.3% of all milk sold in the U.S. last year, and had about a quarter of shelf space in the dairy case, the study found. It was purchased by more than four in 10 households, and had a repeat buy rate of more than 75%. And according to a report last year from the Plant Based Foods Institute, Kroger and 84.51°, 43% of consumers who are new to the category or increasing the amount of plant-based foods they buy are choosing plant-based milk instead of dairy.

Plant-based meat, the second-largest category in the segment, showed the hardships of 2022 in its sales. While dollar sales were down about $10 million compared to 2021, unit sales fell by 8.2%. However, the study says, plant-based options still represent about 2.5% of the entire packaged meat category.

But there were bright spots for plant-based meat in the report. While household penetration was 17.5% in 2022, plant-based meat saw a repeat purchase rate of 62.5%. Frozen plant-based meat now represents 63% of sales, with consumers looking for more convenience. And some of the up-and-coming categories of plant-based meat — chicken, fish and shellfish — all saw about 15% to 16% sales increases last year.

Plant-based eggs have continued to grow. Dollar sales in this category were up 14.3% in 2022, hitting $45 million. As traditional egg prices went up and supply went down, plant-based egg unit sales flourished, increasing 21%. Conversely, traditional egg sales declined 1% last year. Household penetration of plant-based eggs was at 1.5%, so both established players and newcomers to the category have a lot of opportunity for growth.

PBFA noted that a wider look at the segment over the last four years shows plant-based products in general are growing more than their traditional counterparts. Other foods and beverages showed 1% growth in unit sales between 2019 and 2022, PBFA said. In the same period, plant-based unit sales increased 23%.

One-third of consumers said they have not found a plant-based dairy product they like, according to a survey from ingredients provider Ofi.

Plant-based dairy options remain popular, with 64% of those surveyed purchasing at least one each week, and nearly two-thirds buying them along with regular dairy. Health and nutrition were listed as the most important factors when deciding to buy them.

While milk alternatives such as almond and oat have seen a large influx of popularity during the past decade, barriers remain for some consumers, including taste, mouthfeel and affordability.

The survey from Ofi, the producer of the ingredients such as coffee, edible nuts and dairy, asked more than 1,500 respondents about their adoption of plant-based dairy. Interest is rising, as 63% said they expect to purchase more products during the next two years.

The survey results indicate there are key areas plant-based dairy producers should concentrate on when conceiving new products, particularly flavors and health benefits, said Sonali Dalvi, Ofi’s vice president of innovation.

“This is a call to action to the food and beverage industry. You need a fresh, creative approach to flavor creation, color, and texture development to make products that captivate consumers,” Dalvi said in a statement.

While 82% of those surveyed said they use animal-free products at least once a month, 7% said they went back to dairy after they did not enjoy their first plant-based alternative.

Given consumers’ prioritization of nutritious and functional aspects when choosing a dairy alternative, Dalvi said there is potential for formulations made from ingredients such as cocoa, nuts and spices that feature clean-label attributes.

Affordability and accessibility also provide a barrier to entry for some consumers, the survey indicated, as 57% of those who eschew plant-based dairy said the prices are a significant factor.

As Gen Z moves away from dairy milk, the leading plant-based dairy alternatives continue to grow their sales. Large CPG companies like Nestlé, Chobani and Danone have leaned into the dairy alternative category with new products in recent years. Oat milk, one of the leading product categories, is projected to increase at a compound annual growth rate of 15.4% through 2028, according to Grand View Research.

The increase in consumer adoption of plant-based milks has resulted in more recognition for the category from federal regulators. In February, the FDA said plant-based milk products can can be labeled as “milk,” while recommending that they add nutritional disclosures to their packaging to help consumers discern it from dairy milk.

Plant-based milk alternatives can be labeled as “milk,” but the FDA recommends that these beverages place nutritional disclosures on their packages so consumers can compare their nutritional quality with that of dairy milk, according to draft guidance on labeling published Wednesday.

Studies done by FDA showed consumers are not confused by plant-based products labeled “milk,” but many consumers “lack an accurate understanding” about nutrients in plant-based milk, the guidance states. Many consumers think milk from plants is healthier than traditional dairy, or has nutritional content that is similar, the document states. Plant-based milk nutritional levels vary depending on the ingredients used.

The debate on federal regulation of labeling plant-based milk has gone on for years, with legislation and litigation seeking clarity on whether items that don’t come from animals could be called “milk.” This rulemaking comes from a 2018 request for information from the FDA, which yielded more than 13,000 comments.

In the five years since the FDA started working on guidance for the labeling of plant-based milk, many things have shifted in the space.

As plant-based milk sales have grown — they represented 16% of the entire milk category in 2021, according to data from SPINS, the Plant Based Foods Association and the Good Food Institute — efforts from 2016 and 2017 to try to force the FDA to ban dairy terminology on any alternative seem nearly insurmountable. Even comments from former FDA Commissioner Scott Gottlieb, who famously said in 2018 that plant-based alternatives likely violated the standards of identity for milk because “an almond doesn’t lactate,” seem a bit far-fetched.

The draft guidance issued on Wednesday takes into account both the size and consumer understanding of the plant-based milk market today. But it still recommends quite a lot of labeling changes for some plant-based milk products. Essentially, the recommendation is a plain language label disclaimer that indicates when a plant-based alternative contains less calcium, protein, vitamin A, vitamin D, magnesium, phosphorous, potassium, riboflavin or vitamin B12 than dairy milk.

“The draft recommendations issued today should lead to providing consumers with clear labeling to give them the information they need to make informed nutrition and purchasing decisions on the products they buy for themselves and their families,” FDA Commissioner Robert Califf said in a written statement.

The guidance, however, is not set in stone. There are 60 days for interested parties to comment before the FDA considers finalizing it. And even when the guidance is finalized, any labeling it recommends will not be a requirement. However, Good Food Institute senior regulatory attorney Madeline Cohen pointed out in an email, guidance reflects FDA’s thinking on the laws and regulations it implements, and companies that do not follow the guidance may be vulnerable to class action lawsuits from consumers claiming their labeling is misleading.

No groups have wholeheartedly endorsed the draft guidance yet, but the International Dairy Foods Association said in a statement that its members have wanted nutritional information that is similar to what the FDA is proposing.

“IDFA will seek to ensure this draft guidance clears up any longstanding confusion about the nutritional quality of plant-based beverages. It is incumbent on the FDA to get this policy right,” IDFA Senior VIce President of Regulatory and Scientific Affairs Joseph Scimeca said in the statement.

National Milk Producers Federation President and CEO Jim Mulhern said in a statement this is “a step toward labeling integrity,” but falls short of what the group wants.

“[T]he decision to permit such beverages to continue inappropriately using dairy terminology violates FDA’s own standards of identity, which clearly define dairy terms as animal-based products,” Mulhern said in the statement. “We reject the agency’s circular logic that FDA’s past labeling enforcement inaction now justifies labeling such beverages ‘milk’ by designating a common and usual name. Past inaction is poor precedent to justify present and future inaction.”

The Good Food Institute and Plant Based Foods Association, both of which are industry groups for alternative proteins, issued statements saying the guidelines are unfair.

“We commend the FDA’s acknowledgement that consumers are affirmatively choosing plant-based milks because of their many benefits for human and planetary health,” PBFA CEO Rachel Dreskin said in a statement. “However, we see many suggestions in this proposal that are unfairly burdensome to companies, and frankly, treat plant-based products differently than any other foods in the market.”

Dreskin wrote many of the nutrients in dairy milk get there through fortification, and are not inherent to the product. Further, she continued, the standard of identity for dairy milk does not include nutritional information. Different types of milk — whole, skim, flavored and lactose-free, for example — also have different nutritional profiles. She asked whether the guidance would also apply to dairy milk products that don’t meet a baseline guideline.

GFI’s Cohen said this kind of guidance — which creates regulatory hurdles just for plant-based foods — goes against sustainability efforts. 

“[C]ow's milk emits more than 3 times the amount of GHG as major plant-based milks and uses 10 times as much land,” Cohen said in an emailed statement. “Favoring cow’s milk over plant-based milk will undercut our national goals of reducing methane from agriculture and meeting global emissions targets.” 

Nestlé is exploring the development of products using animal-free dairy proteins as the world’s largest food company looks for another way to meet consumers’ growing demand for more environmentally friendly diets while keeping the taste and nutrition they desire.

Later this year, Nestlé will bring chocolate and plain milk-like products containing animal-free protein from Perfect Day made through precision fermentation to the U.S. market as part of a “test and learn” in a handful of stores.

Fermentation is an ancient technology used to make beer, kimchi and yogurt. But it has rapidly gained momentum in the marketplace because products made through the method are said to have a very low carbon footprint, can be produced quickly and are relatively inexpensive. 

The move into products using animal-free dairy proteins follows similar investments Nestlé has made in recent years in plant-based meat and dairy alternatives.

In 2017, it purchased Sweet Earth, a company that makes plant-based deli meat, chicken, jerky, sausage and beef, among other offerings. It also has debuted plant-based extensions of some of its top brands, including Coffee-mate creamers, Nescafe Lattes, Starbucks creamers and DiGiorno frozen pizza.

Perfect Day makes its dairy proteins through precision fermentation, a process through which fungi are modified to produce whey protein when fermented. The protein is identical to the whey protein found in cow’s milk, offers good nutritional and functionality benefits that is suitable for vegans and is lactose-free, according to Perfect Day.

Perfect Day made its debut on the marketplace in 2019 with ice cream. It has since worked with several other CPGs that have incorporated its animal-free milk protein into everything from candy bars and cake mixes to cream cheese and protein powder.

Nestlé is among the biggest CPG firms to incorporate Perfect Day’s ingredient. Starbucks announced last year it was testing milk made by Perfect Day for a limited time, and Mars said in June it was collaborating with the startup to make a milk chocolate bar featuring animal-free dairy proteins.

“Innovating alongside leaders like Nestlé is a key part of how we’re scaling Perfect Day’s impact,” said Ryan Pandya, Perfect Day co-founder and CEO. “We can’t wait for consumers to taste how a brand with centuries of world-class experience can partner with Perfect Day to deliver for consumers and our planet.” 

While there’s no guarantee that Nestlé’s milk-like products will become a permanent fixture in its lineup anytime soon, the fact that the Switzerland-based food maker is exploring the food technology immediately adds credibility and promise to the future of animal-free dairy ingredients. For Nestlé, it gives the firm another tool, along with plant based, that it could use to develop products to address changing consumer needs.  

A limited release will allow Nestlé to monitor how consumers respond to the new milk — studying attributes like the color, texture and sweetness levels. It also will enable Nestlé to figure out the most promising technologies, partners and products, while learning more about the marketplace and consumer acceptance.

The products will be overseen by the company’s newly established U.S. R+D Accelerator, a division charged with identifying opportunities and bringing highly differentiated product concepts to the market in only six months.

“While this category is still very young, we know consumers are looking for products that have a reduced environmental footprint,” Joanna Yarbrough, head of Nestlé’s R+D Accelerator, said in a statement. “We are evaluating this avenue as a future growth opportunity for our business.”

Regardless of whether the product launch with Perfect Day is a success, Stefan Palzer, an executive vice president and chief technology officer at Nestlé, said the company remains committed to milk from animals. He noted dairy provides essential nutrients, especially for young children, while milk production contributes to the economic livelihoods of farmers globally.

“Nestlé is not exiting milk,” he told reporters last week. “It’s not either or. We want to give consumers choices.”

A study released earlier this year found consumers are very enthusiastic and curious about animal-free dairy, with animal welfare being the top reason they want to consume it. Focus groups conducted by precision fermentation startup Formo, Fordham University and Mercy For Animals found many people saw the technology as a viable option for dairy products. They also felt that this kind of product would not be a threat to dairy farmers’ livelihoods.

 

While plant-based milk's retail prices can be twice that of dairy milk, the premium is justifiable because of its more expensive blending and bottling procedures and packaging materials, a study from Mintec found. 

Analysts found that dairy milk is actually priced too low. When estimating the cost components of a gallon of milk, the greatest share goes to the raw material, according to Mintec. Dairy milk has almost no associated R&D or marketing costs. Meanwhile, average profits are several times lower, both for the producers and retailers.

Things have been bleak for the U.S. dairy industry in recent years. In late 2019 and early 2020, two of the nation's largest milk companies — Dean Foods and Borden — filed for bankruptcy. Both companies ran into trouble as traditional milk consumption fell, consumers turned to plant-based alternatives and grocery retailers invested in their own milk production facilities, which enabled them to sell milk at very low prices and subsidize the operations through higher profits in other sections of the store.

The big takeaways from this report are unsurprising: Plant-based milk is more expensive because of processes, packaging and the need for constant innovation and marketing in the segment. Dairy milk is priced way too low with little financial wiggle room to allow for marketing, R&D and innovation. 

Putting these findings together in a single report, however, drives home the contrast. Plant-based milk has a pricing model that supports future growth, both for producers and retailers. While the cost of making plant-based milk is likely to come down as the segment matures and scales up, Mintec said retailers will likely try to maintain prices at their current level to maintain the bigger profit margin, especially compared to dairy milk.

In fact, the plant-based industry is achieving its aims to grow, improve and market itself effectively. In 2019, according to statistics from the Plant Based Foods Association, plant-based alternatives made up 14% of the entire milk market. It had grown at a 5% clip in the year, compared to dairy milk's essentially flat growth. Analysts have yet to tally 2020's sales totals for plant-based milk, but the rate of growth is likely to be steeper. Plant-based milk has seen huge sales increases during the pandemic, especially in the first months of the health crisis.

Oat milk especially has seen rapid growth, with sales 212% higher in the first nine months of 2020 than 2019, according to Nielsen. Oatly, the Swedish company that invented and popularized oat milk, completely shook up the plant-based milk market with its environmentally friendly and high-performing beverages. It's also recently been the talk of serious financial speculators after Bloomberg reported it was considering an IPO this spring valued around $10 billion. 

In dairy milk's column: Lots of problems. The drop in foodservice due to the pandemic in the first half of 2020 depressed dairy demand to the point that some producers had to dump milk. Demand has since picked up, according to a December report from Rabobank, and analysts are optimistic about growth on the horizon, but it will take time to materialize. 

Meanwhile, the dairy milk industry seems committed to following a financial theory that has not been true in years: Everyone drinks milk, therefore the industry will always be profitable.

It's obvious that the conventional dairy industry needs to modernize its strategies and pricing, as well as market the positive aspects of its products. For example, Mintec determined that dairy milk has a superior nutritional value compared to several plant-based alternatives. The only plant-based milk that came anywhere close is oat milk, which still has far less protein. But the whole nutritional package of dairy milk isn't what consumers are talking about, especially since many think that a product labeled "plant-based" is better for them.

The dairy milk industry could also find success with new variations that intrigue and excite customers — a strategy that has worked in the past. The New Zealand-based A2 Milk Company, which produces a variety of milk without a protein that irritates some consumers, saw its U.S. growth nearly double in its last fiscal year. And Fairlife, a Coca-Cola-owned premium milk brand, had $500 million worth of retail sales in 2019, and was lauded for strong performance in the company's most recent financial report. 

PepsiCo is bringing Muscle Milk into the plant-based category as the fast-growing brand looks to attract consumers who are incorporating the trend into more facets of their everyday lives.

The snack and beverage giant said its Muscle Milk Plant Protein Shakes are the only ready-to-drink plant protein that is specifically formulated to deliver on athlete needs and active occasions. Each bottle has 30 grams of plant-based protein, all nine Essential Amino Acids found in most animal-based proteins, 3 to 4 grams of sugar, 170 to 180 calories and vitamin B12 and iron.

Marissa Pines, a senior marketing director for PepsiCo’s Gatorade portfolio, said Muscle Milk has traditionally played in the performance category while plant-based has largely been relegated to lifestyle. But in recent years, PepsiCo and other companies have observed that consumers are incorporating more plant-based products into other parts of their daily routines, including muscle building.

The challenge for offerings in the plant-based realm, Pines added, is that they previously hadn’t been able to deliver the complete protein and muscle recovery ability that users are looking for — a problem the Muscle Milk Plant Protein Shakes is aiming to solve. 

“We wanted to make sure that we had something for that group, especially as we anticipate it’s going to continue to grow,” Pines said in an interview. This is “a little bit more future-proofing than solving a leaky bucket problem.”

The beverage, which will be available in Caramel Vanilla and Chocolate, will start hitting shelves in December before making its way to additional national retailers in early 2024. 

Muscle Milk, which the snack and beverage giant acquired from Hormel Foods in 2019, posted double-digit growth in 2022. Pines said the brand, which is “seeing strong sales growth ... and a lot of great momentum” in 2023, is posting volume expansion that is outpacing the protein shakes and powders category.

For the 52 weeks ending Aug. 13, sales increased 19% to $425 million, data provided by Circana, a Chicago-based market research firm, showed. At the same time, unit sales jumped 8.7%, a sign that demand, and not just a price increase, contributed to the brand’s success during the prior year. Despite the growth, Muscle Milk is only responsible for a tiny slice of the $86 billion in revenue PepsiCo generated in 2022.

To extend its growth, PepsiCo continues to look for new ways for Muscle Milk to supply protein to consumers.

Pines said Muscle Milk Plant Protein Shakes will help retain those who may leave the brand in the future for plant options, while also bringing in new consumers who may have stayed away from the product because it didn't have an animal-free option in the first place.

In addition to innovating its core Muscle Milk platform, Pines said the brand will continue working with the Gatorade Sports Science Institute and PepsiCo’s R&D team on future innovations with strength and performance in mind.

“As we see more and more consumers engaging with the protein category, using protein for all different reasons, we want to make sure that we're providing offerings that meet all of those needs,” Pines said.

Bel Group may be 150 years old, but the French cheese giant is showing once again that it’s not stuck in the past.

Bel is the first cheesemaker to use Perfect Day’s animal-free dairy proteins in a product, launching Nurishh Incredible Dairy cream cheese spread on Jan. 1, 2023. 

The company also is launching a plant-based version of its iconic The Laughing Cow cheese wedges at Whole Foods stores nationwide, which is the final piece of Bel’s commitment to launch a plant-based version of every one of its well-known cheese brands.

Florian Decaux, plant-based acceleration director for Bel Brands USA, said that the company’s innovative spirit is part and parcel of its “For All, For Good” corporate identity. Bel works to create the kinds of products that serve its consumers needs — in terms of taste, ingredients and sustainability. And to get there, he said, Bel partners with innovators such as Perfect Day.

“We believe that together we can really leverage innovative technology to develop a first-of-its-kind product that can deliver — and even exceed [traditional cheeses] — because it's what we always do at Bel: [Shift] the consumer expectation of what alternative dairy and dairy-alternative cheese can be,” Decaux said.

Nurishh Incredible Dairy Spread is the first product with dairy under the Nurishh brand, which is devoted to plant-based options. But because the product uses Perfect Day’s whey proteins, which are created through precision fermentation and not by animals, it is more sustainable than traditional dairy cheese. The product is also lactose-free.

Decaux said Bel chose to make a cream cheese with Perfect Day’s proteins because whey performs best in spreadable applications. Nurishh Incredible Dairy has a texture and taste like traditional cream cheese, and Decaux said that consumers had been looking for animal-free options.

Nurishh Incredible Dairy Spread will launch at Kroger stores next year in Original, Strawberry and Chive & Onion.

After about two years of R&D work, Bel also is launching The Laughing Cow Plant-Based wedges. The main ingredient in this product is almond milk. Decaux called the product a testimony to Bel’s long experience in the cheesemaking space, since the company worked hard to replicate the creamy and tangy taste of the brand’s classic wedges. The product is available in Garlic & Herb and Original varieties.

While Bel operates in many countries and is an especially big player in the European cheese market, it is debuting the plant-based Laughing Cow in the United States. Decaux said that a lot of work went into making the cheese meet the taste needs of U.S. consumers.

Decaux said sales for Bel’s plant-based products have exceeded expectations. On-shelf interest from retailers is double Bel’s predictions, he said, and Bel’s consumer trial rates are exceeding the rest of the category.

Bel does have quite a bit more in the way of innovation coming in the future, Decaux said. In September, Bel Group purchased an equity stake in Standing Ovation, a French company using precision fermentation to make animal-free casein. In October, Bel announced an exclusive partnership for cheese applications with Standing Ovation. Casein proteins, which naturally occur in milk, give cheese its trademark stretch.

Standing Ovation does not have any products that have received regulatory approval yet. The company said some of its 12 million euro ($11.8 million) Series A round, which closed in September, would be used to initiate the regulatory process. 

When the partnership between Bel and Standing Ovation was announced, the startup’s co-founders Frédéric Pâques and Romain Chayot said in a statement their goal was “to see the first products arrive on the market quickly, with a very wide distribution.” 

Decaux could not provide any additional details about what was coming next from the partnership but added that it stems from consumers’ desire to have cheese made without animals.

Bel is also working with protein ingredient company Superbrewed Food to make cheese products with the company’s signature ingredient. 

Superbrewed’s ingredient is designed to make plant protein a more efficient and wholesome source of nutrition, and presents postbiotic benefits. Decaux did not say when any products may launch from the Superbrewed partnership, though the company has said its proteins will be available in the first half of 2023. 

Bel will continue to work with partners to create innovative products to “shake a little bit” the rest of the cheese segment, Decaux said. But the company isn’t just trying to do things that are different for the sake of doing them. 

“It's not about dairy. It’s not about plant-based. It's not about alternative offerings,” Decaux said. “It's about providing better food for our consumers.” 

New Culture’s animal-free mozzarella cheese will be debuting on the menu of Nancy Silverton’s renowned Pizzeria Mozza in Los Angeles next year.

Before it becomes a regular menu item, New Culture and Pizzeria Mozza will be hosting a series of launch events. The first will be at the restaurant in early June, but there will be others throughout the year in Los Angeles, New York City and San Francisco.

The cheese from New Culture will be the first product incorporating animal-free casein — the dairy protein that gives cheese its trademark stretch.

New Culture is launching an entirely new type of food tech product, and they’re following a successful playbook: Start at a well-known restaurant with a reputation for making high quality dishes, and spread to other restaurants, then eventually retail, once the item has cachet.

Because New Culture is making animal-free casein, founder and CEO Matt Gibson has always had his eye on getting into pizzerias first. When many people think of stretchy cheese, they think of a cheezy pizza. New Culture’s animal-free cheese is made by producing casein through precision fermentation — modifying small organisms including yeast so they produce casein when fermented. The rest of the ingredients in New Culture’s cheese are plant-based.

As a segment, plant-based cheese has seen a slight decline in sales. According to SPINS data, U.S. sales of plant-based cheese hit $230 million in 2022 — a 1.7% decrease in dollar sales and a 5% decrease in unit sales when compared to the year before. Household penetration for plant-based cheese was just 5% last year.

Studies have shown consumers are interested in the concept of plant-based cheese, but they haven’t been fans of the taste. A study by the Plant Based Foods Association and 84.51º showed that 73% of consumers were interested in better-tasting plant-based cheese that melts well and does not have a grainy texture.  

New Culture’s option might be a way to provide that. Last year, a San Francisco Chronicle food writer proclaimed New Culture’s cheese “virtually indistinguishable from real dairy” on pizza.

Aside from having a pizzeria, Silverton is a valuable person to help launch New Culture’s cheese. One of the signature features at her Osteria Mozza restaurants is the mozzarella bar, serving fine and fresh versions of the white, stretchy cheese. 

“I've always been of the school of thinking that just because it's a substitute doesn't mean it needs to be anything less than spectacular,” Silverton said in a written statement. “When I tried New Culture cheese, I was surprised and excited by the integrity of the product and really felt it lived up to our standards.”

The pies at Pizzeria Mozza are ranked among the best in Los Angeles, and Silverton is a James Beard Award-winning chef. Food critics say the unique crust and fresh ingredients set Pizzeria Mozza apart. Silverton and New Culture have worked together to refine and prepare the New Culture product for launch, and the pizzeria will create pies that showcase the cheese. 

A similiar plan worked for Impossible Foods as it first launched its signature burger at David Chang’s Momofuku Nishi in 2016. The burger was trendy and gained notoriety — and the company had time to refine its formula and scale up manufacturing — before it became available to consumers at grocery stores.

Even though many of his peers have been slow to enter the segment, Bill Graham said there's good reason why Bel Group is making a big bet on plant-based cheese.

Bel Group, started in France in 1865, is known for its distinctive snacking cheeses, including The Laughing Cow wedges, wax-coated Babybel rounds and Boursin spreads. Last March, the company took a majority stake in French plant-based company All in Foods, which makes vegan cheese alternatives in Europe. In October, Bel pledged to create one plant-based variety of each of its signature brands and launched its first offering: Boursin Dairy-Free Cheese Spread Alternative Garlic & Herbs. In January, it launched Laughing Cow Blends wedges, which mix the company's signature dairy-based cheese with chickpea, lentil or red bean proteins.

Graham, the CEO of the company's U.S. division Bel Brands USA, said the reason for such a big strategic turn in strategy is simple.

"We at Bel see this as a massive opportunity," Graham said. "...We believe that this category has the potential to reach over $1 billion by the end of 2025, give or take. And we also believe that we are uniquely positioned to bring value and address some of the unmet needs in the category from a consumer perspective. We believe we're in a good position to help our customers build out this category. It's not a trend that we're following, per se. It really is an intentional part of our business model and our strategy."

There certainly is a lot of opportunity in plant-based cheese. According to SPINS statistics, plant-based currently represents about 3% of the $34.3 billion cheese space. It's been an area ripe for new players, as several startups launch new brands. In the past couple of years, Violife, Parmela Creamery, Good Planet, Loca Food and Vevan have joined longtime segment leaders including Daiya, Follow Your Heart, Field Roast, Kite Hill and Miyoko's Creamery. And well-known plant-based companies have gotten into the segment, including Tofurky with its new Moocho line, Danone with So Delicious and plant-based yogurt maker Forager Project.

But while the space is white hot, there's something in common with almost all of the players. None of them — except Bel Group — have traditional dairy cheese as one of their primary products. There are many possible reasons for this. The processes are similar, but creating a tasty plant-based cheese that will have the correct mouthfeel and melt is difficult. And, demand for dairy-based cheese is still increasing. In 2020, dairy cheese sales in natural and multi-outlet groceries rose 21.2%, and increased 24.5% in regional grocery stores, according to SPINS.

Matt Gibson, co-founder and CEO of New Culture Foods, said this continued sales growth makes cheese an anomaly in the dairy space, since other products are not growing market share. Gibson's company, which is based in California, grows dairy proteins through fermentation to make cheese that is completely authentic, but not animal-based. 

Many traditional cheese companies have at least taken a look at the plant-based segment and decided it wasn't worth their trouble, Gibson said.

"The current way that plant-based cheese has been made doesn't give the functional properties as needed for them to keep their customers happy, essentially," Gibson said. "They say, 'Hey look, we're not going to put any more resources into this product. It's not good enough.' " 

Gibson — whose company's purpose is making these alternatives "good enough" — and others feel that plant-based cheese's big day is still coming. Several say that their products can compete with dairy cheese now and will get even better. And as more consumers adopt flexitarian eating patterns — trying more plant-based options but still eating traditional meat, dairy and eggs — having high-quality plant-based choices in cheese will pay off, they say.

"Consumers will choose," said Domenic Borrelli, president of plant-based food and beverages and premium dairy for Danone North America. "How they feel and what they want to consume and incorporate into their diet is completely up to them. Our job is to give them the choice and provide a great breadth of offerings in plant-based to enable that choice to be easy as possible."

Is plant-based cheese all that bad?

Plant-based cheese has long had a reputation of being inferior to its dairy counterparts — not looking, tasting, smelling, feeling or melting properly. Consumer research done by Numerator found that 22% of potential plant-based cheese consumers think the products won't taste good, Borrelli said. 

But shortages during the coronavirus pandemic caused by consumer hoarding and production issues actually helped change that belief, said Jeff Crumpton, a retail reporting manager at SPINS. Some consumers were looking for a particular cheese and ended up buying the plant-based equivalent because it was the only thing available. Many found they liked it, and became much more likely to buy it again, he said.

This is a testament to the work that plant-based cheese companies have done over the years to improve their products, Crumpton said.

"That also makes it incumbent on plant-based dairy in general to continue to innovate, to make that barrier even less," he said. "[To make sure] that they're producing the types of products that customers would really have a hard time differentiating if they were doing something like a blind taste test."

Bel Brands is quite aware of this barrier — and it has an even bigger obstacle to cross, Graham said. The company is not creating something new but rather remaking well-known popular cheeses in plant-based and hybrid varieties.

"We have a really good pulse around what success looks like in terms of what the consumer is expecting ... because they tell us," Graham said. "On the other hand, given the trust that consumers have in our brand and what they expect in terms of the quality, the bar is very high. We have to work extra hard in just making sure that the plant-based offerings that we put out into the market deliver against that same expectation."

Bel's long history in the space lends it credibility and trust from consumers who might be leery of trying plant-based cheeses, he said. The company's seasoned manufacturing and R&D teams can also work through any issues to develop better quality products, he added.

Danone has deep experience in trying to bridge the taste gap between dairy and plant-based products. Borrelli said the biggest concern for any dairy alternative — be it plant-based milk, yogurt or ice cream — is that it tastes as good as what comes from cows. Danone works on improving the taste and physical qualities of its alternative products. For example, perfecting melt performance has been one of its priorities for So Delicious cheese.

Consumers are also looking for variety, which is one of the central tenets to Danone's business strategy.

"The one category that's been the toughest from a consumer standpoint has been dairy cheese. Consumers love their dairy cheese," Borrelli said. "And so we know that the opportunity was really to delight consumers with a great-tasting product that would deliver against the expectation consumers had."

Danone has done extensive consumer testing on So Delicious cheese and launched the line through a well-known and popular brand name, Borrelli said. It also has a partnership with cookbook author Ayesha Curry to show how So Delicious can be used in recipes that would ordinarily include conventional cheese. Curry's role is to encourage people who are curious about plant-based cheese to try it, according to a press release.

With so many plant-based cheese products on the market and players in the space, product quality has had to improve. Good Planet Foods founder and co-CEO David Israel said that companies already in the plant-based space aren't the ones having problems with the execution.

"A lot of the major cheese manufacturers — I'll say four of the largest — have sent us samples, trying to get us to work with them, and I am blown away by the lack of cheese-likeness of the samples they send to us," Israel said. "It's a learning curve that's different from what they've been doing for years and years and years." 

While there has been tremendous progress, plant-based cheese is often missing some of the function, taste and texture of the dairy-based alternatives. Gibson started New Culture to solve these issues. What's missing, he said, is dairy proteins. 

"For us to make a cheese that mainstream dairy consumers are going to transition over to seamlessly, we absolutely need dairy proteins in there," Gibson said.

New Culture creates dairy proteins from plant-based sources using microbial fermentation. After producing these proteins in a fermenter, the company then adds other plant-based ingredients — including sugars and other proteins — to basically make a milk that can go through the traditional cheesemaking process.  Gibson calls New Culture's product, which is still undergoing R&D, "animal-free dairy cheese." He expects its first offer to be on the market in 2023.

As consumers become more conscious of the healthfulness and sustainability of food, many are turning to plant-based cheese. But their choices at the grocery store are ultimately driven the most by taste and price — areas where plant-based cheese cannot always measure up. This is how fermented dairy providers, like New Culture, can eventually win the category — once they can achieve the scale to make a difference, Gibson said.

"They're the only ones that can compete on taste, and with a favorable trajectory, they can eventually compete on price as well," Gibson said.

All about opportunity

Israel, who founded snack brand Pop Gourmet, was looking for a new venture when he left that business in 2018. He had no real background in food science, but after some research learned that plant-based eating was the next big thing, and there was a lot of space for innovation and improvement in cheese.

Israel found a company in Greece that made cheese from plant-based ingredients. After tasting a sample, he discovered that the texture and melt was spot on, though the taste was pretty bland. He convinced the company, which he declined to name because of a business agreement, to work with him. They then developed a line of popular cheeses — varieties including American, mozzarella and cheddar — and did some deep research on the target consumer for plant-based cheese.

"I really built a brand around the whole package to connect with those consumers — the Gen X and Gen Zs and millennials," Israel said. "Everybody wanted products that were good for them and good for the planet, and so that's what we did. We came up with the most amazing, meltable, tasty cheeses in the category, period."

Good Planet, which launched in 2018, has done well in the market, often posting double-digit sales growth once products hit new stores, Israel said. It had one of the largest fundraising rounds in the plant-based cheese startup space, closing on $12 million in funding this past May.

Israel said that many other startups getting into the plant-based cheese space have the same outlook as he did: This is a category with a lot of opportunity. The field seems wide open, and plant-based eating appeals to a majority of consumers — including not only traditional vegetarians, but also those who might eat the occasional plant-based burger, Israel said.

"We're not out to kill the dairy industry," he said. "Yes, we're out to do better for our environment and better for the consumers' health, but, you know, there's room for everybody."

SPINS analyst Crumpton said it is common for startups to flood a hot new category that has seen recent innovation. Companies are trying to make the product better, or think they have a new twist that will make their offerings stand out. But many of the plant-based cheese players are still very small. Only 10 brands had more than $1 million in sales last year, according to SPINS, and the category leaders are still the older standards: Daiya, Follow Your Heart and private label brands. 

Danone has long been on the path to transforming into a full-spectrum dairy and alternatives provider. In 2017, the company bought plant-based dairy leader WhiteWave Foods, and it has been working toward solidifying and expanding its presence in the category.

In 2018, Danone set a goal to triple its sales in the plant-based space to 5 billion euros — about $5.7 billion — by 2025. Danone had a 41% market share in plant-based offerings through the third quarter of 2020, according to IRI data. According to its most recent earnings report, 10% of Danone's total sales are in plant-based. All together, sales of Danone's plant-based brands grew 15% last year, the report said. 

All of this growth was mostly in the milk, yogurt, frozen dessert and creamer categories. In fact, until recently, Danone was not in plant-based cheese at all. Then in January the company announced its So Delicious brand would launch dairy-free shredded and sliced cheeses, as well as spreads. And in February, Danone announced it would acquire plant-based cheese leader Follow Your Heart.

"We see tremendous opportunity for growth within plant-based cheese, and with the launch of So Delicious, we've got a product that we are delighted to bring to the market that we know will really change perceptions for consumers around how great a plant-based cheese alternative can be," said Borrelli.

Danone has been working on plant-based cheese for the last few years, as it focused on opportunities to drive impactful growth. A good tasting product with the right taste, texture and melt, Borrelli said, could pay dividends. In developing So Delicious cheese, Danone was presented with a unique opportunity.

"We were able to marry the knowledge and the learning and capability that we have in plant-based food and beverage with the knowledge and the understanding that we have in ... organic cheese, and really find a way to develop a product that delivers the right taste and texture," Borrelli said.

The Follow Your Heart acquisition also gives Danone more room to grow and expand in the plant-based cheese space. The 51-year-old company has a suite of plant-based segment-leading products, from its shredded and sliced cheese to its Vegenaise spread. Co-founder and CEO Bob Goldberg said two things sealed the deal to sell to Danone: It is the world's biggest B Corp and has ethics around transparency and sustainability that align with Follow Your Heart's mission. The fact that Danone has publicly committed to tripling its plant-based product sales by 2025 also factored in.

"That's a huge commitment. That's going to mean that a lot more plant-based product is available around the world for consumers," Goldberg said. "In my mind, every time somebody buys a plant-based item instead of an animal-based product ... that's progress." 

The view from dairy providers

Tillamook, a 112-year-old brand that is made as part of the Tillamook County Creamery Association, has been a well-known player in the dairy cheese business for generations. It currently is not in the plant-based space, though Executive Vice President of Brand Joe Prewett said the company is open to considering any new innovation that is disrupting the market.

While the company has built its name and reputation on traditional dairy, Prewett said he doesn't have a negative viewpoint of plant-based. In some areas where Tillamook has products — including ice cream, yogurt and butter — plant-based provides "healthy competition," he said. But it also provides a diversity of options, which is a net positive for the dairy segment.

"I don't think in today's market there's a close replacement for the product experience and nutritional impact of Tillamook cheese," Prewett said. "I wouldn't be surprised if a product like that is going to be developed in the future," he added.

The traditional dairy industry overall has not been supportive of plant-based products, and has worked to guard the identity of its products. 

The American Cheese Society, which is a membership organization for producers, sellers and enthusiasts of artisan and specialty cheeses in the Americas, has taken a position that only dairy-based products should be called cheese. In 2019, the group filed comments with the FDA to ask it to enforce labeling rules to restrict the terms "milk" and "cheese" to dairy products — an action that the federal agency has not taken.

The dairy industry is also battling a consumer perception that plant-based products are healthier — a belief that is not always backed up by products' Nutrition Facts. Because of dairy products' higher protein content, traditional cheese naturally has a better nutritional profile. Plant-based cheese makers currently need to add nutrients, including protein. But according to 2018 research commissioned by the Wisconsin Cheese Makers Association and Dairy Farmers of Wisconsin, more than a third of consumers who examined plant-based cheese products believed they had protein — and 21% thought it was higher quality than dairy protein. A quarter of the consumers thought the plant-based cheese products were low in calories and fat and contained no additives, which is not always the case.

Prewett is not overly concerned with misconceptions such as these impacting Tillamook's sales. He believes the truth will be borne out in time, and notes that people are still buying conventional cheese. In fact, Tillamook's cheese sales have increased by double digits during the pandemic, leading the company's growth, he said.

Despite the growth of the plant-based cheese segment and the rush of companies getting into the space, Tillamook is not spending much time trying to figure out how to succeed there, Prewett said. While there is some pressure on every dairy company to cater to the growing plant-based segment, it doesn't exist as much for cheese, he said. People primarily eat cheese for the flavor and indulgence, and it's hard to make a successful plant-based alternative that delivers on these motivations.

Tillamook may consider going into the plant-based cheese segment in the future if it can come up with something that can surprise and delight consumers, he said.

"We do not have an adversarial posture on healthy products that people like, and I know that is a narrative in the market," he said. "But I just think we have to be progressive and take a modern view of what the consumer wants, and then create great products for them." 

Although Bel Brands is making a strong push into plant-based cheese, Graham said its dairy cheese sector is still extremely important. The company has invested in improving the packaging and flavor of its The Laughing Cow brand, which turns 100 this year, and saw solid double-digit growth in the past year. It is also improving functionality and ingredients in its cheeses, including trendy adds like probiotics, which also has helped sales.

Right now, about 85% of Bel Brands' portfolio is dairy-based and 15% is plant-based. The company, which also owns pouched fruit brand Go-Go Squeez, is working to make those offerings closer to 50-50, Graham said.

"[It] is not going to be balanced because we're losing households in dairy," Graham said. "Quite the contrary — we anticipate to continue to grow. But it's really going to be coming from the acceleration and gaining the households in the plant-based and the fruit segments."

The cheese case of the future

The plant-based cheese segment will continue to grow in coming years, industry players and analysts said, but how much growth and who will drive it is yet to be seen.

Tillamook's Prewett said in five years he thinks the cheese case will look very similar to the way it is today. There may be a few more plant-based options, but they will mostly be in specific segments of the cheese market — just like plant-based meat, which is mostly in ground and nugget form.

SPINS' Crumpton expects plant-based cheese manufacturers to expand into more artisanal and craft varieties. While there are some plant-based feta varieties on shelves, Crumpton wouldn't be surprised to see more complex and distinctive cheeses such as Asiago and Limburger. 

He also sees plant-based cheese migrating past the dairy case. Better-for-you frozen pizzas and snacks are starting to pick up plant-based cheeses for their products, Crumpton said.

"While the plant-based cheese itself is lightning hot, compared to what's happening in the dairy space, we're seeing that now kind of permeate across the store. The proliferation of products that have those associations are taking advantage of that."

In the next five years, New Culture's Gibson said that his company is likely to undergo some big changes — including having products on the market and transforming dairy-alternative cheeses — but there may not be big developments in the near term.

"Keep in mind that dairy cheese is the only dairy product, at least in the U.S., that is increasing in market size and increasing in consumption," Gibson said. "It is going to take more time for this sort of revolution. ...In five years' time, plant-based cheese will do a pretty good job of capturing some meaningful portion of the market, while companies like New Culture ... scale to these massive volumes that are required to start really shifting the balance in favor of animal-free products."

New Culture may not just be in business for itself in five years. One of its biggest boosts so far came in 2019 when Kraft Heinz's VC arm Evolv Ventures led a $3.5 million seed round of funding for the company. Gibson couldn't say much about the partnership, but said the the two have been working closely together. The legacy Kraft Foods, which got its start as a cheese company in 1903, understands that the world is changing, Gibson said. 

"It's just a good relationship with both sides acknowledging that they can provide a lot of help to one another," Gibson said. 

In the near term, Crumpton expects more plant-based cheese offerings to be from major brands, but he predicted most would likely come through M&A. While plant-based cheese's current growth rates are likely to slow as the segment gets bigger, he said, it could reach 10% to 12% share of the segment by this time.

But, he said, it could be more depending on both developments in food science and sustainability concerns about the animal-based dairy sector.

"If the type of R&D that they do, [that] these kind of brands are bringing to market, continues to be innovative, then we're going to see that even more turbocharged," he said. "And I think it really has to do with supply on the animal side. If we see a huge dip [in supply] because of increased temperatures and global warming and everything else, that may also be a factor that would help expand plant-based even further."

Many consumers who bought plant-based products in 2020 not only continued to buy them in 2021 but spent less on animal-derived products, according to a study from the Plant Based Foods Institute, Kroger and its affiliated data insights firm 84.51°. The study used Kroger shopper data.

Health concerns were the top motivator for consumers switching to plant-based food, with 54% listing it as a reason. Nearly half said they think plant-based alternatives are healthier than their animal-derived counterparts, and 39% said they like the taste of plant-based alternatives.

Until 2021, the plant-based category consistently saw huge year-over-year sales growth. Last year, sales growth was much more gradual. While it’s too early to look at 2022 as a whole, category sales have become stagnant, forcing plant-based companies to take steps, including widespread layoffs or closures.

This study was published at an interesting time for the plant-based sector. While business was booming in 2020 and slowing down in 2021, this year has served as a contrast.

But while some news outlets seem poised to write the plant-based sector’s obituary, there’s still investment, innovation and sales for plant-based, as well as businesses that find the segment important. And there are still people interested in the segment. According to a study done by Moonshot Collaborative in October, two-thirds of consumers had plant-based food at least once a month in the previous quarter.

While this report doesn’t address the current year, the study points the way to some aspects that have drawn consumers to plant-based — as well as what may keep them there.

The study looks at consumer purchases for different plant-based categories — milk, cheese, yogurt, frozen meals, frozen meat and refrigerated meat. In 2020, 59% of shoppers were either new to the plant-based category or increased or maintained their previous purchases. Last year, 54% were in that realm, with nearly three in 10 increasing the amount of plant-based products they bought from the previous year. In 2021, more than a third of consumers in the plant-based cheese and yogurt categories were new to them. Nearly a third of plant-based frozen meal and refrigerated meat consumers were new.

Households that spent more on plant-based products also spent less on their animal-derived counterparts, the study found. In 2021, a household that bought some plant-based products spent an average of $31 less year-over-year on traditional foods. And that wasn’t just for those that bought more of the alternatives. People who bought less plant-based food in 2021 than in 2020 tended to spend about $42 less in the plant-based category — but they also spent just over $60 less on animal-based foods.

The data also found some trends among plant-based consumers. They tend to be more interested in convenience, believe they are less healthy and are more sensitive to price.

Some of the newest initiatives from plant-based companies target this kind of consumer. Impossible Foods recently launched frozen meal bowls, which zeroes in on the convenience meal sector. Plant-based breakfast sandwiches and burritos also are available in grocers’ freezers. Beyond Meat, which is working to regain sales and bring its operations back into the black by the second half of 2023, is zeroing in on its health message. The company recently partnered with the American Cancer Society to advance research on whether plant-based meat can play a role in cancer prevention.

The one area that plant-based might have problems is with wooing price-sensitive consumers. With inflation hitting a four-decade high earlier this year and consumers paying more across the grocery store, many plant-based products still are premium priced. Analysts looking at buying patterns have shown consumers buying less expensive meats and products, putting plant-based in an even tighter spot.