“The technology life cycle has three stages: hype, disillusionment, and application.”
– Bob Lewis, columnist and blogger
ARTICLE SUMMARY
The Gartner Hype Cycle is a potent framework for explaining the evolution of an emerging technology. Product growth is subject to the ebbs and flows of the demand-supply loop. Together, they provide a formidable source of information on the evolution of products (and industries). We chart the progress of the alternative protein industry and its product evolution through these frameworks. Even as recent media coverage has been skeptical about the sector, these frameworks offer a window into its future growth.
The alternative protein industry is not the first to experience the hype cycle. Coca-Cola and PepsiCo revamped the landscape with their innovative product formulation and packaging in the carbonated beverage industry. That people could simply hold a bottle of cola in their hands and walk around was a game changer compared to the soda shops that existed at the time1. The innovation in packaging piqued consumer interest but as health concerns emerged, people started questioning the sugar content in their drinks, leading to a period of skepticism. However, the companies evolved and innovated by introducing low-sugar and sugar-free sodas along with more environmentally friendly packaging options leading to mainstream adoption2. The industry continues to innovate with the latest introduction of ‘healthy’ sodas by companies such as Olipop.
This process of an innovation trigger, hype, disappointment and equilibrium has been characterized aptly as The Gartner Hype Cycle.
The Gartner Hype Cycle for emerging technology breaks down the process in several distinct steps:
Technology Trigger: An innovation sparks consumer interest.
Peak of Inflated Expectations: Hype created by media and other stakeholders overshadows reality, resulting in unrealistic expectations.
Trough of Disillusionment: As consumers discover that the reality doesn’t match the hype, skepticism emerges, which is often accompanied by media predicting the technology’s demise.
Slope of Enlightenment: Consumers reset their expectations as producers address consumer pains and bridge the gap between hype and reality.
Plateau of Productivity: A new generation of products emerge that address consumer needs. Consumers find utility as products undergo gradual improvements in response to feedback. This ushers an era of equilibrium as the product moves towards mainstream adoption.
Over the past decade, products in the alternative protein industry have found themselves along various points in the hype cycle. Plant-based milk, the poster child for the sector, has grown to capture 16% market share in the United States3. The journey has been truly remarkable — from a few soy-based options for the lactose intolerant population to a panoply of brands, ingredients, and flavors. It is closest to the Plateau of Productivity, similar to its counterparts from the previous generation of alternative proteins – tofu, seitan and tempeh. Other products, such as plant-based meat, sit in the Trough of Disillusionment today, as consumers are disappointed by the taste, appalled by the price, and skeptical about the nutritional composition. Yet others, such as proteins produced using molecular farming are at the Peak of Inflated Expectations. Cultivated meat’s journey, which started a decade ago with a Technology Trigger when Mark Post developed the first cultivated burger for $330,0004, has since undergone the same hype cycle. From lofty valuations and market share predictions, we have hit the Trough of Disillusionment a decade hence with questions being raised around the scalability and price parity of these products. The sector itself has followed a remarkably similar path with media predicting its demise despite various products being at different stages of the hype cycle.
The Yin and Yang of Demand and Supply
Whether it’s at the Peak of Inflated Expectations or the Plateau of Productivity, product supply must keep pace with demand. Together, they create a loop whereby increased demand leads to increased supply. It all starts with an innovative technology to meet consumer need – which creates demand. Suppliers then innovate and make a product available in the market for the consumers to try. If consumers like the product, they will purchase more of it and share their experience with other consumers, thus magnifying demand. Suppliers must then ensure that the product is scalable so that it can meet mainstream consumer demand. Demand momentum is built through consumer need and product likeability while supply consistency is developed through product availability and scalability. The interaction between these forces determines how the product will perform.
At the essence of every successful innovation is the desire to create a product that addresses a consumer need. While at the outset this appears straightforward, often customers are unaware that they need or desire a product until they are offered the same and made aware of its value propositions. Henry Ford expressed this best when he said that if he had asked the people what they wanted, they would have said faster horses. In the case of plant-based milk, the lactose intolerant consumers needed non-dairy milk options. Once producers offered products with additional value propositions to meet those needs, initial consumers were also joined by climate-driven, health-driven, and finally, taste-driven consumers, together creating a demand momentum. Slowly, additional products were introduced to meet each of these needs. For example, Oatly now mentions their climate footprint on the front of every carton, an attribute that increases the products’ appeal to climate-driven consumers5. Similarly, plant-based milk tends to have 89% lower saturated fat, an attribute that satisfies the needs of health-driven consumers6.
Once consumer need is established, suppliers need to ensure that the product is widely available. Product availability encompasses various factors including, but not limited to, flavors, packaging sizes, ingredient sources, sweetness levels, location and so on. With availability, an old adage comes to mind — out of sight, out of mind. Plant-based milk is available in several ingredient formats (soy, oat, almond, hybrid), in various flavor profiles (plain, vanilla, coffee, strawberry, chocolate), in every grocery store next to conventional milk and even at popular coffee chains. If plant-based milk were placed in grocery stores in any section other than dairy, chances are fewer consumers would have reached for it. According to a survey conducted by V-Label, 69% consumers stated that there was a lack of range of plant-based products while another 59% stated that the source product variety (chicken, beef, pork, seafood) was limited. Availability is all about bringing product options to consumers instead of consumers having to settle for a product that doesn’t fully address their needs.
Once the product is made available, consumers must like the product. This is where taste, texture, price and nutrition come in. 66% of consumers think that plant-based dairy tastes better than regular dairy7, while only 39% of consumers liked the taste of plant-based meat8. Further, 71% consumers agree that plant-based milk products are healthier than conventional milk products9. Unlike plant-based milk, other products simply haven’t performed when it comes to product likeability. We have seen the same story unfold in the past albeit in a different industry. In the first generation of the Internet in the 1990s, Amazon.com took an early lead with a compelling e-commerce offering they termed ‘The Earth’s Biggest Bookstore’. During the same period, several search engines emerged to help us navigate the Internet, including InfoSeek, Lycos and AltaVista. While Amazon thrived, no search offering survived because consumers didn’t like the products enough to exhibit addict consumer behaviour. This changed when a search engine by the name of Google came along, which has since dominated the category, and continues to do so today.
As consumers express interest, suppliers must ensure there is an undisrupted supply of the product. Creating a scalable product requires attention to multiple variables including raw materials, manufacturing equipment, process optimization, supply chain, packaging and distribution, to name a few. Scalability also offers opportunities such as improved unit economics due to economies of scale. Better cost profiles will bode well for plant-based meat alternatives, a category which exhibits high price elasticity. According to an analysis by Kearney, a 1% decrease in price increases the market share of plant-based meats by 3%. Kearney estimates that at price parity, some plant-based meat subcategories could capture up to 20% of the conventional category’s share. As large meat processors and CPG companies such as Tyson, Cargill, Unilever among others, increase their participation in the alternative protein sector through joint ventures, partnerships, R&D efforts, manufacturing, investment and acquisition, product scalability should receive a much-needed boost.
Even with a continuous demand and supply loop, there are additional variables at play. These external factors are elements that effect the demand-supply relationship. Economists have a popular adage to describe this situation — ceteris paribus, a Latin phrase meaning ‘all else being equal’. This means that if everything remains the same (i.e. the external factors are not active), demand and supply will continue along the expected path.
These external factors may be environmental, regulatory, economic, or geopolitical in nature. For example, the 2022 retail sales data indicates that plant-based eggs had the highest 1-year unit sales growth at 21%10. However, this increase in demand was likely driven in part by the increasing prices (sometimes called ‘eggflation’) and decreased availability of conventional eggs due to the environmental factor of the global avian flu crisis11. Similarly, prices of soy crops increased in 2022 due to drought like conditions in South American countries, an external environmental factor which impacted the supply and scalability of plant-based products12. Disruption of supply chains due to COVID-19 and geopolitical factors such as the Russia-Ukraine conflict have resulted in increased prices for conventional meat, thereby making plant-based meat more competitive13. Regulatory factors such as the ‘no objections’ letter for UPSIDE Foods and GOOD Meat clear the path for making cultivated meat products available to consumers. As you have probably guessed by now, ceteris paribus is a rarity in the real world as environmental, regulatory, economic, or geopolitical factors are ever-present.
The Interplay
When OpenAI released ChatGPT, it laid bare a consumer need for simpler answers, and more efficient solutions. Just type the right prompt, and all of life’s questions are answered. The Technology Trigger, the first step in the Gartner Hype Cycle, saw a consumer need emerge. As the product became more available, we reached the Peak of Inflated Expectations and a number of shortcomings became clear. The answers are often dated, sometimes wrong even, and aren’t always sensitive to societal norms or controversial issues (Google is working very hard to address these issues in its version14). These characteristics are typical of a technology in the ‘Emerging’ phase. As the AI revolution undergoes its own hype cycle, we will see a Trough of Disillusionment result in product evolution. Then as updated versions emerge and as consumers like them, we will move into the Slope of Enlightenment, where supply will start to match the increased demand. This ‘Evolving’ phase is also where enhanced applications will emerge making the technology highly scalable. Finally, these products will reach an equilibrium in the ‘Establishing’ phase, with the demand-supply feedback loop continuously keeping pace at each successive iteration in the Plateau of Productivity.
If we chart the progress of the alternative protein sector over the last 15 years, since the founding of Beyond Meat, the creation of the first plant-based burger was the technology trigger that sent expectations soaring. As new plant-based products began to surface, more hype was created around the category, especially with Impossible Foods introducing burgers that could “bleed” like real meat. However, as consumers tried these products, they fell short of their expectations, sending consumer sentiment tumbling down to the trough of disillusionment, leading media to raise questions not just about the existing products, but also about the industry as a whole. As we move forward toward the slope of enlightenment, there is no doubt some suppliers and investors will back away from the industry, as JBS did when they abandoned their Planterra Foods line of plant-based products in 202215. However, we will also see a new wave of innovators emerge that address the gaps in expectation (versus reality) though product improvement. As consumers reset their expectations and suppliers aim for product enhancements, the feedback loop will be a long and arduous journey that will vary for each technology stack and product category but will eventually help the industry tide through the trough and gear itself for the future.
A Simple Plan
It is easy to dismiss the alternative protein sector because consumers didn’t like the first iteration of products. The sector came about with a technology trigger to address a consumer need — to eat delicious food that is more sustainable. This need still exists and is growing as flexitarian consumers seek alternatives. Of the products that came to market, one category succeeded: plant-based milk (think e-commerce in the 1990s with Amazon). Sitting in 1999, one may not have felt the Internet had a bright future. In fact, much of the media suggested it was a fad and predicted its demise (yes, we’re talking about the Internet). At that point, it was difficult to conceive Google, Facebook, Airbnb, Dropbox or ChatGPT, because they hadn’t been invented or popularised yet. In fact, many had early versions (remember Friendster or MySpace?), which failed. But looking back, the rise of the Internet looks like a rosy picture.
As the Gartner Hype Cycle illustrates, the path has many bumps along the road. At each step, supply and demand must move in lock step. Starting with a consumer need which reaches fever pitch, the market responds with a product. When the product doesn’t meet consumer expectations, there is inevitable disappointment and disillusionment. As products iterate to address gaps, consumers start to like the product in ever greater numbers. Eventually, the market reaches an equilibrium as it moves toward the mainstream market. While external factors can throw a wrench in the well-oiled machinery, as they inevitably do, consumers and suppliers adapt. The result is a new, mature market, which looks stable, until it isn’t, due to external factors, or a new technology trigger.
Investopedia, The Evolution of the Coca-Cola Brand
Bill Sipper via LinkedIn
Good Food Institute
Forbes
Food Dive
The New York Times
V-Label Survey
Plant Based Foods Institute Survey
FMCG Gurus Consumer Insights 2022
GFI
Rabobank Research
S&P Global Commodity Insights
ABC News
Google Blog
Reuters
I understand the intention behind this article/blog and agree that we should not write off the alternative protein story but I do not think anybody is doing that anyways. Investors have billions at stake as the low interest rate environment/easy money combined with the FOMO effect among the investor community made them invest in many alt. protein startups at sky high valuations. So what is happening now (when interest rates have gone up and money is not as cheap to borrow as it was couple of years back) and will happen further is that startups with weak business models & inflated promises will not be able to raise fresh rounds of investment at those high valuations as before making it difficult for VCs/PEs to make an exit without losing money. Simply put- Investors who did not do proper due-diligence of startups will lose money. Coming back to the article - there are multiple logical flaws in it- Applying Gartner Hype Cycle (which is used to study the progression in maturity of emerging technologies) to how people make their food choices (driven by multiple factors like biological, social, cultural, economic, psychological, attitudinal, beliefs and so on) is flawed. The blog extends this illogical comparison by trying to draw parallels of growth of alt. proteins with the launch of ChatGPT and Internet adoption in the 90s (internet is a homogeneous entity which had a very unique value proposition of adding to people's convenience just like many other technological inventions). Also, comparing alternative protein products with coca cola's low sugar SKUs is also fundamentally wrong. Coca cola zero is an example of line extension of an established category whereas Alt. protein innovations are completely new products/categories which are trying to mimic their underlying established categories/products.
The hype cycle, the S curve, the diffusion curve, the Kano model, Moore's (Moo's) law - these (kinds of) models) all help anticipate how supply, demand and sentiment will evolve
Hopefully they help bring perspective when it's at risk of being crowded out by "it'll never work" commentary
At a high level they might help guide decision making, eg in capital allocation
That said, I wonder whether they will persuade anyone who isn't already somewhat bought in