Planting the right seeds for sustained growth

Veganism has been labelled the megatrend of the next decade and the statistics back up this claim. Last month, more than 400,000 people signed up to this year’s Veganuary campaign, a 60% increase on last year, fuelled by shows such as Netflix’ recent “Game Changers” documentary. Whilst uptake of pure vegans has increased markedly, there’s also a very large market out there for people that simply want to reduce their meat intake, whether that is for environmental or perceived health reasons, rather than just animal welfare reasons. Sainsbury’s recent Future of Food report, which looks ahead to 2025, predicts 25% of adults will be either be vegan or vegetarian by then, with the proportion of ‘flexitarians’ set to rise to 50%.

Consumer attitudes to eating meat continue to alter. MCA’s Hot Topics consumer research from March last year, found that 2% of adults had adopted vegan or vegetarian diets in the past six months, to add to the 7% who were already plant-led. More significantly perhaps, was the one in five proportion who reported they were actively eating less meat.

It is a trend that operators from across the spectrum of the eating and drinking out market have been unsurprisingly keen to tap into. Greggs followed up last year’s runaway success of its vegan sausage roll with the launch this year of a vegan steak bake. The vegan sausage roll was credited by Greggs as a huge success in its recent results update, not to mention generating significant PR noise and brand awareness. KFC sold one million vegan burgers in the first month the item was on sale – equivalent to one every three seconds – whilst Deliveroo recently reported that orders of vegan dishes rose 78% last month compared with Veganuary 2019.

It is clear that the eating-out sector has responded, flexing to attract new customer groups and mitigating the “veto vote” where the vegan(s) in a group decides on the best venue/location. However, there are many operational implications of changes to menus, culture and strategy for operators to consider, along with a possible impact on costs and their bottom line.

Fit for purpose

Generally, change for any operator means new investment, and the ability to produce a quality vegan offer is no exception, whether that is through paying for new supply lines, store design or equipment. There is capital needed to acquire new grills and kitchen kit so that ingredients are separated, and cross-contamination prevented. There is also the potential challenge of finding the space for this new equipment. More storage space will be required to hold greater numbers of SKUs, separate utensils, potentially separate grills/fryers - if cooking in oil. There is also a reputational issue to consider here: At the start of the year, Burger King launched its plant-based Rebel Whopper in the UK, the latest push by the fast-food chain to capitalise on the plant-based trend. However, it has already received criticism from some quarters as a disclaimer on its website states: “The Rebel Whopper is plant-based; however, it is cooked on the same broiler as our original Whopper to deliver the same unique flame-grilled taste. Due to shared cooking equipment it may not be suitable for vegetarians.”

On a similar theme, whilst KFC’s vegan burger has been very well received, many customers expressed disappointment that it is not yet available as a meal, since their fries are cooked in the same oil as their popcorn chicken. Clearly KFC cannot please everyone without incurring large financial outlay and operational change (even assuming that all sites have physical space available for additional equipment).

Supply piece of mind

With new offers, comes new investment in training for staff. Employees need to be trained in what veganism means to consumers, they also need to know how to ensure no contamination if cooking items from scratch, in terms of separate storage, utensils and grills. They also need to be up to date on which ingredients are needed for new recipes, with labelling of vegan vs non-vegan SKUs paramount. January saw a number of reported instances in the media of staff serving items in the wrong packaging, or mistakenly serving non-vegan options to vegan customers, all of which serves to highlight just how important it is to get the training just right.

SKU proliferation will have an impact on the planning and supply chain management teams. The more SKUs that you have to forecast and the more suppliers that you have to manage, the greater the risk for forecast accuracy and supplier delivery performance to decline.

From a purchasing perspective, operators need to source new ingredients and, in some cases, need to buy new vegan options for the entire product supply chain. Initially, one would expect costs to increase, as buying more SKUs in smaller volumes reduces an operator’s purchasing power. Likewise, given that the vegan supply market is very much in its infancy, the choice of products and suppliers is more limited and scale pricing benefits are yet to be realised.

Depending on your incumbent supplier’s capabilities, you may need to source entirely new suppliers altogether - therefore additional or specialist resource may be required in procurement or category management teams. On the flip side, the supply market in this category is becoming increasingly competitive, so we would expect to see cost efficiencies in the longer term. In any case, it will be up to businesses to work directly with suppliers to gain the optimum terms.

A key factor of success lies in finding a supplier who can meet this uptick in demand. Producers of plant-based products like Beyond Meat and THIS have gained significant footholds and exposure in the industry, allowing operators to add vegan ranges to their offers. But what if demand outweighs supplier capabilities? Impossible Foods, the maker of plant-based beef patties has ceased talks with McDonald’s about serving its meatless burgers with reports suggesting the start-up can’t produce enough patties to partner with the world’s biggest fast-food chain.

There is no question that veganism is here to stay, meaning more businesses will be born or evolve to take advantage of a rapidly-growing consumer group. By Chloe, the US plant-based burger concept, now has four sites in the UK and is looking to grow. Vegan pizza restaurant concept Purezza has recently announced plans to add a further four sites to its fledgling two-strong business, whilst Vurger Co, the vegan burger brand, secured £1.4m of new investment from Dismatrix Group, an international private equity firm, to back its expansion plans. Interest is growing rapidly; make sure you have the right roots in place to take advantage.

Tom Wagner is a Vice President at AlixPartners specialising in helping consumer businesses optimize their purchasing and supply chain