Plant-based cheese is full of startups. Will dairy providers get into the segment?

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.”

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