The Market for Meat Substitutes

The plant-based meat industry has seen a boom in recent times, with Burger King launching the meatless whopper, and Beyond burgers being offered at more and more restaurants. So why is this industry beginning to prosper, and where is it headed?

Whilst tofu dates back to the Western Han Dynasty, it can be said that the first attempt at producing a product that imitates meat, would be that of John Harvey Kellogg (yes, cornflakes as well…) in 1877 and yet the industry remained dormant until this century.

Given the more recent eruption, the market was estimated at 11.1bn USD in 2019 and is projected to more than double by 2027. That said, estimates vary greatly, with Barclays recently predicting that there is potential for the sector to capture a tenth of the entire meat industry and reach 140bn USD in the same period. In 2020 Q1 alone, nearly $1bn of investment flew into the industry.

So, what is driving the recent boom in the industry?

Over the last half a decade, consumers have taken a greater interest in the sustainability of their purchase decisions. The vast amounts of CO2 that traditional beef agriculture produces has become mainstream knowledge, and with climate change ever-present, consumers are looking to alternatives. Additionally, meat has always been seen as a great source of protein, and yet the health benefits that a plant-based diet offers are starting to look more appealing, especially in a pandemic where health is valued above all else.

The Pandemic in mind, it has actually come to the aid of plant-based products; by raising the prices of traditional beef and pork products, the plant-based alternatives are far more affordable by comparison.

Within the industry, two brands can be considered as true market leaders: Beyond meat and Impossible foods. With their innovative appeal and premium market placement, they have both taken sizeable market shares.

Beyond went public in 2019 at $26, yet shares have been traded in excess of $200 at their peak. Impossible Foods is still private, and an IPO could be on the horizon as they look to gain evaluation beyond their tag of $2bn, despite $500m of investment in 2020.

The restaurant/fast-food marketing approach these two companies have taken has certainly raised the profile of the industry as a whole, and yet this may lead to their demise. As the industry grows at a CAGR of 15.8%, competitors have taken note of the fast-paced growth and have begun to flood the marketplace. Supermarkets and mainstream brands alike have launched plant-based products at an alarming rate, and with no sustainable competitive advantage, could today’s investors be buying towards the top end of these two companies?

Despite this, some of the world’s largest brands are taking note of the aforementioned market leaders. On the 26th January, Beyond meat announced a joint venture with PepsiCo, believed to be named Planet Partnership. This news caused the stock to jump 26%, with investors believing Beyond are sure to benefit from the plethora of expertise of PepsiCo, as they set their sights on going global. And that’s not all, Beyond are believed to be co-creating the meat for McDonald’s new McPlant product line, which raised shares by 6% in November 2020.

All of the recent excitement seems to be focused around Beyond meat, and it’s clear the brand knows this, given that they recently opened a new Dutch manufacturing facility to boost EU sales, and begun a new sales partnership with Alibaba owned supermarkets to take a chunk of the Chinese market.

Although not plant-based, lab-grown meat is worthy of mention. The alternative to traditional meat may appeal to many consumers, and even form a sub-market of its own. Lab-grown meat, from a consumer’s perspective, is the same as any ordinary meat without the misdemeanour of contributing to global warming. As recently as December, Singapore granted approval to lab-grown chicken to be used in nuggets, the world’s first approval. From the perspective of an investor, this industry may be more appealing.

With the pandemic highlighting the need to address climate change, the plant-based meat industry has been given a boost by the more conscious consumer. The great potential growth that this market exhibits should be carefully watched by investors as consumers and businesses alike have become more environmentally responsible.