We in the Pynk Investment Committee are always on the lookout for new transformative trends that we can profitably invest in. One such trend that we are all very excited about is the stunning growth potential of plant-based (and eventually lab grown) meat which may eventually completely replace the gigantic meat industry. There are powerful and sustainable drivers behind this trend and despite its massive growth to date, there are signs that it has a lot further to go. Today I’d like to tell you about this meatless food trend in more detail and how you can invest in it.
We are all familiar with more and more meat free products popping up in our local grocery stores. In the not too distant future, the question is will the meatless food industry featuring lab-grown meat, seafood substitutes, and insect protein completely replace meat? We already see food giants and startups alike working to navigate a future where protein isn’t dominated by conventional meat sources.
At the moment, meat is still king. By some estimates, 30% of the calories consumed globally by humans come from meat products, including beef, chicken, and pork. The global meat market could be worth as much as $2.7T by 2040, according to CB Insights’ Industry Analyst Consensus
But Covid outbreaks in meat production dealt major blows to the meat supply chain this year, which is estimated to face losses of more than $20Bln in 2020. In contrast, startups focusing on plant-based protein - including Plantible Foods, Rebellyous Foods, Livekindly, and InnovoPro - have continued securing millions in funding even amid the pandemic. Shifting consumer behaviour meant demand for vegan meat soared, with sales up by a staggering 264% in the 9 weeks ended May 2, 2020.
There’s a Global Revolution in What We Eat
The U.S. in particular is seeing incredible technological innovation in the plant-based food industry. The quality of products, and their likeness to animal-based meat, continues to astound “reducetarians” - the rise of people who are cutting back on animal products - across the world.
Bill Gates backed Impossible Foods, for example, has found a way to use plant-based heme - which gives meat its taste - by fermenting genetically engineered yeast and using it to make patties resemble meat. This process generates 87 percent fewer greenhouse gases and uses 75 percent less water than burgers from cows.
It’s no surprise then that the plant-based industry is seeing unprecedented growth. The U.S. plant-based meat industry was worth $801 million and was the third fastest-growing category of plant-based foods, behind milk and other dairy substitutes for the year ending 2019. It’s predicted to be worth $27.9 billion by 2025, according to researchers at MarketsandMarkets, while financial firm UBS predicts the industry will grow to $85 billion by 2030.
But innovation is happening far beyond the likes of Impossible Foods and other popular plant-based meat companies like Beyond Meat and Alpha Foods. While the U.S. is seeing a huge appetite for plant-based foods and cutting-edge innovation, the rest of the world is also waking up to peoples’ demand for a healthier, more sustainable way of living and eating. The global market for plant-based meat alternatives is projected to grow to $1.5 billion by 2022.
In the U.K., Quorn, launched in the U.K. back in 1985, pioneered vegetarian alternatives to meat. In recent years, the company has been edging closer to the realistic meat substitutes aimed at meat-eaters instead. The company has launched a vegan sausage roll in popular nationwide bakery, Greggs. Thanks to their popular Quorn addition, Greggs made £1bn in sales for the first time.
Another UK company, Moving Mountains (so named for the three mission-driven goals of the founder to improve human health, protect the environment, and spare animals of cruelty) introduced the country’s first “bleeding” burger in 2018, made with mushrooms, wheat, soy, pea proteins, and beetroot juice. The following year, it created the U.K.'s first plant-based hot dog, which is heated and moulded to take on the appearance of a pork hot dog and smoked in a real smoke-house. The company, which only launched in 2016, has since expanded across Europe and has recently made deals to export to the Middle East and the U.S.
Meatless Farm Co. is another mission-driven, sustainable plant-based food company that was founded in the U.K. but now has a presence in several global markets, including the U.S., Ireland, Sweden, Hong Kong, Canada, and the UAE. The Meatless Farm Co.’s team of chefs and nutritionists are dedicated to making fresh plant-based meat alternatives that taste delicious, are easy to cook and are better for the planet.
Elsewhere in Europe, Spanish company Novameat has produced a plant-based steak that, according to the buzz, is the most realistic on the market, and mimics the texture and look of real steak. Its ingredients, including pea, seaweed, and beetroot juice, are shaped into fine fibers to recreate muscle tissues. Founder Giuseppe Scionti says the secret to the steak is a patented technology that produces ultra-fine fibers that replicate the muscle fibers and fat in the steak. It will be available in selected restaurants in Spain and Italy this year, with plans to scale-up the technology and expand further next year.
In September 2017, China announced a $300M deal to import lab-grown meat from 3 Israel-based companies: SuperMeat, Future Meat Technologies, and Meat the Future - as part of a broader plan to decrease the country’s meat consumption by 50%.
Plant-based burgers that ‘bleed’ and taste like the real thing
Plant-based burgers have seen a jump in popularity. Startups producing these burgers are targeting both meat-based and plant-based diets by 1) increasing options for vegetarians and vegans and 2) using a meat-like taste to help entice meat eaters to consume environmentally-friendly protein.
“We think of it as meat made a better way … Meat today basically is made using pre-historic technology, using animals to turn plants into this very special category of food … But to your typical consumer … the value proposition of meat has nothing to do with it coming from an animal.”
– Pat Brown, CEO of Impossible Foods
Impossible Foods, one of the biggest players in this space, leverages molecular engineering to create “bleeding” plant-based burgers that the company claims is nearly indistinguishable from meat. The company’s use of heme, an iron-rich molecule in animal proteins, has enabled it to replicate the “meaty” flavour in its plant-based products. Beyond Meat is another major competitor in the space, making plant-based burgers and other imitation meat products such as plant-based chicken and sausage. Beyond Meat went public in May 2019, with the price quickly surging to more than 8x its IPO level within a few months. Both these companies have seen dramatic growth in the past two years, as their products have been taken up globally by large food service chains such as Starbucks, Burger King and Taco Bell, as well as most of the major supermarket chains like Kroger, Whole Foods and Walmart.
Why the shift towards meatless?
Plant-based meats account for less than 1% of overall meat sales in the United States. Although this seems negligible, the industry’s growth has been exponential in recent years, suggesting that a major transformation is underway in how we produce and consume food. US consumers bought 157 million units of plant-based meats last year, allowing the industry to grow 23% compared to the year before. That sort of double-digit growth will remain the norm over the next several years according to multiple research studies.
“Plant-based meats are starting to hit that sweet spot where they are competitive with the animal-based meat products that they’re replacing on the basis of taste, price, and accessibility,” Zak Weston, food service analyst at the Global Food Institute said. “If something is just as delicious and just as inexpensive and just as accessible, in terms of being in a grocery store or restaurant, and easy to cook or use in your cuisine, a lot of people are going to buy it.”
More and more people are becoming aware of the huge environmental impacts of the meat industry, as well as animal welfare and worker rights issues surrounding meat production and processing. Some of the environmental effects that have been associated with meat production are pollution through fossil fuel usage, animal methane, effluent waste, and water and land consumption. A 2017 landmark study found that the top three meat firms – JBS, Cargill and Tyson – emitted more greenhouse gases in 2016 than all of France. A study last year showed, for example, that if all Americans substituted beans for beef, the country would be close to meeting the greenhouse gas goals agreed by Barack Obama. Some therefore argue that veganism is the only sane way forward.
There are other powerful drivers to this trend. More than half of consumers - 52% - said eating plant-based foods made them feel healthier in a 2018 study from DuPont Nutrition & Health.
“We all know that we’re not eating enough fruits and veggies. Everyone from grandmothers to the government have been telling me that. And so anything that kind of plays to that, I think, has a healthy connotation.” Nick Fereday, Executive director of food and consumer trends, Rabobank
The other factor that has helped this growth is quite simply the number of plant-based products available. Given the interest and investment in the plant-based sector, there have been dozens of high profile retail launches both from newcomers like Beyond Meat as well as from the giant meat producing incumbents.
Covid only accelerated the shift to meatless alternatives
During the onset of the coronavirus pandemic, the meat industry was slammed by meat shortages due to shuttered plants, resulting price increases, and growing numbers of sick workers. Traditional meat distribution channels were and remain upended, as restaurants, schools, and other facilities closed. Declining output and rising prices left consumers with fewer options, and plant-based meat alternatives began to see a lift.
Since workers in meat processing plants work so closely together, they were among some of the first COVID-19 hotspots in the US and other large countries. Large numbers of cases forced some large processing plants to step back production or completely close. These disruptions drove more awareness of the meat industry, which Impossible Foods CEO Pat Brown said consumers often don’t give a thought to. The pandemic also put a spotlight on one of the things he says the meat industry is most interested in keeping hidden: meat processing plants.
Beyond the shortage, the pandemic has also forced many consumers to face issues in the meat supply chain for the first time, including the health of the workers or the ethical treatment of animals. Reports of the millions of animals being euthanized as slaughterhouses were forced to close fueled consumer distaste. The outbreak has resulted in reportedly the largest pig culling the US has ever seen, with about a billion pounds of meat destroyed in the second quarter alone.
Of course, all grocery food categories grew as covid forced people to stay at home but it was plant-based meat that enjoyed truly spectacular growth: According to The Good Food Institute, plant-based meat sales rose 454% compared with the previous year to March 2020. Conventional meat sales saw a bump too, but it was much smaller with conventional meat sales up 40% above 2019.
Whether meat alternatives eventually dominate the protein industry or not remains an open question, but it is clear that the impact of covid accelerated the existing growth trend in favour of plant-based meat. A pandemic with no cure could have forced consumers to think about how they can eat better and boost their immunity. And there were more plant-based and meat alternative products appearing on grocery shelves for them to try.
Plant Based Meat is Still Tiny in Relative Terms
Despite its explosive growth in the past decade, we shouldn’t overestimate the current size of the plant based meat market. According to market data the NCBA collects, plant-based meat represents just 0.4% of the entire meat industry now. The U.S. meat market is worth about $95 billion at retail, as opposed to about $1 billion for plant-based meat. A report last summer from UBS projected the plant-based meat industry to continue to enjoy rapid growth, becoming an $85 billion industry by 2030.
Although the plant-based meat segment is small now, Impossible Foods’ Brown who is known for his sweeping predictions of success for his company - and plant-based food generally - goes even further by saying:
“Impossible Foods is not a guppy. It’s an embryonic whale, OK? That’s really important: that we are growing like mad. And we are, by 2035, going to completely replace that industry.” Pat Brown, CEO, Impossible Foods
Brown supports this prediction by bringing up the example of cameras. When the first digital cameras came out a generation ago, they were expensive and low quality, and far from displacing traditional film cameras, he said. But a decade later, the film camera industry was dead. And Impossible Foods says it can show that its products are taking consumers away from conventional meat. According to findings the company received from analytics company Numerator, which looked at individual consumer data, 72 cents per dollar spent on Impossible Burger would have otherwise been spent on meat.
How is the meat industry responding?
In the past decade, the meat industry has seen massive consolidation, as companies like Hormel and Brazil-based JBS have grown bigger and bigger through the acquisition of new meat brands and products. Despite high-profile deals in the sector, the industrial meat industry faces a rising tide of challenges related to business, ethical, and environmental concerns.
These corporations have also begun the shift into plant-based protein amid pressure from upstarts and changes in consumer behaviour. The world’s largest meat company, JBS, launched its own meatless protein in June 2020. Other meatpackers offering their own lines of plant-based alternatives include Tyson, Smithfield, Hormel, and Cargill. Meanwhile, startups using technology to engineer meat in labs or manufacture it from plant-based products are ever rising in popularity.
“Plant-based protein is growing almost, at this point, a little faster than animal-based, so I think the migration may continue in that direction.” Tom Hayes CEO of meat producer Tyson Foods
One of the world’s biggest alternative protein brands, Beyond Meat, which manufactures the plant-based Beyond Burger has been signing lucrative deals with big food chains all over the globe, notably even making inroads into Asian markets by inking a deal with Starbucks in April 2020 to offer its meatless sausage in China. In June, Beyond Meat also announced that it would debut its products in select KFC, Pizza Hut and Taco Bell stores in China. Most recently the company made a deal for snacks with Pepsi Cola and now has factories in US, Europe and China.
Beyond Meat’s chief competitor, Impossible Foods has also seen aggressive growth. The Redwood City-based company has aggregated more than $1.3B in total disclosed funding. Its products can be found at chains like Burger King, Qdoba, White Castle, and Red Robin. Valued at $4bln as of March 2020, Impossible Foods has seen rapid expansion this year as well, forging a partnership with Kroger to sell its burgers across 1,700 Kroger-owned grocery stores nationwide, up from just 150 grocery stores selling its burger at the beginning of 2020. Starbucks also recently announced that it would add an Impossible Foods sandwich to its US menu. Impossible Foods president Dennis Woodside has said he expects the company’s retail footprint to expand more than 50-fold this year alone.
“This is why I think people are increasingly aware plant-based products are going to completely replace the animal-based products in the food world within the next 15 years,” Impossible Foods founder and CEO Pat Brown said in a June interview. “That’s our mission. That transformation is inevitable.”
Population Growth is Exacerbating Environmental Costs
As the global population rises especially in poorer countries, the environmental impact of food production becomes a bigger issue. Alternative protein sources can reduce the negative environmental impact associated with meat production. Livestock is a major contributor to greenhouse gas emissions so reducing livestock could free up global cropland, decrease soil erosion, and relieve pressure on the world’s water supply.
Meatless consumption could also alleviate ethical questions around meat consumption, as the meat industry has long been subject to ethical concerns behind meat production practices. Alternative meats could also reduce contamination: growing lab-grown meat in a sterile environment can cut back on contamination and eliminate antibiotics from the meat production process. This could play a role in reducing global health problems linked to the current food production value chain.
As we can see the plant based meat industry not only has a significant track record of growth but powerful drivers likely to sustain the trend. But the excitement doesn’t stop there. Technology is revolutionising the plant based sector and enabling us to gradually move from imitation meat to real lab grown meat. In part two I will tell you about some exciting startups in this new space.
Disclaimer: this information does not constitute any form of advice or recommendation by Pynk One Ltd. and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.