What Does the Future Hold for Plant Based Meat?

According to data from Fitch Solutions Macro Research, the meat industry is the largest category in food and in 2017 generated estimated sales across retail and foodservice channels of approximately $270 billion in the United States and approximately $1.4 trillion globally. (1)

However, consumer interest in plant-based proteins, particularly among millennials and younger generations, has been gaining momentum, in part, by growing awareness of the health and environmental impact of animal-based meat consumption. (1)

According to market researcher: The NPD Group,

40 percent of Americans increased their consumption of meat substitutes in 2017. (2)

And, according to Portalatin,

14 percent of the U.S. population now consumes plant-based alternatives on a regular basis (of which, 86 percent do not consider themselves to be vegan or vegetarian). (3)

This trend is expected to continue, with one-third of all Americans, and 37% of millennials, planning to buy more plant-based products over the next year, according to Mintel’s 2018 Summer Food & Drink Trends report.

Therefore, the opportunity to grow plant-based alternatives extends well beyond consumers following plant-based diets, which is good news as only 6% of Americans say they are vegetarian and only 3% eat vegan diets today. (4)

Current performance in the plant-based meat industry:

In the year ending August 11, 2018, plant-based meat sales grew 23 percent (compared to 6 percent the previous year), topping $684 million in sales. By comparison, animal-based meats grew at 2 percent. As shown in the figure below. (5)

A large part of this growth can be attributed to the success of Beyond Meat.

They observed a 170% increase in net revenues between 2017 and 2018 and a compound annual growth rate (CAGR) of 76% between 2016 and 2018.

As a result, Beyond Meat makes up approximately 13% of the total market share in the plant-based meat industry in the US. (1)

So what does the future hold for plant-based meats?

According to Nielsen, the plant-based meat category today is looking a lot like the plant-based milk industry about ten years ago.

As described in my previous article, in the United States, the current size of the plant-based milk market is equal to approximately 13% of the total dairy milk industry. By comparison, the plant-based meat category accounts for less than 1% of the total meat market. (5)

If the plant-based meat industry can follow suit, the thought is that it too can grow to be at least the same proportion of the approximately $270 billion meat category in the United States, which, over time, would represent a category size of $35 billion in the United States alone ($270 billion x 13% market share). (1)

This opportunity is not going unnoticed.

Big players in the traditional meat industry are beginning to enter into the plant-based meat market as well.

In 2016, Tyson Foods, the world’s second-biggest meat processor, launched a venture capital fund to support alternative-meat producers; it’s also an investor in Beyond Meat. (6)

In 2017, the third biggest, Cargill, invested in cultured-meat startup Memphis Meats, and Tyson followed suit in 2018. (6)

Last week, Maple Leaf Foods announced they will invest 310 Million into their new plant-based protein facility.

According to Beyond Meat's recent prospectus, as of March 1, 2019, Tyson Foods venture capital fund, Tyson New Ventures, LLC, currently holds a 6.52% stake in the company (1)

What’s next:

The ability to capitalize on this market opportunity will not be easy, there are a number of barriers that exist for new, as well as existing companies.

In my opinion, the success of the plant-based meat industry comes down to three main factors:

Develop products that taste better than previous animal-based substitutes.

Ensure products are packaged and merchandised adjacent to their animal-based equivalents.

Achieve economies of scale to gain efficiencies in production to improve profit margins and propel expansion in existing and new markets to more effectively compete.

These are far-reaching assumptions, to say the least, some of which are dependent on applicable laws and regulations not restricting the competitiveness of the plant-based meat market. Which, given recent developments in the US, might be wishful thinking.

In August, Missouri became the first to regulate the term “meat” when it passed a bill that restricts the term “meat” to products “derived, in whole or in part, from livestock or poultry”. Nebraska, Tennessee, Virginia and Wyoming lawmakers are looking to do the same according to a report by The Associated Press.

Lastly, in regards to achieving economies of scale, plant-based meat companies, like Beyond Meat, will need to invest in ways to accurately predict demands in local and global markets; which, for a relatively immature market, is incredibly difficult.

Therefore, as growth continues in this industry, the need for funding to meet consumer demands and further invest in expanding operations will be a recurring theme.

The truth is that if plant-based meat companies fail on all three fronts, conventional animal-based meat companies will be there to pick up the pieces and continue what they started.

In the end, the question is not whether plant-based meats will achieve $35 billion in market value; I think there is strong evidence to suggest that this goal is feasible in the long term. The question is whether plant-based meat companies or conventional animal-based meat companies will be the one to do it.

References:

1. Beyond Meat, Inc. General form for registration of securities under the Securities Act of 1933. March 27, 2019. Amendment No.3 to Form S-1.
The statement of operations data for the years ended December 31, 2017, and 2018.
Plant-based meat market share calculated using market value estimate from leading market research firm Nielsen; data was commissioned by Good Food Institute (referenced below; 5)
2. Covino, Renée M. “Planting the seed – Six sprouting reasons to be mindful of plant-based foods and beverages.” Convenience Store News. January 2019.
3. “What’s Driving Plant-Based Alternative Trend?” Feed Strategy, 2019, pp. Feed Strategy, Mar 2019.
4. “The Retreat from Meat.” The Economist, vol. 429, no. 9113, 2018, pp. 21–23.
5. Good Food Institute. Plant-Based Market Overview.  United States. 2017. Data commissioned from leading market research firm Nielsen.
2017 data: 52-week period ending August 11, 2018
2016 data: 52-week period ending August 12, 2017
6.Firth, Niall. “The Meat without the Cow.” MIT Technology Review, vol. 122, no. 2, 2019, pp. 40–45.

Andrew Ourique
[email protected]