Plant-Based Meat: A Missed Steak?
COVID occupied most of the headlines we all read during 2020, and rightly so. The pandemic created catastrophic losses. With the vaccines beginning to enter supply chains and be administered, more news feeds are returning to the urgent climate change challenge.
Businesses positioned to eliminate carbon heavy products have and will continue to benefit as investors recognize governments and consumers will continue to punish carbon offenders.
It’s too late to buy Zoom, but what I’m sharing today is a longer term play. Meat alternatives make sense for a number of reasons. Today I’ll outline four reasons meat alternatives are poised to perform for your portfolio.
COVID Fear Shopping Pushed Purchases of Plant-Based Meats
First, some background on a catalyst I think accelerated adoption of this group of innovative food products. During the early stages of the pandemic, consumers rushed to grocery stores and emptied their shelves in a hurry. Some even stockpiled shelf stable products, hoping to sell their stockpiled product at a premium price. That got a lot of media coverage.
What happened quietly, beneath the surface of the spending frenzy, is more interesting to me. Nearly 1 in 4 Americans is eating less meat. The temporary catalyst may have been COVID shopping. People all over the world were being told to take fewer trips to the grocery store. Fewer trips to the grocery store translates into more demand for non-perishable goods. Meat and plant-based meat alternatives are both perishable, but “Beyond Beef” has a 10-dayshelf life once thawed. Compare that to ground beef at 1 to 2 days. The plant-based product wins.
So, more people ate more meat alternatives more often. Many of these were people who traditionally would not have considered plant-based meat alternatives but had no other options.
That means companies innovating to produce healthy meat alternatives got to skip the chasm.
Geoffrey Moore famously noted that innovative products face a challenge when trying to gain widespread acceptance among consumers. Namely, there is a lag between spending changes by “early adopters” and the “early majority” (see the image below).
COVID changed much about our day to day lives. In this case, I believe that it changed the way North American consumers buy their food. More of a focus needs to be placed on a long shelf life. What many of them learned, after being pushed into this behavior change, is that meat alternatives taste just fine. I expect these folks to continue spending some portion of their grocery bill on plant-based meats.
Volume Growth Allows a Test of Lower End Prices
One other thing working for meat alternatives: price. The cost to create and deliver a pound of beef is simply higher than delivering a pound of beef alternative. And the COVID economy hurt the wallets of people all over the world. The Congressional Research Service, in a report updated January 12, 2021, stated the unemployment rate hit a peak of 14.8%. This rate is higher than at any other time in the study, which dates back to 1948. For context, the 2008 financial collapse and the ensuing recession were accompanied by an unemployment rate that peaked at 10% in September 2009 (https://fas.org/sgp/crs/misc/R46554.pdf).
Right now, one pound of plant-based beef retails for $6.40. Beef patties retail for $5.26. So plant-based meat doesn’t win on price today, but it’s price is trending lower, making it more accessible to everyday people. Bringing the price down for a pound of beef will prove to be more challenging. As the volume of plant-based meat bought rises, discounts will emerge.
Environmental, Social, and Corporate Governance (ESG) Impacts
Most folks have heard the statistic that one pound of beef uses hundreds or even thousands of gallons of water. Climate change is the trend, behind COVID, that creates the most urgency. People are ready to change their behavior’s and surveys conducted by Nielsen indicate that reducing meat consumption (61%) and replacing meat with plant-based alternatives (43%) are the behavior changes consumers say are easiest to make.
This isn’t about the end of the meat industry. Meat and meatless alternatives can coexist in the market. It’s about the growth of meatless alternatives in everyone’s diet. Over time, I expect meat to be eaten less frequently. There doesn’t need to be a massive reduction in meat consumption for meatless alternatives to soar. The US meat industry accounted for $118B in consumer spending in 2019 (2018)(https://www.beefmagazine.com/beef/average-household-spent-961-meat-eaten-home-2018 x 122.8M households). That leaves plenty of room for place-based meat to grow.
Like any investment in the CPG space, this investment depends on social trends. Right now, people are open to trying this new product and to consuming a more broad array of proteins. Growth of a Tofurky brand plant-based ham was 631% YoY as reported in a May 2020 Forbes article. That kind of top line growth is rare and with the millennial bent towards supporting ESG friendly products, this seems like a space with room to go in the years ahead.
Of course, invest only what you can afford to lose.
Thank You For Your Loyal Readership.
The Financial Star Team.