Beyond Meat and Impossible Foods are two of the largest alternative meat producers in the world and have experienced a substantial rise in popularity over the last several years. The plant-based meat producers each have collaborations with grocery stores and national chains such as White Castle, McDonald’s, Burger King and Taco Bell.
In the past year alone, grocery sales of meat alternatives that replace animal products have grown by 27% and now exceed $7 billion in sales. According to the market research company Euromonitor, the global market for plant-based meat substitutes is set to grow to $23.4 billion by 2024. That said, the broader U.S. meat industry still exceeds $100 billion in annual sales and alternative meat companies are competing for a share of that market.
One of the most significant impediments to growth is price parity. The meat industry has been producing animal meat products for decades at scale and has developed processes to keep prices lower than plant-based alternatives. To remain competitive, companies producing plant-based meat alternatives will have to continue finding innovative ways to reduce the end cost to the consumer.
Beyond Meat filed for an IPO in 2019 and became the first plant-based meat company to go public. Each year, more consumers are switching to vegan products. Sustainability and health concerns continue to drive the market for healthy alternatives to the traditional meat industry, and Beyond Meat saw triple-digit revenue growth after going public.
The company continued to see massive revenue growth throughout 2020 and most of 2021. In 2019, year-over-year revenue grew by 239%, followed by 141% in the first quarter of 2020. However, signals by the first quarter of 2021 began to indicate that that level of astronomical growth was likely not sustainable longer term. Expenses increased, and restaurant orders continued to slow. However, many analysts remained bullish, insisting the company was poised for explosive growth as the world reopened. By October 2021, Beyond Meat had continued on its downward slide.
Since its January 2021 high, Beyond Meat stock has lost approximately 60% of its value. Given that half of the company’s sales are to restaurants, the emergence and spread of the Delta variant certainly played a role in the downswing. Like many food distributors, Beyond Meat was substantially impacted by the COVID-19 pandemic. Simultaneously, competitors, namely Impossible Foods, began garnering more significant market share.
Speculation began in 2020 that Beyond Meat was overvalued. Competitors such as Impossible Foods experienced significant growth, taking substantial market share and slowing the growth of Beyond Meat. The company’s soaring market value also drew other competitors into the plant-based meat industry, including Tyson Foods, an initial investor in Beyond Meat.
Beyond Meat’s lower margins, combined with an increasingly competitive industry, resulted in less flexibility. Beyond Meat also lacks some advantages held by many of its competitors, such as:
Beyond Meat’s SG&A represents a substantial portion of its revenue, but the total dollars spent pales in comparison to many of its competitors. Beyond Meat faces a significant battle to attain the growth needed to match the cost efficiencies of larger, traditional meat competitors, but that is a struggle shared by most competitors in the alternative meat sphere.
The company operates at a faily narrow margin as it strives to secure shelf space and build brand recognition, further reducing its current competitive advantage. That said, temporary volatility in the market is not a predictor of future growth. Despite a tough year, Beyond Meat is still expected to experience steady revenue growth throughout 2022.
According to Reuters, Impossible Foods Inc. is preparing to go public in 2022. Impossible Foods’ IPO could value the alternative-meat manufacturer at anywhere between $7 to $10 billion. In 2020, the company was valued at $4 billion.
Recently, the company expanded to open its first four, vegan fast-food delivery restaurants in the Phoenix area. The Impossible Shop is the first restaurant concept implemented by the company, and its menu is available on popular delivery platforms such as UberEats, GrubHub and DoorDash. Impossible Foods has also partnered with Dog Haus, a fast-food chain, to offer Impossible menu items in 40 locations across eight states.
Impossible Foods’ products are available at roughly 20,000 stores worldwide. Despite challenges in scaling, Impossible Foods has continued to grow on the global stage. In the past year and a half, the company has brought its products to four new markets. It now sells its plant-based patties in seven countries. It recently entered Australia and New Zealand, and Australia’s leading restaurant chain, Grill’d, recently replaced Beyond Meat patties with the Impossible Burger.
As mentioned, price parity remains a significant hurdle for alternative meat producers. Despite a slightly smaller market share, Impossible Foods seems to edge out Beyond Meat with its flexibility to reduce prices for end consumers. The current products at Impossible come in slightly higher priced than organic beef, but the company is taking strides to reduce the costs over time.
Both Impossible Foods and Beyond Meat are aggressively pursuing market share. Impossible has the edge in offering numerous products at competitive pricing to real beef. While Beyond Meat lacks the flexibility to offer that type of pricing, it has responded with promotions that get its products into consumers’ hands in hopes of driving up demand.
Both companies are heavily leveraging the demand for a healthier and more sustainable food system. While there is significant consumer demand, supply-chain issues have plagued Beyond Meat and Impossible Foods (much as they have for most companies in the covid era). In an interesting twist, the same supply-chain issues, coupled with inflation, are driving up meat prices. If the alternative meat industry can hold prices low as beef soars, it could open up an entirely new market share.
While the industry has experienced slower growth due to supply-chain issues and inflation, the underlying trends supporting long-term growth for the industry remain unchanged. There is a growing global interest in plant-based diets fueled by a growing vegan population.
Interest in plant-based diets continues to grow as ethical and responsible consumerism proves to be more than a passing fad. The various health benefits of plant-based foods add further fuel to future market projections for plant-based meat providers. Concerns about animal cruelty, greenhouse gas emissions and other environmental issues caused by the traditional meat industry are leading many to reconsider their eating habits. The growing practice of ethical consumerism is expected to continue to drive the market for sustainable alternatives to meat products.
Animal welfare organizations have increased awareness of animal rights and are helping drive interest in alternative meat products. Consumers are turning to veganism for both health and ethical concerns. Likewise, there are increased government initiatives and large-ticket investments in the industry. As the conversation continues about greenhouse gasses produced by the meat industry, plant-based meat alternatives offer a promising solution.
Growth predictions for plant-based meats are expected to increase as the popularity of plant-based eating continues to trend upward. Plant-based eating offers a variety of health benefits, including reduced obesity, reduced risk of heart disease and a decline in type-2 diabetes. Plant-based meats also contain micronutrients that do not exist in traditional meat.
Crucial to the industry’s success is the taste, look, feel and nutritional value of alternative meat. The closer plant-based meat producers can get to almost identical faux meat products, the faster the industry will grow. Mimicking conventional meat has proven the best way to convert carnivores to a plant-based diet.
The alternative meat industry represents long-term investment opportunities for investors, and The Spaventa Group offers pre-IPO investment opportunities. Contact us today to learn more about the upcoming Impossible Foods IPO.