When the publicly traded face of a burgeoning industry begins to struggle for growth, the question will always be the same: Is it the company or the industry?
For Beyond Meat Inc. BYND, -12.19% and the audacious attempt to replace meat and dairy products with lab-grown alternatives, that question is existential. Beyond Meat’s sales growth has turned negative after showing triple-digit-percentage growth in its early days on Wall Street, and executives are looking at deep cost cuts, including a 4% reduction in its global workforce.
Beyond’s ongoing troubles — which include a star-crossed partnership with McDonald’s Corp. MCD, -0.02% — were taken as evidence of a ground-up industry failing to fulfill hyperbolic expectations, and cast an increasingly dark shadow on a fledgling market with which many Americans are still unfamiliar. While highly educated residents on both coasts have shown more of an appetite for products from Beyond and rival Impossible Foods Inc., the product hasn’t broken through to a mass audience and isn’t growing as quickly as many analysts had initially predicted.
“The industry in general is struggling, and Beyond isn’t helping,” Rupesh Parikh, senior equity research analyst at Oppenheimer & Co., told MarketWatch.
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The plant-based meat market was growing at a modest clip before the COVID-19 pandemic turbocharged retail sales by some 50% to 60% as more Americans ate at home or chose plant-based products amid meat shortages. While Beyond greatly benefited from widening distribution and going public in early 2019, Impossible burst upon the scene and sent the category into hypergrowth mode.
“People in the health-and-wellness crowd and environmentalists were really jazzed. Investors were abuzz,” John Baumgartner, analyst at Mizuho Group, told MarketWatch.
The sudden, dizzying growth led bulls to breathlessly predict the industry would catapult to as much has $50 billion in annual revenue by 2030, and investors piled on, valuing Beyond at more than $10 billion in the public markets and giving Impossible Foods Inc. a reported $7 billion private evaluation. But reality came crashing down during the past year as the industry’s growth slowed and Beyond’s valuation was chopped to less than $2.5 billion.
Market research company Nielsen calculates the market for plant-based meat is roughly $1.3 billion in annualized sales at retail after a year-over-year decline of 0.4%. An ailing economy has led to inflation and prompted cost savings by consumers wary of the price of plant-based meat — roughly twice that of animal meat — as well as a hesitancy to buy new products during a downturn, Baumgartner said.
The two biggest sellers of alternative meat were the primary cause of the downturn. Beyond Meat, the No. 2 company in sales, saw retail sales shrink 9% to $235 million, according to Nielsen, while market leader Kellogg Co.’s K, +1.00% Morningstar Farms sales declined 10% to $330 million. While food-service sales are trickier to track, Baumgartner said highly publicized rollouts of Beyond products at McDonald’s (the McPlant burger) and Dunkin’ Donuts (a breakfast sandwich) fizzled, slowing the future sales trajectory. Analysts attribute a combination of price, taste and product visibility for Kellogg and Beyond Meat’s performance.
“The market leaders let down the market,” Barclays analyst Benjamin Theurer told MarketWatch. “Meat alternatives are more expensive than animal-based meat despite a rise in animal-based meat prices the past year.”
Kellogg did not reply to email messages seeking comment. When contacted by MarketWatch, Beyond BYND, -12.19% pointed to buoyant comments on the state of the fledgling industry by its chief executive, Ethan Brown, and declined requests for an interview.
“I want to reiterate my enthusiasm for our brand and our long-term growth prospects,” Brown said during a call with analysts following the company’s fiscal second-quarter results on Aug. 4. “I’ve said many times that I believe the rise of plant-based meats to a prominent role in the global diet is inevitable.”
What growth the meat-alternative retail market gleaned over the past year came from Impossible, which soared 70% to $137 million in sales, and Conagra Brand Inc.’s CAG, +0.31% Gardein, which rose 27% to $116 million.
Retail data from market researcher Information Resources Inc. highlights Impossible’s rapid ascent as the fastest growing brand in dollar sales. Despite being a late entrant to retail with a network of less than 150 stores at the start of 2020, Impossible’s sales quickly outpaced Lightlife Foods that same year, and have since surpassed Gardein earlier this year. And the brand is quickly closing in on Beyond Meat and MorningStar Farms, both of which are declining. Absent Beyond’s new beef jerky line, Impossible Foods would have already surpassed it in terms of dollar sales in retail, according to multi-outlet data from IRI.
“This isn’t a market that needs fixing, and [our] company is ready to take off,” Impossible Foods Chief Executive Peter McGuinness told MarketWatch. “In many regards, both are in [their] infancy.”
Baumgartner believes the bullish sales forecasts of $40 billion to $50 billion by 2030 worldwide were “unreasonably high” because it will take decades — not a few years — for Americans to fully embrace plant-based products. He said a more realistic size for the market is $11 billion to $16 billion in the next several years, with one major hurdle: The lack of whole meat cuts such as filet mignon, pork chops and chicken breasts, which make up 75% of the more than $300 billion U.S. meat industry.
“There is still a huge growth opportunity in the next 10 years despite a rough patch,” Baumgartner said.
Older consumers aren’t sold (yet)
So far, America’s appetite for meat alternatives has skewed toward young, affluent and educated residents of the coasts. Those over 45 are not as interested in buying plant-based meat patties, chicken nuggets and pork sausages, according to a consumer survey by Mizuho Securities this year.
McGuinness joined Impossible as CEO in April, after spending the past few years running dairy company Chobani, which dabbled in plant-based products. The success of dairy substitutes has been a shining example of the type of sales penetration plant-based meat makers aspire to, while offering a tantalizing vision of what could be for meat alternatives.
Plant-based meat products are aimed at flexitarians who eat meat and non-meat products. But it has been a tougher sell than plant-based beverages that have found a wider audience because of their affordability, taste and ready acceptance among lactose-intolerant individuals. Oat milk, in particular, is popular as a straight beverage or ingredient, and has its own public-market face in Oatly Group AB OTLY, -7.88%.
McGuinness believes a change in messaging can help. While Impossible was founded with the goal to “replace the world’s most destructive technology, the use of animals for food production,” McGuiness believes a softer approach is needed.
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“We need more people to change their eating habits without being radical in messaging,” McGuinness said. “We need to be more inviting and optimistic as a brand to bring people in.”
If anything, the success of dairy alternatives played an unfair role in analysts’ overzealous estimates for fake meat, Baumgartner said. An impressive 15% of consumers in the U.S. dairy retail market, or about $2.6 billion this year, have opted for almond milk, oat milk, soy milk, coconut milk and rice milk as substitutes for homogenized milk.
“Who’s heard of a meat-intolerant person?” Barclays analyst Theurer said. “Let me know when a T-bone alternative comes along. Now, that will really move the market.”
For now, a swath of Americans are more likely to embrace dairy substitutes than fake meat for health reasons, cost and taste. The game-changer for meat — and a far larger audience, Baumgartner and Theurer contend — are plant-based meat cuts such as sirloin steak, chicken breast and pork chops.
McGuinness has spent the past several months crisscrossing the country to build relationships with dozens of suppliers and business partners, hoping to learn more about their work and discuss mutual business goals. With retail and food-service customers, McGuinness is eager to help customers grow their businesses through Impossible’s mission of good food, healthy eating and socially responsible actions, with an emphasis on what sets Impossible apart from other brands – largely its taste, texture, nutrition and flavor.
For more: U.S. plant-based food market value reaches a high of $7.4 billion, but industry faces rough path to further growth
The marketing push is in conjunction with a plan to expand its retail presence from 25,000 outlets, including Walmart Inc. WMT, -1.47%, Target Corp. TGT, -3.47% and Kroger Co. KR, -0.24%, to 100,000 in a few years. Impossible’s 40,000 food-service locations — the largest national footprint for any major plant-based meat company — includes new partners Applebee’s Restaurants LLC, Tim Hortons Inc., and AMC Entertainment Holdings Inc. AMC, -6.58% as well as mainstays Burger King QSR, -1.14% and Starbucks Corp. SBUX, -1.84%. The company is also bringing its product to travelers via United Airlines Holdings Inc. UAL, -3.99% and Delta Air Lines Inc. DAL, -3.60%.
“It is a massive education exercise,” acknowledged McGuinness.
A crowded and growing market
Beyond has worked on similar partnerships, but has had trouble maintaining them, such as the recent halt to an experiment of Beyond Burgers at some McDonald’s franchises. A McDonald’s spokesperson pointed to its three-year global strategic agreement with Beyond, announced in early 2021, and declined to comment further.
In addition to the McPlant, Beyond Meat and McDonald’s said in 2021 they would “explore codeveloping other plant-based menu items — like plant-based options for chicken, pork and egg — as part of McDonald’s broader McPlant platform.” So far, there has been no update on that effort.
Instead, Beyond is looking at more modest efforts, like packaged jerky. Beyond’s recent launches with jerky and at Rite Aid Corp. RAD, -10.15% stores are “focused on areas that are less additive to the business, whereas Impossible’s strategy has consolidated focus behind products and outlets more likely to support scaling its business,” analyst Baumgartner said.
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“Beyond is not an industrywide indication of our [plant-based] market, which is an upward industry,” Aylon Steinhart, CEO of dairy-alternative startup Eclipse Foods, told MarketWatch.
The Oakland, Calif., company makes plant-based ice cream, with plans to offer milk, cheese and yogurt in the near future. Its ice cream is available through retail outlets such as Albertsons Cos. Inc. ACI, +0.21% and Amazon.com Inc.’s AMZN, -2.86% Whole Foods Market, Gopuff, as well as restaurant chains like Smashburger and Mel’s Diner.
The market’s current size and projected growth has drawn not just upstarts like Beyond, Impossible and Eclipse, but a stable of major food companies with plant-based divisions. Morningstar Farms, Gardein, Nestlé NESN, +0.43%, Kraft Heinz Co.’s KHC, +0.71% Boca, Tyson Foods Inc.’s TSN, -0.04% Raised and Rooted and Hormel Foods Corp.’s HRL, +0.22% Happy Little Plants have all entered the field with varying degrees of success.
“In 10 years, Beyond, Impossible and Morningstar will be leaders with specialized startups,” Baumgartner said.
As of July 16, Beyond and Impossible have captured market share from category leader Morningstar, Boca and others. Beyond’s share has grown from 7% in 2017 to 18.2% today, while Impossible came from nowhere in 2020 to 13.2%. Morningstar, by contrast, dropped from 38% in 2017 to 23.8%, and Gardein declined from 10% in 2017 to 8.6%. Boca’s share has shrunk from 9% in 2017 to 2.4%.
Kraft Heinz declined to comment. Conagra did not reply to email messages seeking comment.