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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

Sunday, November 01, 2020

Meat but not meat

by Century Financial in Investment Insights

Meat but not meat
Meat but not meat

According to a study by Polaris Market Research, the global plant-based meat market size is projected to reach $35.4 billion by 2027, that is a CAGR of over 15%. As a matter of fact, a study by Meticulous Research claims the market could grow to $74 billion by the year 2027 and according to a report from Barclays, the alternative meat industry is expected to become a $140 billion industry over the next decade.

After seeing these crazy numbers, there may be many questions popping up in one's head. What is this industry all about?? What is driving this growth? How can one be a part of this ride? Are there any investment options available for individual investors? Well, this article will dig deeper into this industry and probably answer most of the above questions.

Plant-based meat products mimic the properties of animal meat but are a relatively healthier option and environment-friendly. Picking up steady momentum over the last few years, a global pandemic has shifted this plant-based trend into top gear. Many high-profile experts have warned of the link between factory farming and zoonotic disease outbreaks. For many who weren’t considering a plant-based diet, the pandemic has changed that. And a plant-based diet is no longer a boring, tasteless vegan sacrifice it used to be. It’s now deliciously mainstream. These products are produced to resemble the smell, look, and taste of animal meat. They play a vital role in curbing the problem of obesity prevalent in urban areas. According to the National Institute of Health, roughly 300,000 deaths occur every year due to obesity. Additionally, excess consumption of meat results in an imbalance in the ecosystem as a higher number of animals are killed for human consumption. Data suggests that over 50 billion land animals are slaughtered every year for meeting the meat demand, a figure that excludes male chicks and unproductive hens killed in egg production.

Increasing awareness regarding health issues associated with animal meat consumption & growing inclination towards vegetarianism & environmentally friendly products is expected to propel the growth of this industry. According to a study by Ipsos Retail Performance, number of Americans following plant-based diets has increased from just 290,000 people 15 years ago to more than 9.7 million people in 2019. Besides, the recent havoc created by covid-19 pandemic has further accelerated this trend. Overall, U.S. meat sales are expected to drop by more than $20 billion before the end of 2020. However, a major drawback restricting demand is that meatless products are significantly more expensive than meat products.

Another interesting trend observed within the industry is that plant-based meat companies are targeting their products toward flexitarians, someone who still eats meat, but is opting for meatless alternatives regularly, rather than confine their profits to a small portion of vegan/vegetarian diets. Consequently, U.S. retailers witnessed a 11.4% growth in plant-based meat sales over the last year, while total U.S. retail food sales grew by only 2.2%. The “vegan wave” has now become the flexitarian wave and almost 33% of the U.S. population is flexitarian.

The potential of this market is attracting large well-financianced companies into the business. Below is a list of few companies operating in this sector (most of which trade in the secondary market).

Beyond Meat (BYND)

Beyond Meat, was the first company solely into alternative meat to go public. On its first trading day in May 2019, its shares rocketed 163%, the best IPO performance in nearly two decades. The COVID-19 pandemic has been providing a tailwind to the company's retail business, driven by more consumers eating at home. Shares have gained 548% since the company's May 2019 initial public offering (IPO) and this year the stock is up over 100% as of Oct. 27, compared with the S&P 500's 5% return.

The company is a major disruptor to the $1.4 trillion global meat industry and has rolled out its plant-based products to 112,000 outlets worldwide. The company has struck high-profile deals with several restaurant chains, including Dunkin’ Donuts, Subway and KFC, is making inroads into Asian markets, striking a deal with Starbucks to offer its meatless sausage in China in April 2020. In June 2020, Beyond Meat also announced that it would debut its products in select Pizza Hut, KFC, and Taco Bell stores in China. The faux meat maker has indicated of its plans to open a production facility in Asia before the end of this year, and already sells its products in Singapore, Taiwan and Hong Kong.

Impossible Foods

Impossible Foods, one of the most prominent players in this space, claims that its molecular engineered plant-based burger is nearly indistinguishable from meat. Instead of directly targeting retail consumers, Impossible Foods started by targeting the restaurant market with its meatless burger product. In 2017, Impossible patties could only be found in around 40 US restaurants, which reportedly grew to a whopping 3000 by 2018. In early 2019, Impossible Foods launched its largest restaurant partnership -The Burger King Impossible Whopper. The company has also been aggressively expanding its retail footprint. The Impossible Burger first launched in the retail sector in September 2019 has grown its retail distribution by 100-fold in the last six months to more than 50,000 stores, including Walmart, Kroger, Trader Joe’s, Sprouts Farmers Market, and most recently, Target. Also, Impossible Foods’ burgers will be introduced in nearly 600 Sobeys Inc stores in Canada and it has also started selling its faux beef burgers in Hong Kong and Singapore grocery stores. The company strives to bolster its presence in Asia, before entering the potentially lucrative mainland China market. The company has secured $700 million in funding this year, bringing total funds raised since its founding in 2011 to $1.5 billion.

Tyson Foods, Inc. (TSN)

Tyson revealed its plans to expand its plant-based meat alternatives. The company also unveiled a brand called Raised & Rooted, which would exclusively produce plant-based and blended products.

Conagra Brands, Inc. (CAG)

The company behind Duncan Hines, Marie Callender's, Reddi Wip, and Slim Jim is none other than Conagra brands. However, CAG is also in plant based meat alternative. It markets itself through a vegan meat brand called Gardien, which include plant-based turkey cutlets, chicken wings, chicken strips, sausages, burgers, and meatballs and is currently available at most grocery stores in the US.

Kellogg (K)

The first thing that comes to mind when most people think of Kellogg is probably cereal. However, it has owned a vegetarian food brand called MorningStar Farms since 1999. The company sells more than 90 M pounds of faux meat (chicken, sausage, burgers, etc.) every year. Estimates suggest that MorningStar generates around $450 M in annual revenue, almost double the yearly sales of BYND.

Nestlé (NESN), the world's biggest food company, has also joined the race with the Awesome Burger through its Sweet Earth Brand, which has already begun shipping to grocery stores. Kroger (KR) also stated it will offer a beef alternative under the Simple Truth brand. Besides, Walmart (WMT) also teamed up with Qishan Foods to produce meat alternatives for the Chinese market.

There's no doubt this market has a lot of potential, but the risk associated with anything new and the increased level of competition can make the terrain bumpy for the players. The market is getting crowded, and it remains to be seen whether the companies will be able to sustain in this competitive market. Nonetheless, it will result in lower prices and better quality for the final consumer.

Data Source: Bloomberg

Arun Leslie John
Chief Market Analyst

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