Tyson Foods invests in company looking to disrupt meat sector

Tyson Foods invests in company looking to disrupt meat sector

Tyson Foods, one of the world's largest meat processors, is investing in fledgling US meat-free business Beyond Meat - and the deal looks an astute one.

The US meat giant will take a 5% stake in Beyond Meat, a business founded in 2009 but which, through the backing of investors including Bill Gates and Honest Tea founder (and now Beyond Meat chairman) Seth Goldman, has grown to see its meat-alternative products stocked in 11,000 stores throughout the US.

Tyson has been getting heat from sections of the investment community recently and faced claims to do more to "address risks" to the business from the growing market for plant-based foods. In August, the US-based Interfaith Center on Corporate Responsibility, which comprises 300 organisations that see their investments in businesses as "a catalyst for social change", announced the filing of five shareholder resolutions for Tyson's 2017 proxy ballot.

Green Century Capital Management, a group of "environmentally-responsible" mutual funds, issued a resolution to find out what steps Tyson will take "to address risks to the business from the increased prevalence of plant-based eating".

Marissa LaFave, a shareholder advocate at Green Century, said at the time: "The demand for plant-based proteins is skyrocketing, and needs to be considered and accounted for in business planning. Failure to see around corners and adjust to changing demands places the company at a great disadvantage relative to its competitors in the food industry who are already innovating in this area."

Tyson's shareholders meeting is likely to take place in early 2017. The group's investment in Beyond Meat has eased Green Century's concerns. "We are pleased to see that the company is responsive to investor concern on this issue and is becoming an early mover in the industry to create a more sustainable food system. We think it's a promising first step for the company that signifies the company's recognition of this changing demand. Following Tyson's announcement, we withdrew our proposal. We hope to continue constructive dialogue with the company on the issue," LaFave tells just-food today.

The investment is tangible evidence Tyson does recognise the growing consumer interest in alternatives to meat. The investment should give Tyson more information about the production process, the types of products out there and where the market is heading.

Victor Martino, a California-based food and grocery industry strategist and consultant, says at first glance the move appears illogical but he describes the investment as "a pure win-win for Tyson".

"At first blush, it seems counterintuitive for a meat company to invest in a startup that's essentially trying to disrupt meat - and thus Tyson's core business. However, Tyson is smart to invest in a potential disruptor because it's a small bet financially on what in time could become a big business - alternate meat," Martino says. "It allows Tyson a front row seat in terms of learning about the alternative meat space. One way to look at the investment in this regard is it's the price of entry for Tyson to "go to school" on Beyond Meat and the alternative meat space."

Morningstar analyst Zain Akbari, which covers protein companies for the US-based investment research firm, agrees. "With the health-oriented move in protein extending across a wider swathe of customers, it's more important for them to at least have a sense for where that market is going and be familiar with it, from a competitive standpoint and to determine whether they will in the future need to offer something else," Akbari says.

Of course, Tyson could, over time, decide to try to grow its shareholding in Beyond Meat but, in the short term, the acquisition of a 5% stake is a smart, tactical move as it chews over where meat-free is heading.

Martino adds: "Further, the investment can be viewed as a hedge for Tyson. If consumers start to embrace faux meat - evidenced by an uptick in sales for Beyond Meat, the investment positions Tyson to either increase its investment in Beyond Meat, or acquire the company completely."

Akbari suggests further investment from Tyson in Beyond Meat is possible, although he suggests any such move is unlikely in the near term. "A 5% stake can certainly grow depending on what the company's other investors want to do. It can potentially be a beachhead for future activity," Akbari says. "I think it's something that certainly could happen. Is there any indication that they're going to do that in the near term? I don't think so. But especially with the growth as brisk as it is in the meat alternatives space. Over the course of the next several years could I see that happening? Absolutely. But it also depends on things like what the founder wants to do and things of that sort."

How could Tyson's investment in Beyond Meat help the upstart? Founder and CEO Ethan Brown said he "looked forward to leveraging this support to broaden availability of plant protein choices to consumers".

There is little question having Tyson's backing should at least get Beyond Meat a foot in the door at other retail customers. "An investment by Tyson helps to validate this particular company's offering, not that they needed validation necessarily because of their funding sources; they certainly have some big-time investors in there already. But Tyson does give that stamp of validation that's important with the retailers who know and trust Tyson to provide reliable customer-oriented, high-demand type products," Akbari says.

However, Tyson's investment is another example of what is called - somewhat pejoratively - in the US as Big Food investing in a business that has grown rapidly in part due to enthusiastic backing from dedicated consumers. It is possible some of that cohort could vote with their feet and wallets now Tyson is backing the business.

"It'll be interesting to see what the customer reaction will be from the Beyond Meat customer, who, especially on the lifestyle side might be vegan by reasons of animal health and things of that sort. There is that risk where the company could run into some of the same problems that some of the larger CPG guys have run into whenever they've acquired natural and organic companies," Akbari says.

Nevertheless, in the round, Tyson's move appears shrewd - for now at least.