The recent pressure on plant-based meat sales in the US has prompted questions about the prospects for the sector and further innovation, including in ingredients, is needed, say experts, to persuade flexitarian consumers – the prized cohort – to try the meat alternatives. And then buy them again.
Plant-based meat saw solid sales growth during the depths of the Covid-19 pandemic as US consumers experimented with new food products at home and as some shoppers turned to alt-meat for health reasons. There are, however, concerns about the outlook for the category amid a slowdown in sales.
According to data sent to Just Food by the Chicago-based natural and organic data provider SPINS, facing high inflation, consumers bought fewer units of plant-based meat alternatives in the year ending mid-April 2022. SPINS said US$846m of frozen, plant-based meat and fish alternatives were sold in the US during that period and, while that was 5.4% more than in the previous financial year, that was below inflation rates – there were 6.6% fewer units sold.
The SPINS data suggests refrigerated products fared worse, with the segment generating $487.8m in sales, equating to an 11.9% drop in value year-on-year, with unit sales falling 12.8%.
Signs of slowing demand prompted some manufacturers to review their position in the sector. In February last year, Maple Leaf Foods announced a change to its investment strategy in plant-based meat. Beyond Meat, seen as the poster child for the category in the US, cut its sales forecast twice last year and axed hundreds of jobs. Employees were also let go at rival Impossible Foods, while JBS, one of the world’s largest meat processors, added to the question marks surrounding the alt-meat category’s prospects in the US by ditching its local plant-based meat operation a little more than two years after launching the unit.
In November, publicly-listed Beyond Meat reported a 22% drop in third-quarter revenue, citing a “challenging period” in the wider market context of supply-chain disruption and elevated input costs. Losses, meanwhile, more than doubled.
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Founder and CEO Ethan Brown revealed Beyond Meat was going to adjust its pricing model after admitting cost-conscious consumers are not buying into its offering.
He admitted changing consumer sentiment linked to dwindling household budgets in the major markets in which Beyond Meat operates is an ongoing concern.
“In this environment, the category Beyond Meat is in should be expected to see declines as consumers flock to cheaper proteins. Correspondingly, household penetration for the plant-based meat category, according to Numerator data, slipped for a second consecutive quarter, falling roughly 20 basis points versus the second quarter of 2022,” he said.
Brown added: “It’s a time of distraction for the consumer. Our story right now is, I think, several layers away from where the consumer’s focus is in terms of just basic needs.”
John Baumgartner, US-based managing director for equity research, at Japanese investment bank Mizuho Securities, says some plant-based meat companies are lowering prices but are, at the moment, seeing pressure on profits.
“We are seeing Beyond Meat right now lowering prices, we are seeing promotions at retail where the prices are pretty comparable to regular animal meat, but the problem is that because the cost of production has not come down sufficiently, you are seeing very weak gross margins,” he explains.
In two or three years, Baumgartner suggests, some plant-based meat companies “may be able” to achieve price parity at retail … in a profitable manner” with conventional meat “but it is going to be difficult”.
He adds: “Part of the opportunity is, as these categories become larger, if you are the company buying more raw materials, more pea protein, you can get volume discounts. If you are selling more products (…) there is enough volume where you can justify bringing that manufacturing and processing in-house, cutting out the middleman and your supply chain.
“I think a lot of the opportunity is going to be tied to growth in the category and having just the economies of scale to be able to negotiate lower prices with your suppliers, in sourcing more of that capacity, doing it yourself and capturing the full value stream and profitability.”
Overall, Baumgartner believes that the US plant-based meat market is a new food category that requires educating potential consumers, the key market, the flexitarians and meat eaters looking to reduce their meat consumption.
To encourage this cohort to buy, more variety in plant-based meat products is needed, the analyst argues, giving the example of the California-based company Tattooed Chef releasing frozen plant-based protein bowls. Investors, Baumgartner insists, should be patient, stressing the difficulty of developing products similar in consistency and versatility to various meats, while using less salt and different proteins, such as jackfruit and mung beans.
Adventurous consumers who tried plant-based meat and “were not thrilled” by it could be lured back by a “whole new cycle of buzz” associated with a fresh line.
Given these challenges, Baumgartner believes this industry could take 20 years to reach its full potential. “Our view is that this is really going to be a 20-year sort of generational opportunity to grow this category, where more R&D is put behind these products and proteins and more is learned.”
Julie Emmett, senior director of marketplace development at US trade body the Plant Based Foods Association (PBFA) is optimistic the required innovation will be delivered. She thinks governments may support the sector given the “tremendous amount of focus” on this category at the COP27 conference in November. Therefore, Emmett adds, the PBFA is “working with policymakers to ensure” that meat alternatives are promoted, noting the alternative meat sector lacks the subsidies paid to animal-based food producers, which, she contends, is able to market products that “are artificially inexpensive” as a result.
Help may be coming – the US National Strategy on Hunger, Nutrition, and Health released in September pledged to increase the availability of plant-based options at federal catering facilities. That said, it should be noted how important the conventional US agricultural sector remains to the country’s economy and workforce. Last February, Washington D.C.-based Environmental Working Group said the US Department of Agriculture had “spent almost $50bn in subsidies for livestock operators since 1995” and $30m to support plant-based and other alternative proteins since 2018.
Emmett praised US plant-based meat companies for remaining “nimble and resilient” in a “pretty difficult economic time”. To address supply chain problems, she notes a shift towards domestic sourcing of ingredients by plant-based brand owners. Chicago-based Upton’s Naturals has, for instance, been developing US-based ‘regenerative agriculture’, where farming is sustainable and promotes natural biodiversity.
Emmett insists product innovation is coming, especially through ingredient diversification, with mung beans being joined by oats, chickpeas, lentils, artichokes, and fava beans.
While a November 2022 survey by US food and beverage market research platform Dataessential, the PBFA’s data partner, said almost half of US foodservice menus now have a plant-based menu item, Baumgartner thinks that for now “retail is the best way” to make this market grow because foodservice operators need to invest in a “whole supply chain background in the kitchen” and “separate a part of the grill for plant-based products”.
That said, one company that did target foodservice first was Singapore plant-based food company Next Gen Foods, which launched its Tindle plant-based chicken in the US last February via foodservice rather than retail. Next Gen Foods co-founder and CEO Andre Menezes says, by partnering with chefs, the company has honed the product and reached more consumers. The manufacturer has used 3D scanning and printing technology “to mirror the shapes and texture found in animal-based chicken products,” such as wings, to attract consumers.
For Menezes, the transition from animal farming will take place over a “few decades,” and will succeed only if the plant-based sector delivers “outstanding products and doesn’t allow consumer perceptions on plant-based foods to fall below mediocre”.
The early weeks of 2023 saw Bill Gates, one of the more prominent investors in alternative proteins, asked for his views on how plant-based diets could contribute in the efforts to curb greenhouse-gas emissions.
Gates, an investor in companies including Beyond Meat and Impossible Foods, perhaps indicated the long road in his answer, given in the entrepreneur’s annual Ask Me Anything session on Reddit.
“For people who want to go vegan that is great but I don’t think most people will do that. There are companies making ‘beef’ in new ways and people working to still use cows but reduce the methane emissions. I have backed a number of innovators in this space including Beyond and Impossible and Memphis,” Gates wrote, before adding: “I think eventually these products will be very good even though their share is small today.”