Plant-based food industry faces reset as Beyond Meat and Oatly stocks suffer

In this photo photo Oatly Oat Milk is shown on May 20, 2021 in Chicago, Illinois.

Scott Olson | Getty Images

Wall Street seems to be downgrading on herbal substitutes.

Shares of Beyond Meat and Oatly have lost more than half their value this year. Stocks are both high-profile and relatively recent entrants to public markets, prone to big jumps and steep declines in value, a volatility that has only been exacerbated by broader market swings and the pressure from short sellers.

Beyond Meat is trading 87% below its all-time high, and Oatly, which will celebrate its first anniversary as a public company on Friday, is trading more than 80% below its original price.

Industry experts say the declines could mark an inevitable upheaval as investor optimism meets reality.

After years of increasing sales, consumer interest in meat alternatives is waning. Retail sales of plant-based meat were roughly flat in the 52 weeks ended April 30 compared to the year-ago period, Nielsen data showed. The total volume of meat substitutes has fallen 5.8% over the past 52 weeks, market research firm IRI found.

“We’ve seen this in the past in many categories that are taking off. They’re having a crisis period,” Kellogg CEO Steve Cahillane said in early May during the company’s earnings call.

Kellogg owns Morningstar Farms, a longtime player in the plant-based category with 47 years of grocery store experience. Morningstar is the top seller of meat alternatives, with 27% market share according to IRI data. Beyond Trails takes second place with 20% of the dollar share, and Impossible Foods follows in third place with 12%.

“The race for scale, the race for market share, the race for sales growth and consumer loyalty over time is going to happen,” said Chris DuBois, senior vice president of the practice of proteins from IRI, during a panel presented by Food Business News on Thursday. .

Downward spiral

The early days of the pandemic sent demand for plant-based alternatives skyrocketing as consumers cooking at home sought new options. Many have tried plant-based beef, chicken, or sausages for the first time and have continued to buy them, even if they weren’t vegetarians or vegans. The category’s sales were already growing rapidly before the crisis, but they have accelerated at an even faster rate.

Companies and investors are betting consumers would continue to eat meat alternatives and drink milk alternatives, like Oatly’s oat drink, even as Covid fears ease and lockdowns are lifted.

“If you look at about a year ago, there was a tremendous amount of buzz and excitement around plants, to the point that they attracted a lot of dollars and speculative investments. We saw the multiples and the valuations get really excited – that’s the most polite way to put it,” said Michael Aucoin, CEO of Eat & Beyond Global, which invests in plant-based protein companies.

Oatly, for example, debuted on the US public markets in May 2021 with an opening price of $22.12 per share, giving the company a valuation of $13.1 billion, although it does not is not profitable. As of Friday’s close, shares of Oatly were trading at $3.71 per share, bringing its market capitalization down to around $2.2 billion.

Beyond’s stock had an even more dramatic run. It debuted in the public markets in May 2019 at $46 per share and soared in the months that followed, reaching an all-time high of $234.90 on July 26 of the same year, giving it given a market value of $13.4 billion. The stock closed Friday at $31.24 per share, with a market value of less than $2 billion.

Investor enthusiasm has made it relatively easy for plant-based companies to raise funds in recent years, in public or private markets, Aucoin said. In 2021, the plant-based protein category saw $1.9 billion in invested capital, representing nearly a third of the dollars invested in the category since 2010, according to trade group Good Food Institute.

Companies then invested much of these funds in marketing to entice consumers to try their herbal products. The arena was also becoming increasingly crowded as traditional food companies and new start-ups began to pursue the same growth. Tyson Foods, a one-time investor in Beyond, launched its own plant-based line. So did fellow meat processing giants JBS and Cargill.

“You also saw an irrational exuberance in the category and the entry of many, many new players, which took up a lot of shelf space, took a lot of tries, not always the highest quality offerings. , to be honest with you,” Cahillane said. analysts on Kellogg’s earnings call.

Flat sales

The turning point came in November when Maple Leaf Foods sounded the alarm that the growth of its plant-based products was slowing, according to Aucoin. The Canadian company purchased plant-based brands Field Roast, Chao and Lightlife in 2017 as an entry point into the fast-growing category.

“Over the past six months, unexpectedly, there has been a rapid deceleration in the growth rates of the plant protein category. Of course, our performance has suffered in the midst of this. concerns are rooted in category performance, which is essentially flat,” Maple Leaf CEO Michael McCain told investors during the company’s third-quarter earnings call in November.

Company executives said Maple Leaf will review its plant-based portfolio and strategy.

Less than a week after Maple Leaf’s warning, Beyond Meat disappointed investors with its own lackluster results, even after warning of a sales slump a month earlier. Beyond attributed it to a range of factors, such as the growing delta variant of the Covid virus and distribution issues, but its business has yet to recover.

Beyond’s first-quarter results, released Wednesday, marked the third consecutive reporting period in which the company posted larger-than-expected losses and disappointing revenue.

Beyond Meat CEO Ethan Brown told analysts on Wednesday’s call that the company’s weak performance was the result of four factors: sweetness in the overall plant-based category, consumer shifts from substitutes from chilled to frozen meat, higher discounts and increased competition.

Competition has also put pressure on Oatly. The oat milk category in the United States continues to grow, but Oatly is losing market share as larger-scale players release their own versions. Dairy company HP Hood’s Planet Oat recently overtook Oatly as the top maker of oat milk in the United States

Upcoming Opportunities

The slowdown is not hitting all factory makers. Impossible Foods said in March that its fourth-quarter retail revenue soared 85%, boosted by its expansion into new grocery stores. The company is a private company, so it does not have to publicly disclose its financial results.

But the upheaval weighed on Impossible in other ways. Reuters reported in April 2021 that Impossible was in talks to go public, aiming for a valuation of $10 billion, about $1.5 billion more than Beyond’s market value at the time. But the company never filed a prospectus, instead raising $500 million from private investors in November at an undisclosed valuation.

Josh Tetrick, CEO of JUST Egg, which accounts for about 95% of egg substitute sales in the United States, told CNBC he expects significant growth.

Sales of egg substitutes were roughly flat in the 52 weeks ended April 30, according to Nielsen data, but Tetrick sees an opportunity to raise consumer awareness and the number of restaurants with its egg substitute on their shelves. menus.

Aucoin is confident that consumer interest in plant-based alternatives will increase and eventually bring back investor optimism in the category, but not to the same extent as at its peak.

“There will be a jolt as the money is not as readily available, but I think we will see real winners and strong businesses emerge,” Aucoin said.

The industry could see brand consolidation soon as the meat alternatives category nears $1.4 billion in annual sales, RI’s DuBois said. Together, Morningstar Farms, Beyond and Impossible account for nearly 60% of dollars spent on meat alternatives.

“I think over the next year you’re going to see the real leaders emerge,” DuBois said.

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