Plant-based food supplies Beyond Meat, Oatly are undergoing a reset

In this photo illustration, Oatly oat milk is shown on May 20, 2021 in Chicago, Illinois.

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Wall Street seems to be bitter about plant-based substitutes.

Shares of Beyond Meat and Oatly have lost more than half their value this year. Shares are both high profile and relatively recent entrants to public markets, prone to big jumps and sharp falls in value, volatility only exacerbated by wider market swings and 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 debut price.

Industry experts say the declines could spell an inevitable shakeout as investor optimism meets reality.

After years of increasing sales, consumer interest in meat alternatives is declining. Retail sales of plant-based meats, according to Nielsen data, were about the same as the same period last year for the 52 weeks ended April 30. The total volume of meat substitutes has fallen by 5.8% in the past 52 weeks, according to market research firm IRI.

“We’ve seen this in a lot of categories take off in the past. They’re having a shakeout period,” Kellogg CEO Steve Cahillane said during the company’s earnings call in early May.

Kellogg owns Morningstar Farms, a longtime player in the vegetable category with 47 years of experience in supermarkets. Morningstar is the bestseller of meat alternatives, with a 27% share in dollar terms according to IRI data. Beyond trails in second with 20% of dollar share, and Impossible Foods follows in third with 12%.

“The race for scale, the race for market share, the race for revenue growth and consumer retention over time is going to happen,” Chris DuBois, senior vice president of IRI’s protein practice, said on a panel presented by Food Business News on Thursday.

Downward spiral

The early days of the pandemic fueled a surge in demand for plant-based substitutes as home cooking consumers sought new options. Many tried plant-based beef, chicken or sausage for the first time and continued to buy it, even if they were not vegetarian or vegan. The category’s turnover grew rapidly before the crisis, but accelerated even faster.

Companies and investors alike are betting that consumers would continue to eat meat alternatives and drinking milk substitutes, such as Oatly’s oat-based drink, even if fears of Covid subsides and lockdowns are lifted.

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

Oatly, for example, debuted in U.S. public markets in May 2021 with an opening price of $22.12 per share, giving the company a valuation of $13.1 billion despite being unprofitable. At Friday’s close, Oatly’s shares traded at $3.71 a share, pushing its market cap to about $2.2 billion.

Beyond stock has had an even more dramatic ride. It debuted in the public markets in May 2019 for $46 a share and soared in the following months, reaching a record high of $234.90 on July 26 of that year, giving it a market value of $13.4 billion. The stock closed Friday at $31.24 a share, with a market value of less than $2 billion.

Investor enthusiasm in recent years has made it relatively easy for plant-based companies to raise money, either through the public or private market, 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.

The companies then put much of those funds into marketing to encourage consumers to try their plant-based products. The arena also became increasingly crowded as traditional food companies and new startups began chasing similar 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 irrational exuberance in the category and the arrival of many, many new players, taking up a lot of shelf space, took a lot of testing, not always the highest quality offerings, to be honest,” Cahillane told analysts of Kellogg’s profit call.

Flatten sales

The turning point came in November when Maple Leaf Foods sounded the alarm that the growth of its botanicals was slowing, Aucoin said. The Canadian company bought plant-based brands Field Roast, Chao and Lightlife in 2017 as a gateway to the fast-growing category.

“Over the past six months, there has been an unexpected rapid slowdown in the growth rate of vegetable proteins in the category. Of course, our performance has suffered. But the more worrying facts are rooted in the category of performance, which is basically flat.” Maple Leaf CEO Michael McCain told investors during the company’s third-quarter earnings call in November.

Company executives said Maple Leaf would review its vegetable portfolio and its strategy.

Less than a week after Maple Leaf’s warning, Beyond Meat disappointed investors with its own lackluster results, even after warning of weaker sales a month earlier. Beyond attributed it to a range of factors, such as the rising delta strain of the Covid virus and distribution problems, 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 revenues.

Ethan Brown, CEO of Beyond Meat, told analysts on Wednesday’s call that the company’s weak performance was the result of four factors: tenderness in the general vegetable category, a consumer shift from refrigerated meat alternatives to frozen, higher discounts and more competition.

Competition has also put Oatly under pressure. The oat milk category in the US continues to grow, but Oatly is losing market share as players with more scale release their own versions. Dairy company HP Hood’s Planet Oat recently overtook Oatly as the top oat milk producer in the US

Opportunities ahead

The delay does not affect every vegetable manufacturer. Impossible Foods said in March that fourth-quarter retail sales were up 85%, boosted by expansion into new supermarkets. The company is privately owned, so it does not have to disclose its financial results.

But the upheaval has weighed on Impossible in other ways. Reuters reported in April 2021 that Impossible was in talks to go public, targeting a valuation of $10 billion, about $1.5 billion higher 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 U.S. egg substitute sales, told CNBC he sees a lot of growth ahead.

According to data from Nielsen, egg replacer sales were flat for the 52 weeks ended April 30, but Tetrick sees opportunities to increase consumer awareness and the number of restaurants on their menus with its egg replacer.

Aucoin is confident that consumer interest in plant-based alternatives will grow and ultimately bring investor optimism back to the category, although not to the same extent as its heyday.

“There will be a shakeout because the money is not that readily available, but I think we will see some real winners and strong companies emerge,” Aucoin said.

The industry could see brand consolidation once the meat alternatives category approaches $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 substitutes.

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

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