In this photo illustration, Oat Milk was shown on May 20, 2021 in Chicago, Illinois.
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Wall Street seems to be sour from plant substitutes.
Shares of Beyond Meat and Oatly have lost more than half of their value this year. The shares are both high-profile and relatively recent players in public markets, prone to big jumps and sharp declines in value, volatility, which is only exacerbated by wider market fluctuations 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 original price.
Industry experts say the downturns could mean an inevitable shake-up as investor optimism meets reality.
After years of sales growth, consumer interest in meat alternatives is declining. Retail sales of vegetable meat were roughly equal in the 52 weeks ended April 30, compared with a year earlier, according to Nielsen. The total volume of meat substitutes has fallen by 5.8% in the last 52 weeks, according to market research firm IRI.
“We have seen this in many categories in the past that are evolving. They have a period of turmoil, “said Kellogg CEO Steve Cahilon in early May during a call about the company’s profits.
Kellogg owns Morningstar Farms, a 47-year-old crop player in grocery stores. Morningstar is the best-selling meat alternative, with a 27% share of the dollar, according to IRI. Beyond the track is in second place with 20% of the dollar share, and Impossible Foods follows in third place with 12%.
“The competition for scale, the race for market share, the race for sales growth and consumer retention over time will happen,” said Chris Dubois, senior vice president of IRI protein practice, at a panel presented by Food Business News on Thursday.
Spiral down
The first days of the pandemic sparked a growing demand for plant-based substitutes as home-cooked consumers sought new opportunities. Many people tried beef, chicken, or plant-based sausages for the first time and continued to buy them, even if they were not vegetarians or vegans. Sales in the category were already growing rapidly before the crisis, but accelerated with an even faster clip.
Companies and investors are betting that consumers will continue to eat alternatives to meat and drink milk substitutes, such as Oatly’s oat-based drink, even as fears of Covid have eased and the blockade has been lifted.
“If you look about a year ago, there was a huge amount of boiling and enthusiasm around the plant base, to such an extent that it attracted a lot of speculative dollars and investment. We saw the crowds and the reviews became very enthusiastic – that’s the most polite way to say it, “said Michael Okoin, CEO of Eat & Beyond Global, which invests in plant protein companies.
Oatly, for example, debuted in public markets in the United States in May 2021 with a starting price of $ 22.12 per share, which gave the company an estimate of $ 13.1 billion, although it is unprofitable. As of Friday’s close, Oatly’s stock was trading at $ 3.71 a share, lowering its market capitalization to about $ 2.2 billion.
Beyond’s actions are even more dramatic. It debuted in public markets in May 2019 at $ 46 per share and rose in the months that followed, reaching a record $ 234.90 on July 26 of that year, giving it a market value of $ 13.4 billion. Shares ended Friday at $ 31.24 a share, with a market value below $ 2 billion.
Investor enthusiasm has made it relatively easy for plant companies to raise money in recent years, through public or private markets, Aucoin said. In 2021, $ 1.9 billion in capital was invested in the plant protein category, which is nearly a third of the dollar invested in the 2010 category, according to the Good Food Institute trade group.
The companies then turned much of this money into marketing to get consumers to try their plant products. The arena was also becoming more crowded as traditional food companies and new startups began to pursue the same growth. Tyson Foods, a one-time investor in Beyond, has launched its own plant-based line. Other meat processing giants JBS and Cargill did the same.
“You also saw an irrational abundance in the category and the entry of many, many new players who took up a lot of space on the shelves, took a lot of rehearsals, not always the highest quality offers, to be honest with you,” said Cahilen. are calling.
Flat sales
The turning point came in November, when Maple Leaf Foods warned that the growth of its plant products was slowing, according to Aucoin. The Canadian company acquired the plant-based brands Field Roast, Chao and Lightlife in 2017 as an entry point in the fast-growing category.
“Unexpectedly, the last six months have seen a rapid slowdown in plant protein growth. Of course, our performance suffered in the middle of it. But the more troubling set of facts is rooted in a performance that is essentially equal, “Maple Leaf CEO Michael McCain told investors during the company’s third-quarter earnings announcement in November.
Company executives said Maple Leaf will review its plant-based portfolio and strategy.
Less than a week after the Maple Leaf warning, Beyond Meat disappointed investors with its own poor results, even after the warning of weaker sales a month earlier. Beyond attributes it to a number of factors, such as the growing delta of the Covid virus and proliferation problems, but his business has not yet recovered.
The results of the first quarter of Beyond, published on Wednesday, marked the third consecutive reporting period in which the company reported higher-than-expected losses and disappointing revenues.
Beyond Meat CEO Ethan Brown told analysts in an interview Wednesday that the company’s poor performance stemmed from four factors: softness in the overall plant-based category, shifting consumers from alternatives to chilled meat to frozen, higher discounts and intensified competition.
The competition also put pressure on Oatly. The oatmeal category in the United States continues to grow, but Oatly is losing market share as larger players release their own versions. Dairy company HP Hood’s Planet Oat recently overtook Oatly as a leading oat milk producer in the United States
Opportunities lie ahead
The delay does not affect every plant-based producer. Impossible Foods said in March that its fourth-quarter retail revenue rose 85 percent, boosted by its expansion into new grocery stores. The company is privately owned, so it is not necessary to disclose its financial results publicly.
But the cataclysm has weighed on the Impossible in other ways. Reuters reported in April 2021 that Impossible was in publicity talks targeting an estimate 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, according to an undisclosed estimate.
Josh Tetrick, chief executive of JUST Egg, which accounts for about 95 percent of U.S. egg substitute sales, told CNBC he saw much progress.
Sales of egg substitutes are roughly equal in the 52 weeks ended April 30, according to Nielsen, but Tetrick sees an opportunity to raise consumer awareness and the number of restaurants with its egg substitute on its menus.
Aucoin is convinced that consumer interest in plant-based alternatives will increase and eventually return the optimism of investors in the category, although not to the same extent as its heyday.
“There will be a shake-up as money is not so readily available, but I think we will see some real winners and strong companies emerge,” Aucoin said.
The industry may see consolidation of the brand soon after the category of meat alternatives approaches annual sales of $ 1.4 billion, said Dubois of RI. Together, Morningstar Farms, Beyond and Impossible account for nearly 60% of the dollars spent on meat substitutes.
“I think next year you will see real leaders emerge,” Dubois said.
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