Plant-based food stocks Beyond Meat, Oatly face a reset
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This photo illustrates Oatly oatmilk, which was photographed in Chicago (Illinois) on May 20, 2021.
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Wall Street seems to be sour about plant-based alternatives.
Shares Beyond Meat OatlyThey have seen their value drop by more than half this year. Stocks are prominent and relatively new entrants into public markets. They’re prone to huge jumps in price and steep declines in value. Volatility that has only been increased by wider market swings as well as pressure from short sellers.
Beyond Meat traded at 87% lower than its previous high and Oatly which celebrates its first anniversary in public life on Friday trades above 80% below its original price.
According to industry experts, the downturns could be a sign of investor optimism meeting reality.
Consumer interest in alternatives to meat is declining after years of rising sales. Nielsen data shows that retail sales of plant-based meats were flat over the past 52 weeks, compared to the same period a year ago. Market research firm IRI discovered that the total volume of meat replacements fell 5.8% in 52 weeks.
We’ve seen it in many areas in the past. “They have a shakeout phase.” KelloggSteve Cahillane, CEO of the company, stated this in May during an earnings call.
Morningstar Farms is a long-standing player in the category of plant-based products, with 47 years experience in grocery stores. Kellogg also owns Morningstar Farms. According to IRI data, Morningstar has 27% of the market share for meat substitutes. With 20% share of the dollar, Beyond Trails is second and Impossible Foods third.
Chris DuBois (senior vice president, IRI protein practice), stated that the “race for scale”, the race to market share, sales growth, and customer retention will all be happening,” during a Food Business News panel on Thursday.
A downward spiral
As consumers began to look for alternatives, the demand for plant-based products soared in the first days of pandemic. People tried out plant-based meat, poultry, and sausages for the first times, often buying them again, even if it wasn’t vegan or vegetarian. Although the category was already growing rapidly before the crisis hit, sales grew at an even quicker pace.
Investors and companies bet on consumers continuing to eat meat substitutes and drink milk alternatives, like Oatly’s Oatly-based beverage. This was despite Covid fears being eased and locking downs being lifted.
Looking back at the past year, you can see that there was tremendous enthusiasm and effervescence around plant-based. It attracted lots of investment dollars and speculative money. We saw the multiples and the valuations get very enthusiastic — that’s the politest way to say it,” said Michael Aucoin, CEO of Eat & Beyond Global, which invests in plant-based protein companies.
Oatly for instance, launched on U.S. stock markets May 2021, with a price at $22.12 per unit. The company was valued at $13.1 billion even though it is unprofitable. Oatly shares traded at $3.71 per share on Friday, bringing its market capital down to $2.2 billion as of Friday’s closing.
Beyond stock has experienced a dramatic rise. After debuting on the stock exchanges in May 2019, it was priced at $46 per shares. The stock has seen a dramatic rise in value over the following months, peaking at $234.90 on June 26, 2018, giving it a market capitalization of $13.4 billion. On Friday, it closed at $31.24 per shares with a market worth of just under $2 billion.
Aucoin stated that investors’ enthusiasm has made it easy for plant-based businesses to raise capital in recent years through the private or public markets. According to the trade group Good Food Institute, $1.9 billion was invested in plant-based proteins by 2021. This represented almost a third the amount of money that had been invested into this category in 2010 and 2010.
These companies invested a lot of their funds in marketing, to encourage consumers to try their plant-based products. This market became increasingly crowded with both traditional food manufacturers and newer start-ups attempting to capture the same growth. Tyson FoodsBeyond’s original investor, Beyond launched its plant-based business. JBS and Cargill were also involved in the launch of their own plant-based lines.
Cahillane stated that there was also an irrational excess in this category, as well as the entry of many, many more new players. This took up a lot shelf space and required a lot trial. These offerings were not always of the best quality, to be completely honest,” Cahillane said on Kellogg’s earnings call.
Flatlining sales
November was the turning point. Maple Leaf FoodsAucoin stated that it was alarming to hear the slowdown in growth for its plant-based product lines. Canadian firm purchased the plant-based brands Field Roast Chao, Lightlife and Chao to get into this fast-growing segment.
The category growth rate for plant-based protein has seen a sudden slowdown in the last six months. Our performance suffered during this period. However, the most concerning facts stem from category performance which has basically stagnated,” Maple Leaf CEO Michael McCain stated to investors during the third quarter earnings call.
Maple Leaf will review the company’s plant-based portfolio as well as its strategy, according to executives.
Beyond Meat’s disappointing results less than one week after Maple Leaf warned investors, even though it had previously acknowledged weaker sales in the month prior. Beyond blamed the decline on a number of factors including the Covid virus’s surging delta version and distribution difficulties, but the business is still struggling.
Beyond’s third quarter results were announced on Wednesday. It was its third consecutive reporting period where the company suffered from disappointing revenue and larger-than-expected losses.
Ethan Brown from Beyond Meat told analysts during Wednesday’s conference call that company’s low performance resulted from four factors. These were softness in overall category, shift by consumers from refrigerated meats to frozen options, increased discounts, and more competition.
Oatly is also under increasing competition. Oatly’s market share is decreasing as more players release their own versions. Oatly was recently overtaken by Planet Oat, a subsidiary of HP Hood Dairy.
Chances ahead
Every plant-based company is not affected by the slowdown. Impossible Foods announced in March that their fourth-quarter retail revenues soared by 85% thanks to the expansion of its grocery store network. Because the company is private, it does not have to make public its financial results.
However, Impossible has been affected by the turmoil in many other ways. Reuters reported April 2021, that Impossible was negotiating to be listed. It wanted a value of $10 billion. This is about $1.5bn more than Beyond’s at the time. The company did not file a prospectus and instead raised $500 million in November from private investors at an undisclosed value.
CNBC spoke with Josh Tetrick CEO of JUST Egg. This company accounts for approximately 95% U.S. egg replacement sales.
Nielsen data shows that egg substitute sales have been relatively flat in the 52-week period ending April 30, but Tetrick is optimistic about the potential to raise consumer awareness as well as increase the number of restaurants featuring its egg substitute menu.
Aucoin believes that consumer interest in alternative plant-based products will increase and bring investor optimism back to this category. However, it is not as strong as in its glory days.
Aucoin explained that although there may be a shakeout because of the lack of money, Aucoin believes that it will lead to some winners and stronger companies.
DuBois from RI said that brand consolidation could be possible in the industry as it closes on $1.4billion in annual sales for meat substitutes. Morningstar Farms and Beyond together account for almost 60% of total dollars spent on substitute meats.
DuBois stated that he believes the leaders of the future will emerge over the course of the next year.
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