Walter Robb, the former co-chief executive of Whole Foods in February 2021 described the gradual shift by consumers from meat-based products to plant-based ones as a “megatrend similar to digitisation”, potentially “the largest single trend in food history”.
Since then, investors have endured a two-and-a half-year painful journey. The value of an index that tracks 46 plant-based foods companies has dropped by half since the peak weeks after Robb made his bold prediction, due to a lacklustre market and rising interest rates.
After its IPO in 2019, shares of California-based beyond Meat, a poster child in the industry whose early supporters included actor Leonardo DiCaprio, and the Bill & Melinda Gates Foundation soared. The company briefly had a market cap of over $14bn, but the shares have dropped by 95 percent since then. Class-action suits have also been filed against the company. Since listing in early 2020, shares in Oatly have fallen 90 percent.
Plant-based meat alternatives are not popular among consumers despite a growing interest in ethical investing and concerns over the carbon footprint of the meat industry. They still account for only a fraction (1%) of the global market for meat.
Analysts say that plant-based alternatives are unlikely to ever capture a significant share of the market until they can compete with meat in terms of taste, texture, and price. A rival technology — cultivated alternative meats grown from animal stem cell — could pose a greater threat to the legacy meat industry than its plant-based counterparts. Arik Kaufman is a proponent of the technology. He is the chief executive officer of Steakholder Foods in Israel, which uses “bioprinting” to produce steaks and fillets from meat cutlets grown using stem cells.
“As the years go by, the uniqueness and versatility of our printers come to the forefront, flexitarians switch over to our products, and we’ll eventually produce’real meat’, though this won’t be in a single day,” said Kaufman. Renaissance Technologies is one of the most successful hedge funds in the world.
Steakholder shares, however, have been affected by the sector-wide selloff. They are down 92 percent in the last two years. Kaufman cited Benjamin Netanyahu’s apparent approval of the grouper fillet by the company during an April visit to Israel as evidence of the technology’s potential.
Some others tentatively agree. Jeneiv Sha, portfolio manager of Sarasin & Partners said that cultivated meat would be “the silver bullet for the environment”, due to how much water and land is required to grow plant based meat products.
Shah added that “food security is another driver” for this technology, and it’s no coincidence that Singapore, a country which imports 90 percent of its food in 2021, will be the first to approve cultivated products for commercial sale.
Shah estimates that the total market for alternative meats could reach $300 billion by 2035. Lab-grown meat will take a growing share of this. According to Spins, the US sales of plant-based alternatives fell by 13 percent in April compared with the same period last year. “I don’t think Beyond Meat will be bought by a company like JBS or Tyson,” Shah said, referring to two of the largest legacy meatpacking companies. “Only some of them are realistically thinking their business is about to get disrupted and the ones that are will look at private groups in [meat] fermentation and cultivation instead.”
According to Barclays, the cultivated meat sector raised $896mn of venture capital funding by 2022. This is down from $1.3bn raised in 2021. The decline is slightly less than the global average annual decline in venture funding which was 35 percent. Lab-grown meat products received a larger share of the total investment made in the meat alternative space over the same time period.
The value of legacy meatpacking firms has also fallen. Tyson Foods shares are near their lowest level ever, and JBS’s value has nearly halved over the last year. Tyson’s CEO blamed “adversities” in “almost all countries we operate” during the first-quarter earnings call, while JBS’s head said that he couldn’t remember another time where “beef [had] experienced] market challenges simultaneously”.
Beyond Meat has to contend with more than just its $366mn loss in the last fiscal year. Early May, its shares fell after it said that it would sell $200mn of common stock to raise funding quickly.
The company is also facing class-action suits: the latest, filed by investors in California on behalf of the company, accused it of overstating production capacity and success of product tests conducted with retailers such as McDonald’s and Starbucks.
The lawsuit also claims that Beyond Meat executives participated in a scheme designed to deceive investors by selling shares for artificially inflated price. The filing mentions Mark Nelson, the former chief financial office who sold 440,000 shares he personally owned for $58,3mn from May 2020 to October 2022. Nelson announced his retirement from the company in March 2021, but continued consulting for the company up until last month.
Beyond Meat stated that the company believed these claims were without merit, and they intend to vigorously defend any claims made.
For one group of investors however, the industry’s troubles have given them a chance to make money. According to data provider Ortex, hedge funds that bet against Beyond Meat stock have made more than $1.6bn in profit since January 2021.
Barry Norris is the chief investment officer of Argonaut Capital and he made money from betting against Beyond Meat.
He said that “a lot of companies have reinvented bean burgers, and there is no economic moat for bean burger production.”