Beyond Meat, Oatly plant-based food supplies face a reset

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

Scott Olson | Getty Images

Wall Street appears to be tightening up on plant-based substitutes.

Actions of Beyond the meat Other Oats they have lost more than half of their value this year. Equities are both high-profile and relatively recent entries into public markets, subject to large jumps and steep falls in value, volatility that has only been exacerbated by broader market swings and pressure from short sellers.

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

Industry insiders say the decline could mark an inevitable jolt as investor optimism meets reality.

After years of increasing sales, consumer interest in meat alternatives is waning. According to Nielsen data, retail sales of plant-based meat were roughly flat in the 52 weeks ending April 30 compared to a year ago. The total volume of meat substitutes has decreased by 5.8% in the past 52 weeks, according to market research firm IRI.

“We’ve seen it in many categories in the past taking off. They have a jolt period,” Kellogg CEO Steve Cahillane said in early May about the company’s earnings call.

Kellogg owns Morningstar Farms, a longtime plant-based player with 47 years in grocery stores. Morningstar is the best-selling of meat alternatives, with a 27% stake in dollars according to IRI data. Beyond is in second place with a 20% stake in dollars, and Impossible Foods follows in third with 12%.

“The race to 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 the protein study at IRI, in a panel presented Thursday by Food Business News.

The early days of the pandemic drove increasing demand for plant-based substitutes as home-cooking consumers sought out new options. Many first tried plant-based beef, chicken, or sausage and continued to buy it, even if they weren’t vegetarians or vegans. Sales in the category were already growing rapidly before the crisis, but accelerated even more rapidly.

Both companies and investors are betting that consumers will continue to eat alternatives to meat and drink milk substitutes, such as Oatly’s oat drink, even as Covid fears have eased and blockages have increased.

“If you look back about a year ago, there was a tremendous amount of fizz and excitement around plant products, to the point where it attracted a lot of speculative dollars and investments. We have seen multiples and valuations become very enthusiastic – this is the political way to put it, “said Michael Aucoin, CEO of Eat & Beyond Global, which invests in plant-based protein companies.

Oatly, for example, debuted on US 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. As of Friday’s close, Oatly’s stock was trading at $ 3.71 per share, bringing its market capitalization to around $ 2.2 billion.

Beyond’s actions took an even more dramatic run. It debuted on public markets in May 2019 at $ 46 per share and soared over the following months, hitting an all-time high of $ 234.90 on July 26 of the same year, which gave it a market value of $ 13.4. billions. 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, either through the public or private market, Aucoin said. In 2021, the plant-based protein category saw $ 1.9 billion in invested capital, which represented nearly a third of the $ invested in the category since 2010, according to the Good Food Institute business group.

The companies have therefore invested much of that funds into marketing to get consumers to try their plant-based products. The arena was also getting busier as traditional food companies and new start-ups began chasing the same growth. Tyson’s food, a one-time investor in Beyond, has launched their own plant-based line. So did fellow meat-processing giants JBS and Cargill.

“You also saw irrational exuberance in the category and the entry of many, many new players, who took up a lot of shelf space, required a lot of testing, not always the highest quality offerings, to be honest with you,” he said. Cahillane Analysts told Kellogg’s earnings call.

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 bought the plant-based brands Field Roast, Chao and Lightlife in 2017 as an entry point into the fast-growing category.

“In 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. But the most troubling set of facts are rooted in the category. performance, which is broadly flat, “Maple Leaf CEO Michael McCain told investors on the company’s third-quarter earnings call in November.

Company executives said Maple Leaf would be reviewing its plant-based portfolio and strategy.

Less than a week after the Maple Leaf warning, Beyond Meat disappointed investors with its lackluster results, even after warning of weaker sales a month earlier. Beyond attributed it to a number of factors, such as the rising delta variant of the Covid virus and distribution problems, but its business has not yet recovered.

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

Analysts of Beyond Meat CEO Ethan Brown in a phone call on Wednesday that the company said the weak performance stemmed from four factors: softness in the overall plant-based category, a consumer shift from chilled to frozen meat alternatives. , higher discounts and more competition.

Likewise, competition has 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 leading oat milk producer in the United States

The slowdown is not affecting all plant producers. Impossible Foods said in March that its fourth-quarter retail revenues were up 85%, thanks to its expansion into new grocery stores. The company is privately owned, so it does not have to disclose its financial results publicly.

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 sees a lot of growth in the future.

Sales of egg substitutes are more or less stable in the 52 weeks ending April 30, according to Nielsen data, but Tetrick sees an opportunity to increase consumer awareness and the number of restaurants with its egg substitutes on their menus. .

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

“There will be a jolt as 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 as 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 the dollars spent on meat substitutes.

“I think in the next year you will see the real leaders emerge,” DuBois said.