Did you know? The world’s first lab-grown burger was created in 2013 and cost over $300,000! It was made by the predecessor to Dutch startup Mosa Meat, and we’ve come a long way since then. Indeed, you can now buy a meatless burger in some McDonald’s and Burger King restaurants, or drink a cappuccino without cow’s milk at Starbucks.
According to the World Economic Forum, the amount of food grown today will only feed 50% of the world’s population by 2050. The agri-food industry is therefore at the dawn of a revolution, and at the forefront of this are alternative meats made of plants, micro-organisms and laboratory meat from animal tissues.
And the icing on the cake for investors? The food industry traditionally has low exposure to recessions and economic cycles. We always need to eat food! Could this be a long-term opportunity for your Investment Plan?
A potential market of $290 billion
The transition to a plant-based diet is being powered by the emergence of new lifestyles: veganism, vegetarianism and flexitarianism (limiting your consumption of meat and fish). According to the Plant-based food association, 29% of Americans identify themselves as flexitarians. That percentage rises to 79% among younger generations.
Consumer awareness has also changed. Many are changing their diet based on health reasons (e.g. lowering cholesterol). Others are concerned about food safety and sustainability (some estimates suggest that the food industry contributes up to 20% to 30% of greenhouse gas emissions). These considerations have pushed alternative meat products into the mainstream.
An improvement in technology means the taste, texture and accessibility of these products are similar to animal proteins. And the sector is growing fast. It’s expected to expand from 13 million tons in 2020 (2% of the global protein market) to 97 million (11% of the global market) in 2035, when animal production and planet-based production will be equal, according to a study by Boston Consulting Group. If the forecasts are accurate, that would represent a $290 billion market. That percentage could reach 16% if technological developments increase, and 22% if political regulations are introduced in favour of the industry (such as higher tax on CO2 polluters or subsidies for plant-based production).
Strategic partnerships (McDonald’s, Burger King, KFC, Starbucks)
This movement could lead to a change in consumer habits over the next decade. Bloomberg Intelligence anticipates a market share of 7.7% in 2030 (worth $162 billion dollars, including $74 billion for meat substitutes), compared to $29.4 billion ($4.2 billion for meat substitutes) in 2020.
Especially now that many of the companies involved are partnering with restaurants, large chains and popular fast food outlets. In the United States and Europe, for example, you no longer need to choose a salad to eat “healthy” in some McDonald’s, you can choose the Beyond Meat burger. For chicken lovers, KFC (Yum! group) has been offering plant-based nuggets since January, also made by Beyond Meat. Meanwhile, competitor Burger King (Restaurant Brands International) has signed a partnership with Impossible Food.
Before we look at alternative protein stocks and ETFs you can invest in, let’s take a look at the product itself. What exactly are alternative proteins?
The different meat substitutes
The main goal is to imitate the taste, texture, smell and appearance of classic meat, and thus avoid breeding and slaughter. There are three main categories: plant-based meat, meat grown from cells from the muscles and tissues of animals (also called laboratory meat) and fermentation (micro-organisms), which includes proteins from insects.
According to data compiled by the Good Food Institute (GFI), a burger made with alternative proteins would require on average 87% less water and 96% less land than a burger made with beef. This results in a 90% lower carbon footprint and ecological impact. Indeed, according to estimates by the Global Footprint Network, since July 28, humanity has been living beyond its natural means.
Investing in alternative protein stocks and ETFs
According to GFI calculations, the alternative meat industry raised $5 billion in 2021, up 60% from 2020 ($3.1 billion), and up 500% from 2019 ($1 billion) . So, which companies in the sector can you invest in?
New players (meat substitutes and dairy products)
- Beyond Meat is undoubtedly the most popular name. The company debuted on the stock market with a stratospheric IPO in May 2019. Its share price soared 163% on its first day of trading, valuing the company at $3.8 billion. That market capitalisation went on to quadruple in just two months! After the hype subsided, the share price is now 50% lower than its IPO value. An opportunity for long-term investors?
Beyond Meat is indeed one of the giants of the sector with revenues of $465 million in 2021, expected to increase by 20.90% this year and 25.5% next year. The company also has partnerships with McDonald’s, Pizza Hut, KFC. Be careful though, investors are growing impatient with the launch of the highly anticipated McPlant burger in America.
- Tattooed Chef is another US company, founded in 2017. It aims to appeal to all the “tarians” (vegetarians, flexitarians etc.) through frozen foods. In November 2020 it went public through a SPAC (special purpose acquisition company). Analysts expect revenues of $280 million this year (+31% compared to 2021), and $346 million next year (+23.7%). The stock has dropped heavily this year (down 60%) but some experts see it as an interesting entry point, before a possible takeover.
- Oatly. The Swedish giant is known for its range of oat-based milk. The company also made a splashy entry into the financial markets in May 2021, with a valuation of more than $10 billion. Today, the stock price is 80% below its IPO price. However, it’s worth pointing out that the oat milk market was 5 times smaller than the market capitalization of the company at the time of its IPO. Analysts expect revenues of $789 million this year, up 36.70%, and $1.28 billion next year (+46%), partly thanks to its partnership with Starbucks.
Traditional players taking an interest in the alternative meat market
- Conagra Brands is an American company with various brands, including Guardian, which advocates “meatless Monday”, and whose products (chicken nuggets, meatballs, burgers, etc.) are made exclusively from plants. Conagra is known as a safe haven for investors: its share price has been balanced since the start of the year, while the major US index (the S&P 500) has fallen by 15%. Thus, analysts anticipate a slight increase (2%) in its earnings per share (EPS) this year, and 6% next year.
- Ingredion makes ingredients for the food and drink industries. It has invested more than $250 million over the past 4 years in plant protein development, which brought in just under $50 million in revenue in 2021. The company is aiming for revenue four times higher by 2026. Analysts expect revenues of $7.66 billion this year (+11.2% compared to 2021), and $8 billion in 2023 (+5.4%). While the NASDAQ index has plunged more than 20% since the start of the year, the stock has remained stable. EPS should reach $7.12 this year (up 6.7%), then $7.71 (+ 8.2%) next year.
- Unilever, the British giant, is one of the world’s biggest food companies. In 2020, the company said it wants to grow its plant-based revenue fivefold over the next seven years to $1.2 billion. For this, it relies on the Vegetarian Butcher brand which has a presence in 50 countries. Unilever is also working on a facelift for the Knorr brand which aims to be 50% plant-based by 2025. For ice cream lovers, Magnum and Ben & Jerry’s are also developing vegan products. Unilever’s share price has been stable on the stock market since the start of the year, and analysts expect its sales to rise by 10.3% in 2022.
- Hain Celestial Group is an American company, founded in 1993. In 2021, it bought Yves Veggie cuisine which strengthened its entry into the alternative meat industry. The company also has exposure through a range of brands including Joya, Lima, Natumi and Linda McCartney’s (drinks, desserts, meat, burgers). Despite a 50% drop in its share price since the start of the year, the stock has returned more than 1,500% to long-term shareholders. Analysts expect its earnings per share to rise 19% in 2023.
ETFs linked to the alternative meat industry
Not sure which company to invest in? Why not invest in dozens at once via the Sustainable Future of Food ETF (Rize)? It is made up of 43 companies ($253 million in assets under management) including Oatly and Beyond Meat. Tip: you can add this ETF to your Investment plan.
Want to know more about these alternative meat stocks and ETFS? Visit their profiles in the BUX Zero app!
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.