By Sam Cohen (New York University - Leonard N. Stern School of Business)
Trend Summary
Across the globe, the meat and dairy industry is undergoing a transformation as traditional products experience increased competition from plant based alternative products. Historically, plant-based meat and dairy substitutes aimed to capture a very specific consumer, opting toward these products regardless of their flavor. More recently, a surge in consumer demand has indicated increased inclination towards these products for reasons including health, environmental effect, and moral concern. While traditional meat and dairy alternatives have experienced additional growth, this trend appears to have been accelerated by developments of new products that aim to replicate the experience of authentic meat and dairy consumption. The growth in plant-based alternatives’ market share has prompted dominant players in the meat and dairy business, such as Tyson and Cargill, to increase involvement in this expanding sector. More recently, the COVID-19 pandemic, has accelerated these trends as the plant-based alternatives industry experienced an influx of consumers shifting away from traditional meat consumption as marketplaces endured meat shortages and greater emphasis was placed upon health.
Figure 1: Total US Plant-Based Food Market (Market Research)
Key Drivers
It is evident that consumers have become increasingly more ethical and health-conscious.
Health Benefits of a Plant Focused Diet. There has been a rise in adoption of flexitarian dieting, a practice in which individuals generally consume vegetable based foods, but do not explicitly exclude meat. Increased consumption of vegetable products in place of meats is considered to be a healthier standard for eating. Improvements in heart health, weight, and vitamin intake are just a few of the attributes associated with this diet. Recently, various studies have concluded that a plant-based diet can reduce blood pressure, thereby reducing risk for conditions such as diabetes, heart disease, and strokes. Similarly, a 2019 study published by the Journal of the American Heart Association found that eating a plant-based diet may reduce the risk of developing cardiovascular disease by 16 percent and their mortality rate by 31 percent.
Figure 2: Plant Based Foods Have Gone Mainstream (PlantBasedFoods)
Figure 3: Who is the Plant-Based Shopper? (PlantBasedFoods)
Environmental Concern. Consumers have also become more aware of the environmental impacts linked to the products they consume, which plant-based alternatives help to mitigate. Specifically in the Gen X and Millennial consumer demographic, sustainability is an important factor in their purchasing of goods. The manufacturing process of plant-based meat and dairy substitutes requires substantially less use of energy, water, and results in less emissions of byproducts deemed harmful to the environment. For example, The Center for Sustainable Systems at the University of Michigan concluded that “a plant-based burger generates 90% less greenhouse gas emissions, requires 45% less energy, has 99% less impact on water scarcity, and 93% less impact on land use than a ¼ pound of traditional U.S. beef”. Livestock farming alone contributes to 18% of human produced greenhouse gasses and, understanding this, it is evident that reduced consumption of related products is likely to significantly reduce environmental damage. With conversations on the topic of global warming and environmental degradation being at the forefront of our political and scientific climates, such implications have become incredibly impactful upon consumer preferences.
Moral Implications of Traditional Meat and Dairy. Over the past decade, there has been greater coverage of the meat and dairy industries methods of slaughter and extraction, which, for many, has catalyzed change in attitudes toward their products. With the rapid expansion of the traditional meat and dairy industries, the involved companies were forced to modify practices to meet demand, which resulted in mass production processes that, by many, would be considered unethical for animals and consumers, alike. As the factory farming industry strives to maximize output while minimizing costs, they sacrifice the quality of their products and farming facilities. Such practices include increased use of antibiotics and inadequate facility conditions, in which animals are crammed into stalls and ridden with disease.
Figure 4: Global Meat Production From 1961 to 2018 (OurWorldInData)
Further Trend Analysis
Why the Sudden Popularity? The development of plant-based meat and dairy alternatives, which simulate the experience of consumption of authentic products is a key driver for the increased activity in the mentioned sector. Companies such as Beyond Meat and Oatly have captured demand from individuals who previously favored traditional meat or dairy over their plant-based counterparts as they make this transition more seamless than before. Consumers can now reap the benefits of a plant-based diet without sacrificing the enjoyment of eating animal products. The plant-based meat market had an estimated value of USD 12.1 billion in 2019 and is projected to grow at a CAGR of 15.0% from 2019, to reach a value of USD 27.9 billion by 2025.
Keeping Up With Demand. The extreme growth in this sector has brought about implications for the involved parties as they attempt to increase capacity to meet demand. Recently, Impossible Foods, a plant-based beef company, was forced to relinquish their contract with fast food chain McDonalds after experiencing shortages across their locations. Understanding this, many of the manufacturers of these products have found themselves in search of ways to increase their production capacity. Thus, mergers and acquisitions have been prevalent in this industry.
Expanding Product Offerings. Plant based meat and dairy manufacturers have made significant efforts to expand their product offerings. Through alignment with other players in this industry, these companies become more likely to accomplish such product diversification and capture a larger market share.
External Investment. This sector has received significant investment from previously uninvolved players.
In December 2017, Tyson Foods Inc. $41m investment in Beyond Meat Inc., a US-based plant-based meat alternatives producer, for an undisclosed stake.
Bill Gates & Li Ka-Shing invested in Impossible Foods, a US-based start-up creating a “bleeding” plant-based burger. The company raised $75m in the most recent funding round.
Richard Branson & Tyson Foods Inc. invested in Memphis meat, a US-based company producing “clean meat” by culturing animal tissue from cells.
Impact of COVID-19
The onset of the COVID-19 pandemic provided conditions for extreme growth in the plant-based meat and dairy industry. With workers becoming infected with the coronavirus, plant closures and constricted supply, many Americans lost access to many meat and dairy products. In the same period, links between the virus and animals circulated around the media. Consequently, the outbreak gave way to great opportunity for plant-based alternative products. Beyond Meat, for example, experienced a jump in share price of around 49% in April. As a result, venture capitalists have been seen to be investing great sums of money into smaller companies, involved in this industry and the plant-based meat and dairy industry is on track for great expansion.
Significant M&A Deals
Victoria Group/Sojaprotein
Completion Date: August 2019
Acquirer: Victoria Group a.d
Target: Sojaprotein a.d
Value: £5 Million
Cash or Stock: Stock Equity
Rationale:
This additional investment by Victoria Group increased their holdings in Sojaprotein by 1.29%, which escalates their total shareholdings to 90.38% of the company.
Victoria Group has a historical focus upon the agricultural sector and Sojaprotein is the largest soybean processing factory in Serbia and is considered one of the more important cultivators in Central and Eastern Europe.
Cranswick/Katsouris Brothers
Completion Date: July 2019
Acquirer: Cranswick Plc
Target: Katsouris Brothers Ltd
Value: £51 Million
Cash or Stock: Cash Equity
Rationale:
This acquisition helps to improve existing product offerings in various plant-based product categories.
Katsouris Brothers is a leading supplier of Continental and Mediterranean food products and Cranswick Plc feels their emphasis upon non meat products will award great growth opportunities for this company.
Midsona AB/Ekko Gourmet AB
Completion Date: July 2019
Acquirer: Midsona AB
Target: Ekko Gourmet AB
Value: £52 Million
Cash or Stock: Cash Equity
Rationale:
Like others, Midsona sees this market as rapidly growing and feels that this acquisition will strengthen their position in the frozen vegan product category.
Midsona believes that their strong distribution network will be very beneficial to the widespread sale of their product offerings.
Absolem Health/One Up Pure Energy
Completion Date: September 2019
Acquirer: Absolem Health Corp.
Target: One Up Pure Energy Inc.
Cash or Stock: Cash Equity
Rationale:
Absolem Health believes the plant-based, health focused snack market is a high growth sector.
Similarly, Absolem feels that One Up Pure Energy’s focus upon the benefits of mushrooms in their offerings provides another outlet for growth as greater research is aimed toward the positive impacts of mushroom consumption.
Goode Partners LLC/Strong Roots
Completion Date: August 2019
Acquirer: Goode Partners LLC
Target: Strong Roots
Value: $18 Million Series A Investment
Cash or Stock: Cash Equity
Rationale:
Strong Roots is considered, by Goode Partners, to be the fastest growing food and beverage brand in the UK, having their products offered in every major retail outlet.
With the brands recent expansion into 3,000 US stores, the firm feels Strong Roots provides constructs for growth.