Vegetarian food stocks ‘Beyond Meat’, Oatly faces a reset

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

Scott Olson | Getty Images

Wall Street seems to be looking for vegan alternatives.

Shares of Beyond Meat and Oatly have lost more than half their value this year. Stocks are relatively high-profile recent entrants to the general markets, prone to large jumps and sharp drops in value, volatility only exacerbated by broader market volatility and pressure from short sellers.

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

Industry experts say the dips could be an inevitable jolt as investor optimism meets reality.

After years of soaring sales, consumer interest in meat alternatives is waning. Retail sales of plant-based meats were roughly flat in the 52 weeks ending April 30 compared to the same period last year, according to Nielsen data. Market research firm IRI found that the total volume of meat substitutes has declined by 5.8% over the past 52 weeks.

“We’ve seen this in many categories in the past that are starting to emerge. They have a period of change,” Kellogg CEO Steve Cahillan said in early May on the company’s earnings call.

Owns Kellogg Morningstar Farms, a longtime player in the plants category with 47 years in grocery stores. Morningstar is the best-selling meat alternative, with a 27% share of the dollar according to International Research Institute data. It’s second only with 20% dollar share, and Impossible Foods comes in third with 12%.

“The race for size, the race for market share, and the race for sales growth and consumer retention over time is going to happen,” said Chris Dubois, senior vice president of protein practice at IRI, in a panel presented by Food Business News Thursday. .

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The early days of the pandemic led to a high demand for plant-based alternatives as home cook consumers looked for new options. Many try vegan meats, chicken, or sausages for the first time and keep buying them, even if they’re not vegetarian or vegan. Category sales were already growing rapidly before the crisis, but they picked up even faster.

Companies and investors alike are betting that consumers will continue to eat meat alternatives and drink milk alternatives, such as the oat-based Oatly, even as Covid concerns ease and lockdowns lift.

“If you look back about a year ago, there was a huge amount of excitement and enthusiasm around vegan products, to the point that they attracted a lot of dollars and speculative investments. We’ve seen multipliers and valuations are very enthusiastic — that’s said Michael Aucoin, CEO of Eat & Beyond Global, which Investing in plant-based protein companies, it’s the most polite way to say it.

For example, Oatly appeared on US public markets in May 2021 at 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 shares are trading at $3.71 per share, bringing its market value down to about $2.2 billion.

The Beyond Arrow’s journey has been even more dramatic. It debuted on the public markets in May 2019 at $46 per share and rose in the following months, reaching an all-time high of $234.90 on July 26 of that year, giving it a market value of $13.4 billion. The stock closed Friday at $31.24 per share, with a market capitalization of just under $2 billion.

Aucoin said investor enthusiasm has made it relatively easy for plant-based companies to raise money in recent years, either through public or private markets. In 2021, the plant-based protein category saw $1.9 billion in invested capital, nearly a third of the dollars invested in this category since 2010, according to the Good Food Institute trade group.

The companies then invested a lot of that money in marketing to get consumers to try their vegan products. The arena was also getting crowded as traditional food companies and new start-ups started chasing the same growth. Tyson Foods, a one-time investor in Beyond, has launched its own vegan line. So did his fellow meat processing giants JBS and Cargill.

“I’ve also seen an irrational abundance in the category and many, many new players coming in, which has taken up a lot of shelf space, and it took a lot of experimentation, and not always high-quality performances, to be honest with you,” Cahillan said. Analysts on a Kellogg earnings call.

Flat line sales

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 botanical 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 slowdown in the growth rates of the plant-based protein category. Of course, our performance suffered in the middle of this. But the most worrisome set of facts are rooted in the category,” Maple Leaf CEO Michael McCain told investors on an earnings call. The company’s third quarter in November

Company executives said Maple Leaf will review its plant-based portfolio and strategy.

Less than a week after Maple Leaf’s warning, Beyond Meat disappointed investors with its lackluster results, even after warning of weak sales the previous month. Beyond that, he put it back on a combination of factors, such as the increasing delta variable of the Covid virus and distribution problems, but its business has yet to recover.

After its first-quarter results, released on Wednesday, it was the third consecutive reporting period in which the company posted larger-than-expected losses and disappointing revenue.

Ethan Brown, CEO of Beyond Meat, told analysts on a call Wednesday that the company’s weak performance stems from four factors: softness in the overall plant-based category, a consumer shift from refrigerated meat alternatives to frozen alternatives, increased discounts and increased competition.

Likewise, competition pressured Otley. The American oat milk category continues to grow, but Oatly is losing market share as bigger players release their own versions. Dairy company HP Hood’s Planet Oat recently overtook Oatly as the largest producer of oat milk in the United States.

Upcoming opportunities

The slowdown does not affect every plant. Impossible Foods said in March that fourth-quarter retail revenue rose 85%, buoyed by its expansion into new grocery stores. The company is privately owned, so it does not have to publicly disclose its financial results.

But the turmoil affected the impossible in other ways. Reuters reported in April 2021 that Impossible was in talks to go public, with a goal of valuing $10 billion, about $1.5 billion above Beyond’s market value at the time. But the company never filed for a prospectus, and instead raised $500 million from private investors in November in an undisclosed valuation.

Josh Tetrick, CEO of JUST Egg, which accounts for about 95% of sales of egg substitutes in the United States, told CNBC that he sees a lot of growth going forward.

Egg substitute sales were nearly flat over the 52 weeks ending April 30, according to Nielsen data, but Tetrick sees an opportunity to boost consumer awareness and the number of restaurants that have egg substitute on their menus.

Aucoin is confident that consumer interest in vegan alternatives will grow and eventually rekindle investor optimism in this category, although not as much as it was at its peak.

“There will be a jolt because the money is not readily available, but I think we will see some real winners and strong companies emerge,” Aucoin said.

RI’s Dubois said the industry could see brand consolidation soon once the meat alternatives category closes at $1.4 billion in annual sales. Morningstar and Beyond and Impossible Farms together account for nearly 60% of the dollars spent on meat alternatives.

“I think over the next year you will see the emergence of real leaders or so,” Dubois said.

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