Global stock markets have rebounded by roughly 30% after their dramatic collapse in March when investors panicked at the spread of the Coronavirus.
However, investors should not be complacent. The buoyancy may be short-lived as markets reopen to dwindling sales and stressed consumers in a shrinking global economy. Increasingly companies like Disney, cruise operator Carnival Corp and events promoter Live Nation are reporting discouraging financial results and warn of the economic damage being caused by the pandemic.
Of interest are the companies flourishing in this uncertain world, the tech giants and e-commerce companies among them.
One surprise winner is Beyond Meat, the provider of plant-based protein that looks and tastes like beef.
The demand for plant-based proteins has been growing slowly but steadily as consumers add vegan or vegetarian meals to their diet to reduce meat consumption and make healthier choices.
However, the popularity of plant-based meat exploded beyond expectations in March, with sales surging 206% in the first week of March and by 279% two weeks later, according to Nielsen.
This was thanks to Covid-19 which has thrown the traditional meat industry into a tailspin. Many of the US’s meat producers have had to shut down facilities owing to workers being infected or exposed to the virus.
Market concentration has not helped. Two-thirds of US beef production and a large percentage of pork and chicken processing is in the hands of four producers, namely Tyson Foods, JBS SA, Cargill and Smithfields, which means supply chain disruptions are magnified.
“The issue is not limited to production as outbreaks across the value chain, including distribution, have caused bottlenecks in supply,” says Sameer Singh, research analyst at Old Mutual Wealth Private Client Securities.
As a result, fast food chains like Wendy’s are running out of hamburgers and supermarkets are limiting the amount of beef and pork mince that customers can buy in some areas.
The fact that the virus is believed to have emanated from a wet-meat market in Wuhan, China has also alarmed meat-eaters who are becoming more aware and critical of the potential health-related risks associated with the sources of their meat, meat production processes and meat consumption.
Last week the CEO of JBS, the largest beef producer in the US, said the impact of the coronavirus will be felt across the meat industry for months.
This means it is open season for plant-based food producers, who are racing to fill the gaps at fast-food vendors and on supermarket meat counters.
The global meat sector was valued at $945.7-billion in 2018 and was forecast to increase to $1.1-trillion by 2023, according to Statista.com.
Companies like Beyond Meat, Impossible Foods and Tofurky Co. have ramped up production, discounted their products to appeal to more consumers and expanded into more stores.
In May, Beyond Meat reported strong first-quarter results, with revenue up and profits increasing as it scales its operations.
“Alternative protein companies have been trying to persuade beef-eating consumers of the benefits of plant protein for years,” says Singh. “Now, meat shortages caused by the pandemic may make their job a whole lot easier.”
The idea of plant-based proteins is nothing new — as tofu and tempeh, both soy-based — have been Asian diet staples for over two millennia.
“What makes this new wave of alternative proteins different is that they are being made to taste like meat, are being marketed to meat-eaters (as opposed to vegans), and aim to replace a percentage of real meat purchases,” he says.
Also in an environment of heightened change, consumers are more willing to try alternatives to stand in for their normal consumption habits.
“If the real experience of these alternative meat products exceeds expectations, there is strong potential to shift consumption habits,” he says.
Byron Lotter, portfolio manager at Vestact is an investor in Beyond Meat, and while global trends are supportive of the rise in plant-based products, he urges caution.
“The industry is still in very early stages and I wouldn’t advise investing in the stock unless you have a very high tolerance for volatility,” he says. “Since I’ve owned it, about four months, it has halved and then moved all the way back to where I bought it.
“The environmental impact of meat, especially beef, is hard to ignore and it is something we as consumers actually have control over. I think this mindset will grow and more people around the globe will adopt a plant-based diet.”
The success of these businesses will largely depend on their products’ promise and ability to be true meat alternatives. By most accounts, they have been successful. The two other legs to this tripod of success are pricing and availability.
To sustainably compete, plant-based producers will need to price attractively relative to real meat as well as become as available as a fast-food burger or grocer-purchased frozen pack.
Beyond Meat has been explicit in its intention to ramp up production and aggressively price relative to real meat during this time, in order to further penetrate the market and win over customers.
Impossible Foods recently penned an agreement with US grocery retailer Kroger which will see their flagship burgers sold across all of Kroger’s US stores. This is in addition to their products being sold across 15,000 restaurants around the world, ranking them No 4 among America’s fastest-growing brands.
The global meat sector was valued at $945.7-billion in 2018 and was forecast to increase to $1.1-trillion by 2023, according to Statista.com. “Penetrating this market with a low single-digit share would provide sufficient profit incentive for continued investment and expansion,” says Singh.
What these start-ups have shown is that consumers are appreciative of variety and choice, that the status quo is being challenged, and that incumbents can be disrupted. BM