Are meat alternatives the wave of the future? It remains to be seen.

By Jonathan DeVito, Principal | jdevito@pivitasresarch.com

 

Beyond Meat and Impossible Foods are generating enormous amount of press. Not only do these brands feature socially conscious narratives, they also closely align with “innovation” driven mantras that have come to define the modern business zeitgeist.

However, while plant-based alternatives to meat get a lot of attention, are these products actually the wave of the future?

The answer isn’t exactly clear. Meat consumption has actually outpaced population growth on a global level for over 50 years. This could mean that meatless alternative products could have a growing market from which they can take share. However, there tends to be a gap between consumers’ desire for healthy, sustainable products, and what they are actually willing to pay. Moreover, products with a social-driven narrative often face growth challenges once they become too big to be trustworthy.

The following article attempts to move beyond the consensus effect and offers an in-depth analysis of factors that may affect the future of meat alternatives.

People like meat. A lot.

The first thing to get straight is that people still like meat. A lot. Meat consumption per capita hit a record high in the US in 2018 on a per capita basis and global meat consumption has grown nearly 3% annually since 1960, while population growth has been slightly above 1% (more on that here). To put some of the numbers into clearer perspective, there were 326 million people living in the United States in 2017. In that same year, the US processed 9 billion, billion with a “B”, chickens.

It’s probably safe to say that aversion to meat consumption, or people losing their taste for meat, is going to be a reason for consumers to switch to meat alternatives. Players in the space are probably aware of this. For example, in Beyond Meat’s S-1, they note the statistic that only 5% of Americans are vegetarian or vegan. I’ve probably conducted between 7,000 and 10,000 in-depth research interviews in my career, with a large chuck of these being focused on the food industry, and this statistic seems to echo what I’ve heard over the years.

Since people losing their desire to eat meat isn’t going to be a driver, the play in this market is probably conversion of existing meat consumption (targeting “flexitarians”). Specifically, players seem to be banking on the idea that people will be attracted to these products due to environmental benefits and/or health reasons.

These products may actually offer environmental and/or health benefits, but from a business standpoint, the bigger question is whether or not these attributes will resonate with consumers.

In the long run, it’s going to be an uphill battle.

There may be a subset of consumers that is hyper-focused on environmental sustainability and/or health, but generally speaking, most consumers don’t seem to be willing to actually pay more for these attributes. This dovetails with my overall prediction that the food retailing industry will be reshaped by deflationary pricing pressures over the upcoming years. Recycling some data from a previous article on better-for-you (BFY) foods, below is a visual from a MorningConsult study assessing the relationship between product attributes and consumers’ willingness to pay more based on those attributes.

 

There is also the question of whether or not clean-label is leading to consumer de-sensitization. The food landscape may be inundated with labelling claims to the point where being “clean label” may simply be a basic expectation. Arguably, this happened with hydrogenated oils. It became a given that any self-respecting brand had to be free of artificial trans fats long before the FDA labelled partially hydrogenated oils as being unfit for human consumption. In short, being trans fat free stopped being a differentiator.

It remains to be seen how much of the plant-alternative revolution is a fad. Going back to the Beyond’s S-1, it is stated that 93% of Beyond buyers at Kroger also purchased regular meat. This might seem to indicate that Beyond has the ability to take share from regular meat consumption. What this statistic doesn’t reveal is how many times these consumers bought Beyond products. How many of these consumers will continuously buy Beyond products, that’s the question. Is this product a novelty? Perhaps that’s the more important question.

What is the size of the opportunity?

Growing meat consumption may be a good thing for plant-based meat alternatives. The path to growth for plant-based meat alternatives will likely be share conversation. As meat consumption grows, meat alternatives may be able to take share from an increasingly large market.

In theory, the sheer size of the meat industry, and its growth, make the opportunity look attractive. However, identifying a market is one thing. Attaining share is another.

One issue at play is that optics might be driving corporate decision making more than reality. If one thinks about where major corporate and investment decisions are made, it’s typically in places where people have large amounts of expendable income. Think New York, Los Angeles, Chicago, San Francisco, etc. If someone is an executive living in an expensive metropolis, that person is probably surrounded by colleagues and neighbors that can easily afford to spend over $12 on a pound of Beyond meatless ground beef burgers. A low-income consumer living outside of a major metro area probably is going to stick with $4 a package of regular beef patties. In fact, according to the Bureau of Labor Statistics, (BLS) in 2018, 75% of households had an income of $79,542 or less (and that’s households not necessarily individuals). What an executive in a high-priced urban area can afford probably differs vastly from the “average” American consumer. On top of all of this, consumers appear to have adopting increasing price sensitivity as regards CPG products over the past few decades. This is evidenced by growing private label share, grocery spending shifting towards supercenters and warehouse stores, and the food at home (FAH) inflation rate consistently trailing the overall Consumer Price Index (CPI).

 

A 10-year snapshot of ground beef prices. Source: Bureau of Labor Statistics (BLS)

 

 

It may be worth wondering if the hype around meat alternatives is more of a function of pretentious cosmopolitan decision making than actual reality.

And justifying high prices with adept marketing can only do so much. I’ve previously praised the way Chobani has used its marketing narrative to preserve margins and gain market share. Chobani commands a 30% premium over comprable private labels and is not the biggest yogurt firm in the US. However, Chobani being 30% more expensive than competing private labels is considerably different than Beyond Burgers being 300% of the price of regular beef burgers. There is simply a bigger gap to bridge.  On top of all of this, Chobani doesn’t need to overcome the perception of being a “substitute”. Chobani isn’t “beyond” or “impossible” yogurt. It’s actual yogurt.

Will meatless brands be able to avoid the headwinds that established brands have experienced?

For the sake of argument, let’s assume that meatless brands take food consumption by storm. Will these brands be able to avoid recent challenges affecting branded players in CPG? Specifically, will they be able to outmaneuver private label competition and maintain consumer confidence as they scale?

The short answer is it’s going to be tough.

It’s hard to defend your turf in the food industry. On the one hand, emerging meat-less firms may be able to leverage their first to market positions to muscle future competitors out of the market. Agressive manipulation of the market may work in the short term, but probably not for the long haul. The problem is that growth in itself may be a headwind. In the banking industry, some businesses are “too big to fail”. In the food industry, some firms are “too big to win”. This is because becoming big tends to detract from the ability to maintain intimate relationships with consumers. The vast majority of Americans distrust big business and many brands succeed because they are small and have a local or regional following.

Also, competition may not just come from other “food” companies. When it’s time to get in on a going thing, sometimes your friends become your enemies. Competition may come from existing retail and distributor partners. Growth may make meatless market share an attractive target for private labels.  For example, Beyond is already a premium-priced product, so the traditional private-label play of replicating a product and slashing prices may be extraordinarily effective. For more on the dynamics driving private label, see a recent article on private label trends.

Emerging Technology.

I’ve tried plant-based meat alternatives. While their texture and appearance are moderately meat-like, they still don’t taste like meat. If they did, the choice for consumers (aside from price) would be a no-brainer. Who wouldn’t want something that tastes like the real thing without all the baggage?

An important question is how quickly will plant-based firms be able to create products that are so good that they drive real meat consumption into obsolescence? This could take a very long time meaning that the meatless revolution could be years in the making.

At the same time, other firms are emerging that have an even loftier end-game: the creation of lab grown proteins. It may be worth taking a look at the video below from the Wall Street Journal. These firms aren’t just experimenting with ground beef. One Israeli has actually started making lab-grown steaks.

How are meat alternative companies going to compete with firms that grow non-plant-based proteins? If lab-grown meat can catch up, it may allow consumers to have their meat and eat it too.

Final thoughts.

The meatless revolution is an interesting one. The meat industry is enormous and so is consumption. If substantial parts of the population were to gravitate towards meat alternatives, the rewards could be tremendous.

However, there are a number of questions… and concerns. While the total meat market is enormous, it is unclear if the actual addressable market for these products is of substantial size. Ultimately, this will become clearer as these products lose their novelty and attempt to establish themselves as permanent components of Americans’ grocery baskets. The other issue is that meatless brands may not be able to avoid the headwinds that have affected other CPG players. These challenges include private label competition, price deflation at retail, and being “too big to win”.

Also, let’s not forget that meatless alternatives are not new. For example, seitan and tofu have been mainstays at vegan restaurants for years. And yet these products have remained niche.

This article shouldn’t be taken as a let’s-rag-on Beyond Meat/Impossible Foods piece. It’s not. Long term increases in meat production will produce major environmental impacts and there is surely a business case for solving future problems. However, the hype surrounding meat alternatives may also be a function of overzealous executives seeking growth in an industry starved for innovation.

Will meat alternatives take share? Yes.

Will they take enough share to drive a meatless revolution? Unlikely (at least any time soon).

Will these products and firms absorb enough share to make them attractive businesses? That’s up to you to decide.


About the author:

Jonathan DeVito is a food industry analyst and Principal at PIVITAS. He works with food industry clients to help them make informed product, market, and growth strategy decisions. Jonathan maintains tactical industry expertise by spending weekends picking up restaurant shifts in Chicago.

FEATURED IMAGE SOURCE: Eugenia Petrovskaya/SHUTTERSTOCK.COM.