Plant-based food stocks Beyond Meat, Oatly face a reset

Plant-based food stocks Beyond Meat, Oatly face a reset

Shown in this photo image is Oatly’s oat milk on May 20, 2021 in Chicago, Illinois.

Scott Olson | Getty Images

Wall Street seems too acidic about plant-based substitutes.

Shares in Beyond Meat and Oatly have lost more than half their value this year. The stocks are both high profile and relatively new entrants to the public markets, prone to large jumps and sharp falls in value, volatility that has only been exacerbated by broader market swings and pressure from short sellers.

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

Industry experts say the declines could mean an inevitable market shakeout as investor optimism meets reality.

After years of increasing sales, consumer interest in meat alternatives is waning. In the 52 weeks ended April 30, retail sales of plant-based meat were roughly flat compared to the same period last year, according to data from Nielsen. Total volume of meat substitutes has fallen 5.8% over the past 52 weeks, market research firm IRI found.

“We’ve seen this in a lot of categories taking off in the past. They have a cleanup period,” Kellogg CEO Steve Cahillane said on the company’s earnings call in early May.

Kellogg owns Morningstar Farms, an established player in the plant-based products category with 47 years of grocery store experience. Morningstar is the top seller for meat alternatives with a dollar share of 27%, according to IRI data. Beyond follows in second place with 20% of the dollar share, and Impossible Foods follows in third place with 12%.

“The race for size, the race for market share, the race for revenue growth and customer retention over time is going to happen,” Chris DuBois, senior vice president of IRI’s protein practice, said at a panel presented by Food Business News on Thursday.

downward spiral

The early days of the pandemic spurred demand for plant-based substitutes as home-cooking consumers sought new options. Many were trying plant-based beef, chicken or sausage for the first time and kept buying it, even if they weren’t vegetarian or vegan. Category sales were already growing rapidly before the crisis, but accelerating at an even faster rate.

Businesses and investors alike are betting consumers would continue to eat meat alternatives and drink milk substitutes like Oatly’s oat-based drink, even as Covid fears ease and lockdowns lift.

“If you look at about a year ago, there was tremendous excitement and enthusiasm around herbal products to the point that it attracted a lot of speculative dollars and investment. We’ve seen the multiples and the reviews go very enthusiastic – that’s the most polite way to put it,” said Michael Aucoin, CEO of Eat & Beyond Global, which invests in plant-based protein companies.

Oatly, for example, debuted in the U.S. public markets in May 2021 with an opening price of $22.12 per share, giving the company a $13.1 billion valuation despite being unprofitable. At Friday’s close, shares of Oatly were trading at $3.71 per share, pushing the market cap down to about $2.2 billion.

Beyond stock has had an even more dramatic run. It debuted in public markets in May 2019 at $46 per share and skyrocketed in the months thereafter, reaching an all-time high of $234.90 on July 26 of this year, giving it a 13th market cap grossed $.4 billion. The stock closed Friday at $31.24 per share with a market value of under $2 billion.

Investor enthusiasm has made it relatively easy for plant-based companies to raise money, either through the public or private market, in recent years, Aucoin said. In 2021, the plant-based protein category saw $1.9 billion in invested capital, nearly a third of the $1.00 invested in the category since 2010, according to trade group Good Food Institute.

The companies then invested much of that funding in marketing to entice consumers to try their herbal products. The arena also grew crowded as traditional food companies and new startups began chasing the same growth. Tyson Foods, a former investor in Beyond, launched its own plant-based line. So did fellow meat processing giants JBS and Cargill.

“They also saw an irrational exuberance in the category and the entry of many, many new players that took up a lot of shelf space, required a lot of tries, not always the highest quality offers to be honest,” Cahillane told analysts of Kellogg’s earnings call.

flatlining sales

The turning point came in November, when Maple Leaf Foods sounded the alarm that growth in its plant-based products was slowing, Aucoin said. The Canadian company bought plant-based brands Field Roast, Chao and Lightlife in 2017 as an entry into the fast-growing category.

“Over the past six months, there has been an unexpected rapid slowdown in the growth rates of the plant-based protein category. Of course, our performance suffered in the middle. But the more worrying facts are rooted in category performance, which is basically flat,” Maple Leaf CEO Michael McCain told investors when it announced its third-quarter results in November

Company executives said Maple Leaf will review its herbal portfolio and strategy.

Less than a week after Maple Leaf’s warning, Beyond Meat disappointed investors with its own lackluster results, even after warning of weaker sales a month earlier. Beyond has attributed it to a number of factors, such as the rising delta variant of the Covid virus and distribution issues, but business has yet to recover.

Beyond’s first-quarter results, released on Wednesday, marked the third straight reporting period in which the company posted bigger-than-expected losses and disappointing earnings.

Beyond Meat CEO Ethan Brown told analysts Wednesday that the company’s underperforming was due to four factors: softness across the plant-based category, a consumer shift from refrigerated to frozen meat alternatives, higher discounts, and increased competition.

Competition has also put pressure on Oatly. The oat milk category in the US continues to grow, but Oatly is losing market share as larger-scale companies release their own versions. Planet Oat from dairy company HP Hood recently overtook Oatly as the leading producer of oat milk in the US

chances ahead

The slowdown isn’t hitting every herbal manufacturer. Impossible Foods said in March that its retail revenue rose 85% in the fourth quarter, driven by expansion into new grocery stores. The company is privately held and as such is not required to publicly disclose its financial results.

But the upheaval has weighed on Impossible in other ways, too. Reuters reported in April 2021 that Impossible was in IPO talks and was targeting a $10 billion valuation, about $1.5 billion above Beyond’s market value at the time. But the company never filed a prospectus, instead raising $500 million from private investors in November with an undisclosed valuation.

Josh Tetrick, CEO of JUST Egg, which accounts for about 95% of U.S. egg replacement sales, told CNBC he sees a lot of growth ahead.

Sales of egg substitutes have remained roughly flat for the 52 weeks ended April 30, according to Nielsen data, but Tetrick sees an opportunity to increase consumer awareness and the number of restaurants that have its egg substitute on their menus. to increase.

Aucoin is confident that consumer interest in plant-based alternatives will increase and eventually bring back investor optimism in the category, albeit not to the same extent as it did in its heyday.

“There will be a market shakeout as money isn’t as readily available, but I think we’ll see some real winners and strong companies emerge,” Aucoin said.

The industry could soon see brand consolidation as the meat alternatives category hits $1.4 billion in annual sales, RI’s DuBois said. Together, Morningstar Farms, Beyond, and Impossible account for nearly 60% of dollars spent on meat substitutes.

“I think over the next year you’re going to see the real leaders emerge or something,” DuBois said.

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