The meatless trend is sizzling hot, as plant-based burgers take the world by storm. But is this a passing fad or megatrend with long-term implications for Big Food and CPG?

Beyond Meat ’s (BYND) IPO is the biggest newsmaker. On May 2nd, BYND began trading on the Nasdaq exchange; the first trade was at $46 which was 84% above the IPO price. It closed its first day at $65.75, or 163% above its IPO price, making it the best performing first-day IPO in nearly two decades. Its shares have more than doubled from the IPO price of $25 each since they began trading, valuing the company at $3.9 billion or an astounding 44 times 2018 sales.

Meanwhile, rival Impossible Foods announced its rollout of Impossible Whoppers in 59 Burger King stores around the St. Louis, Missouri area. If the launch succeeds and goes nationwide, more than 7,000 restaurants will be added to those that currently serve Impossible Burgers. The company markets exclusively to restaurants ranging from fast-food chains like White Castle to upscale spots like Momofuku Nishi in NYC.

Growth for both Beyond Meat and Impossible Foods has been explosive – with no signs of slowing down.

It’s not surprising then that other restaurant chains, food conglomerates, and meat packers have jumped on the bandwagon. McDonalds Corp. is selling soy-based burgers in Finland and Sweden. Tyson Foods had a stake in Beyond Meat but exited before the IPO (due to rumored competitive tensions as Tyson is developing its own plant-based protein products and has a stake in Memphis Meats.) Nestle S.A. is planning to debut its Incredible Burger soon in Europe. And Unilever Plc late last year acquired The Vegetarian Butcher to build out its plant-based portfolio.

What does this meatless frenzy mean? 

Plant-based and organic foods in general have been booming. As market demand has grown, manufacturers and retailers have moved aggressively to capture their share.

Plant-based meat is following the footsteps of plant-based dairy, one of the most successful categories. Supermarket shelves are almost too crowded now with ‘mylks,’ yogurts, cheeses, and ice creams made from nuts, seeds, oats, and plants.

Meat is an even bigger category. According to Nielsen data cited by Bloomberg, supermarket sales of meat alternatives jumped 19.2% to $878 million for the year ending Jan. 5. Allied Market Research anticipates the global meat substitutes market will hit $5.2 billion in 2020.

But the excitement is not about plant-based protein like tempeh and tofu which have been around for years. It’s about meatless meat that tastes, smells, looks, and cooks up like the real thing.

Beyond Meat and Impossible Foods burgers even ‘bleed’ like real burgers. Both companies intentionally created burgers that meat eaters would love, and the strategy has worked. 93% of customers at supermarket chain Kroger who bought Beyond Burgers during the first half of last year also bought animal protein during the same period, and about three-quarters of Impossible Foods customers eat meat as well. ‘Flexitarians’ and Millennials are leading the charge.

So, instead of competing in the $3.3 billion vegetarian market, these plant-based producers are competing in the $1.4 trillion global meat industry with giants such as Tyson, Cargill, Hormel and JBS. While the startups are ahead now, big players aren’t sitting still. It won’t take long for meatless products to flood the market.

The question is which companies will win long term – and how.

What Big Food can learn from Beyond Meat and Impossible Foods

One of the most remarkable aspects of both companies’ success was their ability to envision and transform an ordinary hamburger into a sensation. Both companies invested heavily in R&D to create proprietary formulas that can not be easily copied. They both identified their customer bases’ clearly and found an untapped niche – the non-vegetarian that wants to occasionally eat plant-based, healthy, and eco-friendly food. They both appeal to socially-conscious consumers but there’s no self-righteousness. The burger is fun, it’s tasty – and happens to be good for the planet. Some even call Impossible Burger the “Tesla of food.”

Most importantly, both companies have ambitious growth plans and continue to innovate. In the last year, Beyond Meat expanded to more than 35,000 restaurants, grocery stores, universities, hotels, and stadiums. It also built a 26,000-square-foot R&D lab dedicated to diversifying its product portfolio. The company plans to expand globally as well.

The growth opportunity is further outlined in Beyond Meat’s IPO prospectus (S1):

Research, development and innovation are core elements of our business strategy and we believe they represent a critical competitive advantage for us. Through our Rapid and Relentless Innovation Program, our team of scientists and engineers focuses on making continuous improvements to our existing product formulations and developing new products across our plant-based beef, pork and poultry platforms.

Rapidly growing sales of our products by both our retail and restaurant partners have helped us foster strong relationships in a relatively short period of time. We provide our retailers with exciting new products in the meat case, where innovation rarely occurs.

The comment about innovation rarely happening in the meat case is probably why, as Wall Street Journal put it, “conventional food companies like Kraft Heinz and Campbell Soup have floundered, [and] investors are being left hungry for new ideas in the food aisle. Beyond Meat satisfies.”

Continuous innovation is where the biggest opportunities and challenges lie.

Bottom line

In our view, the investment community’s enthusiasm over Beyond Meat signals an important megatrend – but it’s not clear that Beyond Meat will be the long-term winner.

Profitability, supply chain risks, and increased competition are major challenges.

The company has yet to turn a profit. Its price point may not be sustainable. (Will fast-food customers pay more for vegan meat once the novelty wears off? We think not.)  Customers are fickle – especially in the restaurant world. And while investors are smitten with Beyond Meat, consumers are the true arbiters.

What Wall Street is excited about is the growth potential. There’s an enormous untapped opportunity for healthy, socially-conscious and environmentally friendly food – and other products – that feel like indulgences vs ‘earthy, crunchy.’

We’re keeping an eye on the startups but placing bets that Tyson and other big players with deeper pockets and established distribution channels will shake things up. We expect to see more mergers and acquisitions as well as fierce competition.

We also expect to see market fragmentation at the high end, low end, and in between – grocery stores, Big Box, online versus restaurants, fast food chains and other venues. Copycat products won’t cut it though. Those that enter the market need to choose their niche and cater to it.

The winners will be those that can deliver a stream of superior products that strike a chord with consumers, not just one-hit wonders.

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