Plant Food Stocks In addition to meat, Oatly is experiencing recovery

Plant Food Stocks In addition to meat, Oatly is experiencing recovery

In this photo, oat milk appears on May 20, 2021 in Chicago, Illinois.

Scott Olson Getty Images

Wall Street seems to be flooding with plant-based substitutes.

Shares of Beyond Meat and Oatly have lost more than half their value this year. Shares are both high-profile and relatively recent entering public markets, prone to big jumps and sharp declines in value, volatility only exacerbated by wider market fluctuations and pressure from short sellers.

Beyond Meat trades 87% below all-time highs and Oatly, which will celebrate its first anniversary as a public company on Friday, trades more than 80% below its debut price.

Industry experts say the cuts could signal an inevitable upheaval as investor optimism meets reality.

After years of rising sales, consumer interest in meat alternatives is declining. Retail sales of vegetable meat were about unchanged in the 52 weeks ended April 30 compared to last year, according to Nielsen. Total volume of meat substitutes has fallen by 5.8% in the last 52 weeks, according to market research firm IRI.

“We have seen this in many categories in the past that are taking off. They have a recycling period,” Kellogg CEO Steve Cahillane said in early May in the company’s call for profits.

Kellogg owns Morningstar Farms, a former plant plant player with 47 years in the grocery store. Morningstar is the top seller of alternative meat products, with a 27% share in dollars according to IRI data. Beyond is in second place with a share of 20% in dollars and Impossible Foods is in third place with 12%.

“The struggle for scale, the struggle for market share, the struggle to increase sales and retain consumers is going to happen over time,” said Chris DuBois, senior vice president of protein at IRI. panel presented by Food Business News on Thursday. .

Downturn

The first days of the pandemic led to a surge in demand for plant-based substitutes as home-cooked consumers looked for new options. Many people first tried beef, chicken or vegetable sausage and continued to buy it, even if they were not vegetarians or vegans. Category sales were already growing rapidly before the crisis, but accelerated with even faster clips.

Companies and investors are betting that consumers would continue to eat alternative meats and drink milk substitutes, such as Oatly oatmeal drink, even when fears of Covid were reduced and lockdowns lifted.

“If you look about a year ago, there was a lot of buzz and excitement around the plants, to the point that it attracted a lot of speculative dollars and investment. We saw multiples and valuations get very enthusiastic – that’s the kindest way to say it.” , said Michael Aucoin, CEO of Eat & Beyond Global, which invests in vegetable protein companies.

Oatly, for example, debuted in US public markets in May 2021 with 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 were trading at $ 3.71 a share, reducing market capitalization to about $ 2.2 billion.

Beyond stock had an even more dramatic course. It made its public market debut in May 2019 at $ 46 per share and soared in the following months, reaching a record high of $ 234.90 on July 26 of that year, giving it a market capitalization of $ 13.4 billion. dollars. The stock closed at $ 31.24 per share on Friday, with a market capitalization of less than $ 2 billion.

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

Companies then plowed many of these funds into marketing to encourage consumers to try their herbal products. The arena also filled more and more as traditional food companies and start-ups began to pursue the same growth. Tyson Foods, once an investor in Beyond, has launched its own line of plants. The other meat processing giants JBS and Cargill did the same.

“You also saw a lot of absurdity in the category and the entry of many, many new players, who took up a lot of space on the shelf, did a lot of testing, not always the highest quality offers, to be honest with you,” Cahillane said. analysts at Kellogg Profit Call.

Leveling sales

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

“In the last six months, unexpectedly, there has been a rapid slowdown in the growth rate of the plant protein category. Of course, our performance has suffered in the middle of this. But the most worrying data have their roots in the yield category, which is basically flat. Said Maple Leaf CEO Michael McCain to investors during the company’s third-quarter earnings call in November.

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

Less than a week after Maple Leaf was warned, Beyond Meat disappointed investors with its own innocent results, even after warning of lower sales a month earlier. Beyond took into account a number of factors, such as the growing delta variant of the Covid virus and distribution problems, but its business has not yet recovered.

The results of the first quarter of Beyond, published on Wednesday, marked the third consecutive reporting period in which the company recorded larger losses than expected and disappointing revenues.

Beyond Meat CEO Ethan Brown told analysts in a phone call Wednesday that the company’s poor performance was due to four factors: softness in the overall plant product category, a shift from alternative refrigerated meats to frozen, higher discounts and competition.

The competition has also put pressure on Oatly. The oatmeal category in the US continues to grow, but Oatly is losing market share as larger players release their own versions. Dairy company HP Hood’s Planet Oat recently surpassed Oatly as the leading oat milk company in the USA

Opportunities ahead

The slowdown does not affect all plant growers. Impossible Foods said retail revenue for the fourth quarter rose 85 percent in March, boosted by its expansion into new grocery stores. The company is private, so it does not need to disclose its financial results publicly.

But overthrow has burdened the Impossible in other ways. Reuters reported in April 2021 that Impossible was in talks to go public, aiming for a valuation of $ 10 billion, about $ 1.5 billion higher than Beyond’s market value at the time. However, the company never submitted a newsletter, instead raising $ 500 million from private investors in November in an unknown valuation.

Josh Tetrick, CEO of JUST Egg, which accounts for about 95% of U.S. surrogate egg sales, told CNBC he sees great growth in the future.

Egg substitute sales are near steady for the 52 weeks ended April 30, according to Nielsen, but Tetrick sees an opportunity to raise consumer awareness and increase the number of egg substitute restaurants on their menus.

Aucoin is convinced that consumer interest in plant-based alternatives will increase and will eventually restore investor optimism in the category, though not to the same degree as its heyday.

“There will be turmoil as money is not so readily available, but I think we will see some real winners and strong companies emerge,” Aucoin said.

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

“I think in the next year, you’ll see real leaders emerge,” DuBois said.

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