Follow The Money, Part 1: Current Trends In Plant-Based Investment
It’s all about bucks, kid. The rest is conversation.Gordon Gekko, Wall Street (1987)
Despite recent social-media flare-ups about the Impossible and Beyond burgers and how healthy or unhealthy they are, it’s clear we are witnessing a burst – if not a permanent shift – in consumer and corporate openness to meat alternatives. Large and small companies are racing to meet an apparently surging demand for plant-based products, while venture capitalists fuel high-tech innovations for the future. At the same time, there’s a small but growing number of options for professional and individual investors to more easily exclude factory farming concerns from their portfolios. Where these trends will lead and how many animal lives they will save are anyone’s guess. But it’s important for animal advocates to understand, at a level below the headlines, how traditional food companies, venture capitalists, and investment brokers are responding to and driving customer desires when it comes to alternatives to animal-based foods and factory-farming dividends.
Over the course of two blog posts, I’ll provide an overview of three investment/divestment movements:
- Development and sale of plant-based alternatives by traditional food companies (suppliers, retail brands, and restaurants)
- Investment in plant-based companies, start-ups, and innovations
- Options for divesting from companies that engage in factory farming
I’ll provide a summary of current activity, context for understanding the size and speed at which they’re growing, and insights, where available, about the stated motivations of those making the financial decisions.
I’ll end with my take on implications for animal advocates, both as individuals and as leaders and members of animal organizations.
Traditional Food Industry
Big meat producers are investing millions of dollars in plant-based protein products. As shown in the list below, nine of the ten largest meat producers in the U.S. have either bought existing plant-based food brands, launched their own, or entered into collaborations with plant-based companies. 2019 was very active among large meat producers for launches of new brands of vegetarian, plant-based, and blended products.
- JBS USA Holdings Inc.: Launched a line of plant-based burgers—the “Incredible Burger”—in Brazil under the Seara brand in May 2019. Currently (as of December 2019), JBS is posting a number of job openings for “PowerPlants Co.,” and describes the venture in this way: “The PowerPlants Company is a fully-funded plant-based protein start-up in Boulder County, CO. It’s an investment by the JBS Company, the world’s largest protein producer and the second-largest food company in the world. PowerPlants is growing its team and is looking for talented and driven professionals to be based in our new office anticipated to be in Louisville, CO or Lafayette, CO who will help build the best plant-based protein company in the world.”
- Tyson Foods Inc.: Has invested in several plant-based companies since 2016. In 2019 launched meat-free nuggets and blended meat-plant products under the Raised & Rooted and Aidells Whole Blends brands.
- Cargill Meat Solutions Corp.: Offers plant-based protein ingredients through a joint venture with PURIS (signed 2018). In 2019 invested in Aleph Farms, a start-up working on cell-based meat.
- SYSCO Corp.: Since 2018 has offered plant-based meatballs, patties, and ground bulk through their Sysco Simply brand. Is also a Beyond Burger distributor.
- Smithfield Foods Inc.: In August 2019 launched the Pure Farmland brand with eight initial products, including plant-based burgers, meatballs, breakfast patties, and vegan cheese.
- Hormel Foods Corp.: In March 2019, its Applegate brand launched a blended burger product, made from meat and mushrooms. In September 2019 Hormel launched the Happy Little Plants brand under its Cultivated Foods umbrella. The flagship product at this point is a ground meat alternative.
- National Beef Packing Co. LLC: No plant-based activity found.
- Perdue Farms Inc.: In June 2019 launched Chicken Plus, a line of “vegetable-enhanced” foods including chicken nuggets.
- OSI Group LLC: In July 2019 signed a co-manufacturing collaboration with Impossible Foods to produce Impossible Burgers at multiple OSI plants.
- ConAgra Foods Inc.: In 2018 bought the parent company of Gardein, a major line of meat-free foods, and Earth Balance, a plant-based product company.
One meat company, Maple Leaf Foods, a large meat producer headquartered in Canada, recently made expansion in the plant-based protein space their primary focus for growth. They announced in spring 2019 that they plan to spend over $300 million on a plant-based processing plant in Shelbyville, Indiana, which will be the largest of its kind in North America. Having bought the Field Roast, Chao, and Lightlife brands in 2017, Maple Leaf combined them this year to form a new company, Greenleaf Foods. Their market research suggests that the “hyper-growth” plant-based protein market will grow from $193 million in 2019 to $25 billion in 2029, the equivalent of 10-15% of the meat protein market.
There has been similar experimentation with plant-based offerings in the fast-food industry. This past year has been active for launches of new products, although some of the launches have taken place outside of the U.S., in other countries. Meanwhile, eight of the ten largest U.S. fast-food chains (based on number of locations) offer one or more plant-based entrée options.
- Subway: In September 2019 began offering plant-based meatball subs at 685 participating restaurants across the U.S. and Canada.
- McDonald’s: In September 2019 started testing a plant-based burger (P.L.T.) at locations in Canada.
- Starbucks: In 2017 began selling the Lentils & Vegetable Protein Bowl with Brown Rice. In the U.K., it offers a plant-based burrito and vegan mac and cheese.
- Pizza Hut: In April 2019 added vegan cheese and menu options to all U.K. locations.
- Burger King: The Impossible Whopper went nationwide in the U.S. in summer 2019.
- Dunkin’ Donuts: On November 6, 2019, rolled out a sausage breakfast sandwich made with Beyond Meat sausage to all Dunkin’ restaurants across the U.S.
- Wendy’s: Does not offer any plant-based entrées.
- Dairy Queen: Does not offer any plant-based entrées.
- Taco Bell: Offers the most plant-based entrée options of all major fast-food restaurants.
- Domino’s Pizza: Offers pizzas with nondairy cheese in Australia.
An indispensable (if lesser-known) part of the processed food industry is the market for “ingredient solutions,” which refers to components used to make thousands of packaged foods available in supermarkets. Plant protein, especially “pea-based protein isolates” (an isolate is a substance remaining after other components of the food—e.g., fat and carbs—have been cooked and filtered away), is on the rise among major ingredient suppliers. In August 2019, Ingredion, headquartered in Illinois, began construction of a new facility to produce pea-based protein. Large ingredient producers Cargill, Burcon, Cosucra U.S.A., Archer Daniels Midland, and Blue Diamond also offer, or soon will offer, plant protein bases for use in shelf-stable and frozen products.
These players—ingredient makers, meat producers, and fast-food restaurants—have every reason to invest in plant-based solutions, considering evidence of mounting demand from recent market studies. An excellent set of analyses by the Good Food Institute shows that sales of plant-based foods are growing significantly, while sales of traditional animal-based foods are growing slowly or in some cases decreasing. For example, sales of plant-based meat grew 9.6% in the year ending April 2019, versus animal meat’s growth of 2.2% over that same period. Plant-based milk sales grew 5.6% over the same period, while sales of dairy milk decreased by 3.2%. Dairy yogurt sales also decreased, at 3.5%, while plant-based yogurt sales increased by 39.1%.
While growth is high, plant-based meat sales currently account for only 1% of all sales of all retail meat. This mirrors the status of plant-based milk 10-15 years ago. Plant-based milk now accounts for 13% of all retail milk sales, a figure aligned with what Maple Leaf Foods predicts for the plant-based meat sector in ten years (10-15%).
In the last year, 10.5% of all U.S. households bought plant-based meat (a 13% increase over the year before). Compare this to the percentage of households that bought plant-based milk last year, 37%. This suggests that plant-based meat purchases have room to grow.
How Traditional Meat Companies Talk About Their Plant-Based Expansions
Two concepts dominate the way traditional meat and fast food companies talk about their expansion into plant-based meat and entrées: “sustainability” and “protein.” Tyson Food noted in a press release from 2018, “Simply put, today’s consumers want more protein.” They also wrote, “The question facing all of us: How will we feed this growing number of people the protein they want, in ways that are sustainable? We believe it will take a combination of innovative and traditional approaches.”
A Smithfield executive noted that their launch of plant-based meat and dairy products exhibits “our organizational commitment to sustainability, and our deep understanding of ‘flexitarian’ consumers.” Maple Leaf Foods says its vision is “to be the most sustainable protein company on earth.” An executive for Perdue noted on the launch of its blended chicken nuggets that “Consumers have told us the vegetarian lifestyle is too hard, but they’re looking for ways to introduce more vegetables into their diet.” In an interview with the New York Times, an official for Smithfield Foods, when asked to contrast their stance on plant-based meat with that of Impossible Food’s CEO (whose vision is “to eliminate animal products from the global food supply by 2035”), said, “We’re a meat company, first and foremost. We’re not going to apologize for that.” A spokesperson for Tyson put it more bluntly. “Right now, it’s really about the business opportunity.”
Investment In Plant-Based Brands And Start-Ups
The plant-based food industry is young relative to most other food categories. Veterans in the sector—like Follow Your Heart, SO Delicious, Tofutti, Lightlife, Tofurky, Silk, and Dream—were founded in the 1970s and 80s, not a long time ago compared with 100+-year-old companies in other categories. Younger plant-based brands—e.g., Califia Farms, Ripple, Beyond Meat, Daiya, Kite Hill, and Miyoko’s Creamery—are rising quickly and challenging the dominance of older companies.
The food business requires a lot of working capital because of its material requirements (ingredients, production, packaging, storage, transportation) and the complexity of product distribution and marketing (agreements with stores and restaurants and multiple types of marketing to consumers and businesses). Successful food companies either have to grow slowly and fund their own capital needs or they must find investors and give those investors a stake in the company. In addition, investment capital is needed not just during the initial growth spurt but on a regular basis to stay competitive and respond to new opportunities or threats.
One way a number of plant-based brands have grown is by being bought (“acquired”) by larger companies, e.g., the previously mentioned purchase of Field Roast and Lightlife by Maple Leaf Foods. As noted earlier, Maple Leaf announced a large investment in a new plant-based production facility, something neither brand as individual companies could have afforded on its own. Judging by the number of new products launched regularly by Boca (owned by Kraft Heinz), Gardein (Conagra), Morningstar (Kellogg), and SO Delicious (Danone), among others, it would appear that most, if not all, of the larger companies are investing in their plant-based brands.
Another way to fund growth is to go public, i.e., become a publicly traded and publicly owned entity. When a company goes public, the initial public offering (IPO) brings with it a large infusion of capital that can be invested in the business. Over the last 40 years, only a handful of plant-based brands have gone public. Tofutti was the first to take the plunge when it was listed on the New York Stock Exchange starting in 1987. The Hain Celestial Group (with brands such as Celestial Seasonings, Yves Veggie Cuisine, Candle Café Vegan, Dream, and Westsoy) followed in 1994 and is still sold on the NASDAQ exchange. WhiteWave Foods (with brands Silk and SO Delicious) held its initial public offering in 2012 but was delisted when it became part of the French food company Danone in 2017. The most recent and high-profile IPO was that of Beyond Meat in May 2019. The initial share price was $25/share. It surged over the next few months to a high point of $235/share in July, then headed back down (as of early November 2019, it was selling at around $80/share). The most likely plant-based candidate to go public next is Impossible Foods, but so far the CEO has not committed to it.
Right now, the majority of plant-based companies are young, privately owned, and trying to gain a sustainable foothold as a business. These types of companies are often called “pre-exit,” meaning they have not yet achieved their “exit strategy”—usually to be acquired, bought out, or to go public.
Many strategic investors are interested in taking stakes in pre-exit companies with potential growth. The Good Food Institute has published a very helpful State of the Industry Report: Plant-Based Meat, Eggs, and Dairy, which shows the kinds of investments being made in companies at this stage of growth. The report shows a dramatic upward trend in capital investment in the last decade, with 2018 the highest so far with $535 million invested in pre-exit companies. The largest total investments in 2018 went to Impossible Foods and JUST (maker of a plant-based egg).
Who are these investors pouring hundreds of millions of dollars into fledgling plant-based companies? A number of venture capital funds focus exclusively on investment in new plant-based companies and research efforts. As the following examples show, the venture firms are quite upfront about the ultimate outcome they want to see in the world, in addition to watching their money appreciate.
- Blue Horizon: Asserts that “plant-based food and agri-tech are the single biggest investment opportunities with long term value creation and measurable impact.”
- Stray Dog Capital: “Drives alternatives to the use of animals in the supply chain.”
- New Crop Capital: Wants to fix the broken system of conventional animal agriculture, which “poses the most vital economic and ethical imperative of our time.”
- CPT Capital: States that its mission is “to drive the food and materials technology revolution by replacing animals in the supply chain.”
- Power Plant Ventures: Its mission is to “re-architect our global food system by advancing world-changing companies that deliver better nutrition in more sustainable and ethical ways.”
- Veg Invest: Helps companies that are “striving to replace the use of animals.”
- Beyond Impact Vegan Partners: Supports entrepreneurs who demonstrate “clear alignment to the principles of veganism, being cruelty-free and sustainable.”
Of course, these venture capitalists aren’t looking to lose money, but as “impact” investors, they aim to generate beneficial social and/or environmental effects in addition to financial gain.
Some governments are also getting involved. In 2018, the Canadian federal government awarded CA$150 million over five years to the “Protein Industries Canada Supercluster,” a consortium of 120+ agricultural businesses, post-secondary institutions, and non-profit organizations. The funding will be matched dollar for dollar by the private sector. The vision is for Canada to become a top exporter of plant-based foods and ingredients.
On the far end of the plant-based food spectrum from the older Tofurky’s and Tofutti’s are the very young and small start-ups and the food-tech research organizations. Many start-ups get help from accelerators, organizations that accept fledgling companies into formal programs and offer them mentorship, office space and, most importantly, access to investors. In return, the accelerators get equity in the company. Start-ups usually “graduate” from their accelerator program after three or four months and then continue to work toward growth and profitability.
Mars Food (makers of M&M’s and Snickers) recently launched a “SEEDS of CHANGE” accelerator, and three of the first six companies invited to participate focused on plant-based options: Fora (with their nondairy Faba Butter), No Bull Burger (veggie burgers with minimally processed ingredients), and Prommus (makers of a high-protein hummus).
The race to figure out how to move cell-based meat from a proof of concept (which has been achieved) to a scalable enterprise has been drawing a great deal of capital investors’ attention the last few years. In the Good Food Institute’s helpful State of the Industry Report: Cell-Based Meat, we learn that by the end of 2018, 27 cell-based meat and seafood companies had announced themselves, 15 of which disclosed they have raised external funding. The authors estimate that $73.3 million has been invested in cell-based meat companies over the last several years, involving 70 unique investors. The first deal took place in 2015, when Memphis Meats received funding from the accelerator IndieBio. Since then, the number of deals and the capital invested have been on the rise, reaching 14 completed deals totaling nearly $50 million in 2018.
The Good Food Institute points out that even with the robust investment in cell-based meat and plant-based companies, investment in the industry is still very small compared with traditional food sectors. Investments in plant-based food companies (meat, dairy, and eggs) were 6.5% of those made in the general FoodTech sector and only 0.7% of those made in the AgTech industry in 2018. Investments in cell-based meat were even smaller: 0.5% of investments in FoodTech and 0.05% of AgTech investment. Another interesting comparison is that cell-based meat investment equaled only 0.2% of investments made in the cannabis industry in 2018.
Still, investment in plant-based foods and cell-based meat has grown by leaps and bounds in the last decade, and whether the young industry could have effectively absorbed much more investment is an open question. If consumer demand continues to increase at its current pace and if enough investors want to fund young companies offering plant-based foods consumers will buy, then the flywheel of capitalism should lead to an increasingly flourishing array of plant-based food products well into the future.
In the next blog, I’ll be looking at the side of the food industry that plant-based food companies and investors are trying to replace — namely, meat and other animal products, the majority of which come from factory farming. We’ll look at the movement to divest from companies and portfolios that support factory farming, and how it could change the game for the food industry as a whole. Read it here.