May is Beef Month, but some of the spotlight this year had to be shared with Beyond Meat (ticker BYND). The company staged the most successful IPO since the financial crisis.
BYND was initially valued at $25 per share; the stock soared out of the gate and has traded as high as $96. As I’m writing this, shares are trading around $80, establishing the company’s market cap just north of $4.5 billion.
The success has garnered the company lots of headlines. It has also drawn attention to other alternative protein companies, most notably, Impossible Foods. There’s lots of speculation Impossible Foods will also go public in the near future –- especially with recent success of the Impossible Whopper at Burger King. The fast food chain introduced the burger in St. Louis, Mo., in March and is now expanding to three other cities in the U.S.; meanwhile, its sister company, Tim Horton’s, plans to introduce Beyond Meat sausage to its breakfast menu.
There’s seemingly been a sort of feeding frenzy (pun intended) about how alternative proteins (“fake meat”) will ultimately “save the planet.” Many of the anti-meat pundits have jumped on the bandwagon -- they’re touting extrapolative possibilities for the future, even claiming that “clean meat” would ultimately make livestock obsolete.
For many of the anti-livestock pundits, the news of late may seem to back up that claim. They’ll point to recent successes as positive reinforcement –- and tell us the American public is aligning with their values and vision for the future. But before we get too far down that path, let’s slow down and evaluate the current business landscape.
First, there’s the issue of cost. For example, The Impossible Whopper has a $1 premium versus a regular Whopper. In the grocery store, Beyond Meat runs roughly twice the cost of ground beef. Beyond Meat CEO, Ethan Brown, knows it’s an issue. He recently noted on Nightly Business Report that his five-year goal for the company is to be able to underprice animal protein in at least one product category. That’s a steep hill to climb especially when you’re trying to simultaneously grow awareness AND scale the business (both very expensive) –- all the while also having to generate returns for your new shareholders.
Second, there’s consideration of market penetration. This is all new technology. There’s some heavy lifting ahead to get to critical mass. On the front end, there’s always the innovators who want to utilize and consume new products. However, the real challenge comes in getting more mainstream consumers to adopt the product. Geoffrey Moore describes the difficulty of that process in his book, Crossing the Chasm, noting that the, “mainstream market is dominated by a large block of customers who are predominately pragmatists in orientation.”
Third, there exists some significant nutritional considerations. Fake meat contains more calories versus real meat and is high in sodium. Plus, there’s the concern around the use of yeast extracts –- especially for those with monosodium glutamate sensitivities. So, for many of us, those reasons alone rule it out as a meaningful substitute; we’ll pass and just eat the real stuff.
All the while, I’ve also heard commentary on the other side. Some people in animal agriculture perceive this as a potential Waterloo moment. They’re missing the bigger picture, too. There have always been competitors in the protein space, and I’ve never heard a CEO of a successful company worry about the presence of additional competitors as it relates to the industry. Sure, it might mean some company-specific, or sector-specific challenges ahead to remain competitive - but as an industry, new entrants should make us all bullish on the protein business.
None of this discussion even broaches the issues associated with lab-grown meat (another column for another day). In the meantime, the alternative protein business may be cool for the media and investors, but over the long run food is a business of scale and infinitely tight margins. Those are impossible to outrun no matter how much buzz you create around your product.
The fake-meat industry has a long road ahead. Jane Wells, CNBC anchor, recently made that abundantly clear. She interviewed travelers in the Los Angeles airport about their general perceptions of meat substitutes. She approaches one man and asks, “Would you ever eat a fake-meat burger?” His response, “No ma’am.” Wells then asks, “Why not?” Without even a hint of hesitation, he says, “Red thing is the real thing.” Say no more.