The Fake Meat Shakeout

Sascha: [00:00:03] This is The Dive of the podcast that says business news shouldn't be all business. It was heralded as the next big global trends Maitlis meets, but now it appears it's less a world changing innovation then just another food trend whose novelty is quickly wearing thin. It's Monday, the 26th of June. I'm Sascha Kelly. And today I want to know where did it all go wrong with fake meat? To talk about this today. I'm joined by the co-founder and my colleague here at Equity Mates. It's Alec Renehan. Alec, welcome to The Dive. 

Alec: [00:00:37] Sascha, good to be here. 

Sascha: [00:00:37] Excellent. Let's get into it. I'm an omnivore, so I'm going to say fake meat. Meatless meat has always been on my periphery, but it hasn't been a staple part of my diet. Remind me, what is fake meat? Sure. Let's start with that. 

Alec: [00:00:53] Yeah. So fake meat. You called it meatless meat in your introduction. Plant based meat. It is. It is a food that is made to look, cook and taste like animal meat as much as possible. But it's made from plants, it's made from legumes. It's made from whatever can be made to taste, look and look like meat. Really. There are two big companies in the space beyond meat and impossible foods. 

Audio Clip: [00:01:19] You know, sometimes we overlook the most obvious things we can change. Like eating beyond meat. I believe so much in the mission of Beyond Meat that I've stepped in to help with my greatest asset, my taste. 

Alec: [00:01:31] And then a number of smaller companies as well. One thing that gets a little bit confusing in this space is there is plant based meat. And then you also have this coming trend of lab grown, which is different because lab grown meat is biologically, the animal is just being grown in a lab rather than in a field. What we're talking about here is the fake meat, the plant based meat. It's not biologically an animal. It's just an imitation. 

Sascha: [00:01:58] Alec, you took the words right out of my mouth because I was just about to ask you. I know we've done heaps of meat options episodes, so I did want to clarify which one we were talking about today. So fake meat is on the table, so to speak, to use a really bad analogy, and it's enjoying some big tailwinds.

Alec: [00:02:16] Yeah. So more and more of the world is turning away from meat. It's still a pretty small percentage. I think 3% of the Western world is vegetarian or something like that. So it's not huge, but it is increasing. And for those omnivores amongst us, there is a trend of having less meat in the diet. When I was working at Coles back in the day, I remember they were speaking about one of the big trends that they were saying from customers was meat free, Monday's. And the reduction in meat in our diet is being driven by health concerns. It's been driven by climate concerns. One estimate we found suggested that animal agriculture is responsible for about 16% of global greenhouse emissions. It's also being driven by animal welfare concerns in some instances. And so we're seeing consumers, especially young consumers, eat less meat. According to the Good Food Institute, an industry group, about two thirds of young consumers are planning to spend more on vegan meat and dairy products, citing both health perceptions and environmental benefits. So this plant based meat industry really grew on the back of these concerns and tried to make it as easy as possible for consumers to substitute meat for something that looked cooked and tasted exactly like me. Well, not exactly, but they tried to make it as close as possible. 

Sascha: [00:03:47] Close enough? Well, that was the goal, wasn't it? It's so interesting you're talking about that trend there, because I think even anecdotally, I know a lot of my friends are embracing meat free lifestyles from a cost perspective as well. But 2019 was the year that plant based meat. I'm going to keep going with this analogy really landed on the table. It was then, and that's because of the Beyond Meat IPO.

Alec: [00:04:10] That's right. IPOs. When a company goes public, they're often seen as the marker of the start of an era. We look back in history and we talk about the first Internet bubble, the dot com bubble really being sparked by Netscape's IPO in 1995. That bubble crashed and the stock market, the economy had a tough few years, but then Google's IPO in 2004 was really seen as the post-college bubble revival. And similarly, Facebook's IPO in 2012 was seen in the US as the post GFC moment. 

Sascha: [00:04:51] So the 2019 IPO of Beyond Meat was like the plant based meat is here. 

Alec: [00:04:58] Plant based meat is here. There's money. In this industry and when beyond mate IPO, the share price tripled within about a month or two. Like there was a lot of hype and it attracted a lot of investors. A lot of venture capitalists started putting money in the industry. A lot of entrepreneurs realised that there was an opportunity here and they were attracted to the industry. And what followed was a flurry of new plant based meat companies. That was unreal food that would try to make an eggless egg. There was remastered foods that were working on vegan bacon, meatless farms, making plant based sausages. Think of a mate that you ate, and there was a company trying to make a plant based version of it, and we saw that reflected in visa funding in 2018 and 2019. There was a little bit over $1,000,000,000 put into plant based meat or alternative protein startups in 2020 that went to 4 billion. In 2021, it went to 6 billion. So billions of dollars have been poured into this industry over the past few years. 

Sascha: [00:06:07] So there may have been a flood of money and talent into the industry, but there wasn't a flood of consumers. And then in 2022, I mean, we saw it with a lot of their tech peers. The plant based meat industry kind of crashed back to Earth for want of a better term. 

Alec: [00:06:23] Yeah, that's right. You said there weren't a lot of consumers. I reckon there was a brief moment where there was heaps because I remember we did an episode on the Dive early Days about the plant based meat industry, and I went to a couple of supermarkets to try and buy some, you know, you know what it must have been for some video content we were going to do because I was going to try and cook a plant based burger and a real burger and say if Bryce could taste the difference. But they had sold out of like three supermarkets, and then I gave up. So there was a moment they had a moment where they were very popular, but it seems like some of that initial customer interest has waned. So beyond Meat IPO'd in 2019 and it had an initial burst in its share price, but it has had a really tough time since then. It's down 81% from the start of 2022 and it's down 94% from October 2021. 

Audio Clip: [00:07:19] That's beyond meat. Disappointing outlook, pressuring shares. Today. We're looking at a loss of just about 17 and a half percent weak guidance driven by uncertainty. 

Alec: [00:07:27] But Sascha, the real moment where it showed that things were probably going pretty wrong at Beyond Meat was September 2020 to where Douglas Ramsey, Beyond Meat's chief operating officer, was arrested after biting a man's nose in a fight at a college football game in America. So the CEO of a plant based Meat, Start-Up, had a taste of real markets. It's not too far to say. 

Sascha: [00:07:56] That's a terrible joke, Alec. Terrible joke. 

Alec: [00:07:59] Look, I'm just reflecting the reporting at the time. 

Audio Clip: [00:08:01] Yeah. He was arrested for allegedly biting a man's nose in a parking garage after an Arkansas college football game. I don't think he just went up and did that. I think there was like a fight. 

Alec: [00:08:14] So beyond meat has had a tough time. Impossible Foods is the other big plant based meat player. They were planning to follow it beyond meat and do an IPO as well, but they've had to delay it and it doesn't look like they'll be doing it any time soon because the investor appetite has really fallen away. 

Sascha: [00:08:34] But Alec, is not just impossible foods and beyond meat who are having a tough time, we're starting to see the whole industry collapse. Let's get into that after the break. Welcome back to the dive. I'm joined by my colleague Alec Renehan. We are talking about all things plant based meat or rather, how it's not the best dish to serve at the moment. Alec, tell me a little bit about the wider ecosystem of plant based meat companies. 

Alec: [00:09:05] So Sascha, before the break, I explained how they see funding. Venture capital funding massively exploded over the last few years. It went from about $1,000,000,000, a bit over $1,000,000,000 in 2018 and 2019 to 4 billion in 2020 to 6 billion in 2021. Well, it's really fallen back a way since then this year so far. So we're in June. We're about halfway through the year. We've seen a little shy of $1,000,000,000 invested. So there's still money there, but it's back down to, you know, the 2018, 2019 levels. It's not the mania of 2021. And as a result of less money in the space, we're seeing, some of these companies struggle to stay in business. And it is a global phenomenon here. Just some of the plant based meat companies that have gone out of business recently in the US, we have unreal foods like cows, corn, coconut, great sun, milk, ocean tastes and loops. In the UK, we've got meatless farm plant and pain remastered foods, Canada Merit Foods and the Body Foods and fresh start over in mainland Europe. Update Foods plant. Added Entous. Even in China, one called High Mate has gone bankrupt as well. So these were companies that were trying to do plant based meat or maybe alternative dairy products, you know, different plant milks and yoghurts and stuff like that. 

Sascha: [00:10:36] Alec, It's a totally other episode, but you can tell so much about the culture of consumers of each of those countries by the names that the marketing teams came up with for each of those plant based meat companies. 

Alec: [00:10:47] Calgon Coconut is definitely my favourite. Yeah, and I'm disappointed that I'll never be able to buy their products. But I think it's not just these venture capital backed start ups that are struggling, the whole industry is struggling. I mentioned beyond Meat's share price before the break. They've had to go through multiple rounds of staff layoffs as have impossible foods and a number of the other big ones as well. Spain's Hera Foods, an American company called Ajuste, which are working on both plant based and lab grown food. They've actually done lab grown chicken that's been approved for consumption in Singapore, but they've had to lay off some staff as well. So it's the smaller players, it's the bigger players and it's also the traditional food companies that had pushed into the plant based space over the past few years because they got swept up in the mania of 2021 as well. Nestlé, the biggest food company in the world, is pulling its Garden gourmet line and its one to pay milk line in the UK, citing just the amount of competition in the space and giant meat processor JBS had built a mega factory in Colorado to produce its plant Hera plant based line. It's now discontinuing that line. 

Sascha: [00:12:06] So Alec, with all of that information and after all this half of saying that this plant based meat was going to be the future of food, what does this tell us about what that future looks like? 

Alec: [00:12:17] Now, don't write off this industry yet. I think we should start there.This is the industry rationalising. It's shaking out the excesses of the past few years and figuring out what is going to be the best product and what's the right level of funding and consumer demand going forward. There were some issues in the space. Some reporting we've read suggested that shoppers will put off these plant based products due to excessive processing, high cost, poor nutritional value and ultimately the taste. So. 

Sascha: [00:12:52] I mean, you're hitting all the factors there Alec, it's like what else can you do wrong if those are the things that aren't working? 

Alec: [00:12:58] So there were some challenges that the industry had to face, but the industry itself, well, at least the companies that are staying in business at this point have suggested that this is a good thing. This is clearing shelf space for the best products. It's putting the best products in front of the consumers. And I guess it's challenging the companies to address some of those challenges. Can they make their products with less processing at a lower cost, with more nutritional value and ultimately with a better taste? And the companies that are really taking this challenge head on are still having success. There's a British plant based meat company, this in all capital letters, who reported that their sales were up 45% this year. So I think that's how you've got to think about this industry. It is a quality. Shakeout the best companies. The sales are growing like this, but they're also raising money. My forest foods, who make fake bacon, raised $15 million earlier this month. And we spoke earlier about the food giants, the eyes of the world pulling back on the space. There are still some that believe in the future of the sector. Archer Daniels Midland, the agricultural giant, is still investing in this space, and they projected that the alternative protein market is going to reach $100 billion in sales by 2030. So don't write the industry off, Sascha, because if they are right beyond meat, impossible foods will certainly be around for years to come.

Sascha: [00:14:26] Look, that's a really great optimistic note to end on, Alec. And I definitely agree with you. I mean, I started to embrace oat milk. And so I do think consumers, even hardcore omnivores like myself, I do love my steak. There's room for us to start embracing plant based replacements in our everyday diet. So I, for one, am looking at this story with a lot of interest. Let's leave it there for today. If you really enjoyed this episode. The single best thing that you can do for us is hit, follow, hit, subscribe in your app and then send it to a friend. It really helps small, independent media companies like us here in equity mates survive and grow. Thanks so much for joining me today, Alec.

Alec: [00:15:07] Thanks, Sascha.

Sascha: [00:15:08] Until next time.