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Hype-based Meat Alternatives

Globally, according to the Lancet medical journal, the average per-capita consumption of meat is still increasing. But it is beginning to decline in some high-income countries, where the UN FAO (Food & Agriculture Organisation) reports “demand is anticipated to level off or trend lower given ageing populations and greater dietary concerns that seek more diversity in protein sources.” For example, people in Germany, on average, ate 52 kg of meat in 2022, 4.2 kg less than in the previous year, according to the Federal Information Centre for Agriculture (BZL), the lowest since records began in 1989. Bloomberg recently reported that a meat plant producing Bärchenwurst, German kids' beloved bear-shaped cold cut, is closing down due to rising costs and falling demand, with more and more German vegetarians and flexitarians.

.....▷ So the stage has been set for explosive growth in plant-based meats and alternative dairy. Sure enough, companies rushed to meet the new demand, and a few of them have made it to the stock market, boosted by enormous hype about saving the planet, the "sustainability halo":

- Beyond Meat’s 2019 IPO🎓 was one of the most successful in the US since 2000. Priced at US$25 a share, it raised $241 million and surged to over $65 for a first-day pop of 163%. Its IPO was oversubscribed by 30x (meaning that technically it could have raised over $7 billion.) It went on to top out 2 months later at $235, 9.4x the IPO price!

- Two years later, Sweden's Oatly, a leading oat milk brand, raised $1.4 billion in an IPO🎓 which was 10x oversubscribed (demand was for $14 billion.) Oatly's stock price popped 17% on the first day from its IPO price of $17. A month later, it was at $29, up 70% from the issue price.

- Alas, Beyond Meat is now at $13.5, barely over half its IPO price and down by 94% since its peak, while Oatly is trading at just $2. What happened? There was company-specific newsflow, like Dunkin Donuts removing Beyond's sausages from the breakfast menu and a potential deal with McDonald's falling through, and Oatly’s supply chain problems and a recall due to bacterial contamination. But mainly, the disappointment has come from both companies' ongoing lack of profitability.

.....▷ Plant-based alternatives by Beyond Meat, Impossible Foods and others, even when selling at prices only slightly above real meat products, have not caught on with consumers as quickly as investors had been led to expect, with high inflation adding to the pressure. Beyond Meat has continued to burn through cash and, after five consecutive quarters of declining year-over-year revenues, is looking to raise $200 million more through selling additional new shares and Oatly's CEO continues to pick growth over profits. Overall, plant-based alternatives financial backers, like venture capital funds, seem to have latched onto climate change and health concerns from investors at just the right time to raise a lot of money and then exit, leaving overhyped IPO investors sitting on enormous losses.

Writer: Alexis Kong, NUS Business School, 2024