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Plant-based food stocks Beyond Meat, Oatly are facing a reset

This image illustration shows Oatly oat milk May 20, 2021 in Chicago, Illinois.

Scott Olson | Getty pictures

Wall Street seems to be getting mad at plant-based substitutes.

The shares in Beyond Meat and Oatly have lost more than half of their value this year. The shares are both high-profile and relatively recent players in public markets, exposed to large jumps and sharp declines in value, volatility that has only been exacerbated by broader market fluctuations and pressure from short sellers.

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

Industry experts say the declines could mark an inevitable shakeout as investor optimism meets reality.

After years of rising sales, consumers̵[ads1]7; interest in meat alternatives is waning. Retail sales of plant-based meat were approximately flat during the 52 weeks ended 30 April compared with the period the year before, according to Nielsen data. Total volume of meat substitutes has fallen 5.8% over the past 52 weeks, the market research firm IRI found.

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

Kellogg owns Morningstar Farms, an older player in the plant-based category with 47 years in grocery stores. Morningstar is the top seller of meat options, with 27% of the dollar share according to IRI data. Beyond trails in second place with 20% of the dollar share, and Impossible Foods follows in third place with 12%.

“The race for scale, the race for market share, the race for sales growth and consumer retention over time will happen,” Chris DuBois, senior vice president of IRI’s protein practices, said in a panel presented by Food Business News on Thursday.

Downward spiral

The first days of the pandemic led to a sky-high demand for plant-based substitutes as consumers who cooked at home looked for new alternatives. Many people tried plant-based beef, chicken or sausage for the first time and continued to buy it, even though they were not vegetarian or vegan. The category’s sales already grew rapidly before the crisis, but they accelerated with an even faster cut.

Both companies and investors are betting that consumers would continue to eat meat alternatives and drink milk substitutes, such as Oatly’s oat-based drinks, even when the Covid fear eased and the blockades were lifted.

“If you look at it a year ago, there was a huge amount of bubbly and enthusiasm around plant-based, to the point that it attracted a lot of speculative dollars and investments. We saw the multiples and valuations became very enthusiastic – that’s the most polite way to say it. that on, “said Michael Aucoin, CEO of Eat & Beyond Global, which invests in plant-based protein companies.

Oatly, for example, debuted in the 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, shares in Oatly were trading at $ 3.71 per share, lowering the market value to around $ 2.2 billion.

Beyond’s action has taken an even more dramatic turn. It debuted in the public markets in May 2019 to $ 46 per share and rose in the months that followed, reaching a record high of $ 234.90 on July 26 of the same year, giving it a market value of $ 13.4 billion. The stock closed Friday at $ 31.24 per share, with a market value of less than $ 2 billion.

Investor enthusiasm has made it relatively easy for plant-based companies to raise money in recent years, either through the public or private market, Aucoin said. In 2021, the plant-based protein category received $ 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 trading group.

The companies then plowed much of these funds into marketing to pressure consumers to try their plant-based products. The arena also became increasingly crowded as traditional food companies and start-ups began to chase after the same growth. Tyson Foods, a one-time investor in Beyond, launched its own plant-based line. The other meat processing giants JBS and Cargill did the same.

“You also saw irrational abundance in the category and the entrance of many, many new players, who took a lot of shelf space, took a lot of trial time, not always the highest quality offers, to be honest with you,” said Cahillane analysts on Kellogg’s earnings call.

Flatlining sales

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

“Over the last six months, unexpectedly, there has been a rapid slowdown in the growth rates of plant-based protein category. Of course, our performance has suffered in the middle of this. But the more worrying facts are rooted in the performance category, which is basically flat-lined, said Maple Leaf CEO Michael McCain to investors on the company’s third quarter earnings announcement in November

The company’s executives said Maple Leaf would review its plant-based portfolio and strategy.

Less than a week after the Maple Leafs’ warning, Beyond Meat disappointed investors with its own weak results, even after warning of weaker sales a month earlier. Beyond calculated it up to a number of factors, such as the growing delta variant of the Covid virus and distribution problems, but the business has not recovered yet.

Beyond’s first quarter results, released on Wednesday, marked the third consecutive reporting period in which the company posted larger-than-expected and disappointing revenue losses.

Beyond Meat CEO Ethan Brown told analysts at Wednesday’s interview that the company’s poor performance stemmed from four factors: softness in the general plant-based category, a consumer shift from chilled meat alternatives to frozen, higher discounts and increased competition.

The competition has also put pressure on Oatly. The US oatmeal category continues to grow, but Oatly is losing market share as players on a larger scale release their own versions. Dairy company HP Hoods Planet Oat recently acquired Oatly as the best oat milk producer in the United States

Opportunities ahead

The decline does not affect all plant-based producers. Impossible Foods said in March that retail revenues in the fourth quarter rose 85%, strengthened by the expansion to new grocery stores. The company is privately owned, so it does not have to publish its financial results.

But the upheaval has weighed on Imposible in other ways. Reuters reported in April 2021 that Impossible was in talks to be released, 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 prospectus, but raised $ 500 million from private investors in November for an undisclosed valuation.

Josh Tetrick, CEO of JUST Egg, which accounts for about 95% of egg replacer sales in the United States, told CNBC that he sees a lot of growth going forward.

Sales of egg replacements are roughly flat during the 52 weeks ended April 30, according to Nielsen data, but Tetrick sees the opportunity to increase consumer awareness and the number of restaurants with egg replacements on their menus.

Aucoin is confident that consumer interest in plant-based alternatives will grow and ultimately bring back investor optimism in the category, but not to the same extent as its heyday.

“It will be a shakeout since the money is not as readily available, but I think we will see some true winners and strong companies emerge,” said Aucoin.

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

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

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