In February 2021, Whole Foods’ former co-chief executive Walter Robb described consumers’ gradual shift from meat to plant-based alternatives as a “megatrend akin to digitisation” — potentially “the biggest single trend in the history of food”.
It has been a painful two-and-a-half-year journey for investors in the sector since then. An index tracking 46 plant-based food companies has halved in value since peaking weeks after Robb’s bold call, hit by lacklustre sales and rising interest rates.
Shares in California-based Beyond Meat, the poster child for the sector whose early backers included actor Leonardo DiCaprio and the Bill & Melinda Gates Foundation, rocketed after flotation in 2019. It briefly enjoyed a market capitalisation of more than $14bn but since then the shares have fallen about 95 per cent. The company has also been hit with class-action lawsuits. Shares in Oatly, another vegan alternative, have dropped 90 per cent since listing in early 2021.
Despite a boom in ethically-focused investing and growing concerns about the meat industry’s carbon footprint, consumers have not developed a taste for plant-based alternatives, which still only account for a fraction of a single per cent of the global meat market.
Until they can match meat on flavour, texture and cost, plant-based substitutes are unlikely ever to win a substantial chunk of the market, say analysts. On all those fronts, a rival technology — cultivated alternatives grown from animal stem cells — may pose a bigger long-term threat to legacy meat companies than their plant-based peers.
Among advocates is Arik Kaufman, chief executive of Israel-based Steakholder Foods, which feeds cuts of meat grown from stem cells into its “bioprinting technology” to squeeze out steaks and fish fillets.
“As time goes by the uniqueness of our printers will come to the fore, flexitarians will switch into our products and we will eventually produce ‘real’ meat, though it won’t happen in a day,” said Kaufman, whose company’s backers include Renaissance Technologies, one of the world’s most successful hedge fund firms.
But Steakholder’s shares have not escaped the broader sector’s sell-off, tumbling 92 per cent over the past two years. Still, Kaufman pointed to Israeli prime minister Benjamin Netanyahu’s apparent endorsement of the company’s grouper fillet in an April visit as proof of the technology’s potential.
Others tentatively agree. Jeneiv Shah, portfolio manager at Sarasin & Partners, said cultivated meat “would be the silver bullet environmentally”, given how much land and water are required to grow plant-based meat products.
“Food security is another driver for this technology,” Shah said, adding it was no coincidence that Singapore, which imported 90 per cent of its food supply in 2021, was the first country to approve cultivated meat products for commercial sale.
Shah estimated the alternative meat industry’s total market could hit roughly $300bn by 2035, with lab-grown meat eating up an ever-increasing share. In the US, sales of plant-based substitutes fell 13 per cent in April on the same month last year, according to data provider Spins.
“I don’t think Beyond Meat will be bought by a company like JBS or Tyson,” Shah said, referring to two of the largest legacy meatpacking companies. “Only some of them are realistically thinking their business is about to get disrupted and the ones that are will look at private groups in [meat] fermentation and cultivation instead.”
The cultivated meat industry raised $896mn in venture capital funding in 2022, down from $1.3bn in 2021, a slightly smaller fall than the 35 per cent average year-on-year decline across global venture funding, according to Barclays. The proportion of total investment in the meat-alternative space going towards lab-grown products rose over the same period.
Legacy meatpacking companies have also suffered. Shares in Tyson Foods are close to their lowest ever level and JBS has more than halved in value over the past year. During first-quarter earnings calls Tyson’s chief executive blamed “adversities in almost all countries where we operate”, while the head of JBS said he could not remember another time when “beef, pork and chicken [had experienced] market challenges at the same time”.
Beyond Meat, meanwhile, has more to deal with than its $366mn annual loss last year. In early May its shares were hit after it announced it would sell up to $200mn in common stock in an effort to rapidly raise financing.
It also faces class-action lawsuits: the most recent, filed on behalf of investors in California, accused the company of overstating its production capacity and the success of its product tests with retailers including McDonald’s, Starbucks and Taco Bell.
The suit also alleges Beyond Meat executives took part in a scheme to deceive the market by selling shares at artificially inflated prices. The filing mentions former chief financial officer Mark Nelson, who sold 440,000 of his personally held shares for $58.3mn between May 2020 and October 2022. Nelson announced in March 2021 that he would retire from the company, but continued to consult for the company until last month.
“The company believes the claims are without merit and intends to vigorously defend all claims asserted,” said Beyond Meat.
However, for one group of investors, the sector’s woes have provided a chance to profit. Hedge funds betting against Beyond Meat’s stock raked in more than $1.6bn since January 2021, according to data provider Ortex.
“One short seller used to categorise his shorts as frauds, fads and fades — [plant-based meat] looks like a fad,” said Barry Norris, chief investment officer at hedge fund Argonaut Capital, who profited from bets against Beyond Meat.
“A lot of companies sort of reinvented the bean burger, and there’s no economic moat behind bean burger making,” he said.