The Future of Food: Plant-Based Food Investment Thesis
Noah Hyams
By Noah Hyams
Context
Globally, about 70 billion farm animals are now farmed for food each year. Not only does animal farming lead to zoonotic diseases and pandemics, but it is also one of the top contributors to serious environmental issues according to the United Nations. Animal protein is highly inefficient as well. Animals are inherently inefficient processors: for every 9 energy calories fed to an animal, the yield is roughly 1 energy calorie, this is roughly an 11% conversion rate which results in a massive waste of resources, according to the World Resource Institute. Given the increasing need to fix our food system and create more sustainable food options, there is a growing opportunity for investment in plant-based food sources.
Market Overview + Opportunity
A recent study by FMCG Gurus Foodservice shows that a third of the world's population follows a diet based on the reduction or elimination of meat, and the term ‘flexitarian’ has gone mainstream. As a result, the demand for plant-based foods is rapidly increasing. For example, according to a Mintel study, sales of vegan ice cream have more than doubled in five years, driven by an increase in obesity-awareness and health-awareness. According to a Numerator report, more than 90% of sales of the plant-based Impossible Burger come directly at the expense of animal-derived meat products. CB Insights recently produced a report that said that the traditional meat industry will lose $20B in 2020 because it is threatened by new innovative plant-based foods. A report by Million Insights found that the global vegan food market was going to reach $24.06 billion in 2025 and $370 billion by 2035. To underscore the excitement and opportunity in the market, plant-based protein producer, Beyond Meat, was the best-performing public offering by a major U.S. company in almost two decades according to Market Watch. Today, Beyond Meat touts a market cap of more than $8.1 billion. According to PBFA & GFI, reports that plant-based foods sales have grown 43 percent in the past two years- nine times faster than total food sales.
The current climate crisis and Covid-19 have also increased awareness of the impact our food system has on the environment. As younger generations grow concerned about their environmental footprint, they are increasingly seeking out sustainable foods. The Food Institute found that Gen Z is much more open to plant-based foods as they believe that you don't have to be vegan to want to eat more vegan foods. FMCG Gurus research showed that 24% of consumers across the globe state they will include more plant-based food within their diets due to COVID-19.
Risks + Competition
Currently, the biggest risks to the industry stem from traditional animal agriculture, trend reversals, and cost. Competing with and replacing traditional meat producers is difficult as these incumbents can achieve lower production costs due to production volumes and government subsidies. However, we are seeing key players, such as Beyond Meat, continuously lower their costs as they scale up and build out their supply chains. We are also witnessing all major meat producers in the US launch their own plant-based meat products into the market, which is a potential risk to newer companies in the space. There is also the risk of the reducetarian trend diminishing. However, that is unlikely as climate change awareness and the Covid-19 pandemic have put our unsustainable food system in the spotlight more than ever before.
Investment Landscape In 2020
SUMMARY
To summarize, creating protein from plants meets sustainability goals (less land, water, emissions) and is an exploding financial investment opportunity given the rise of flexitarians, vegetarians, vegans, and other trends around the world.
EXCITING COMPANIES IN THE SPACE
Beyond Meat - plant-based protein is all the rage. Beyond Meat has been able to capture the attention of the world by focusing on satisfying the desires of meat-eaters. Their IPO was the most successful IPO of 2019. They are valued at nearly $7 billion today touting partnerships with some of the biggest QSRs, including McDonald’s.
Oatly - Oatly invented oat milk nearly three decades ago. Today it is backed by celebrity investors and available at Starbucks. Their IPO debut this week values them at $10 billion. The plant-based milk category leads the plant-based food market with nearly half of all adults buying both animal-derived and plant-based milks.
Evo Foods - Evo Foods is developing a plant-based egg. They just secured one of the largest fundraising rounds for an Indian food startup ever ($845,000).
Good Catch - 2021 is the year of plant-based seafood with awareness of the impact fishing has on ocean health being at an all-time high thanks to popular documentaries, such as Seaspiracy. Good Catch just successfully raised a B-2 bridge funding round of $26.35 million from leading investors in the space and continuously expanding its product lines.
Daring Foods - This plant-based chicken brand just raised a $40 million Series B fundraising round. Daring launched in 2018 and counts rapper Drake as one of their investors.