As Plant-based Meat Growth Stalls, What Does It Mean For The Category?

Earnings reports last week for Beyond Meat and Maple Leaf Foods showed flat or negative growth — and no clear way to jumpstart sales.

Beyond Meat President and CEO Ethan Brown opened his Thursday evening remarks on the company's latest earnings report, which showed negative growth and high net losses, with a question that many analysts may be asking about the sector.

"The key question is whether this reduced growth rate is an aberration or a harbinger of things to come," he said.

Brown and other Beyond Meat executives spent the next hour of the earnings call with analysts trying to argue the results were an aberration, but it so far has proven a difficult case to make. In trading after markets closed on Thursday, Beyond Meat's stock price fell nearly 14%. By press time Monday, the company's stock rebounded about 13% from Thursday's plunge.

Beyond Meat hasn't been the only plant-based meat company having problems pulling its growth rates up at the end of 2021. Maple Leaf Foods, which also announced quarterly earnings on Thursday, reported a sales decline of 3.7% for its Greenleaf Foods division, which includes plant-based meat brands Lightlife and Field Roast. Maple Leaf President and CEO Michael McCain said that in response, the company is reallocating the amount of capital and space in the supply chain in plant-based to be consistent with a much smaller growth rate than anticipated.

"After years of spectacular growth, the category has in fact stalled," Maple Leaf President and Chief Operating Officer Curtis Frank said on the company's earnings call.

Plant-based meat had previously been a phenomenal growth story, with sales growing 45% overall in 2020 compared to 2019, according to SPINS data released by the Good Food Institute and Plant Based Foods Association. These growth rates helped inform inflated 2021 estimates for Beyond Meat, Maple Leaf Foods and Kellogg's MorningStar Farms brands.

Brian Holland, managing director and senior research analyst at Cowen, said that while he found the companies' estimates to be aspirational, the slowdown has been much faster and more abrupt than expected. The segment was created as a more sustainable way for consumers to get meat-like protein — an admirable goal, Holland said, but something that serves a consumer choice and not a need. Based on its positioning, performance and price, however, it has failed to capture a majority of consumers, he said.

"I don't think that we are going to turn on a switch and convert meat eaters," Holland said. "We're just seeing no evidence of that over the past several years, and so I think I think we're seeing a bit of that [reluctance to adopt plant-based] now."

Brown and Beyond Meat executives have been trying to explain slow growth rates in the company's last two earnings reports.

Prior to the company's third-quarter earnings report in November, Beyond Meat issued a statement that indicated it would fall short of previous estimates. Nothing like that came before the fourth-quarter earnings, which saw lower net revenues — $100.7 million, down 1.2% from the end of 2020 — with a 19.5% drop in U.S. retail sales. Beyond Meat's growth in U.S. foodservice and international retail and foodservice channels during the last quarter were all wiped out by the retail sales miss.

On Thursday's earnings call, Brown said he believes the decline is the result of external factors — a slowdown in the plant-based meat sector in general and more competition on shelves — as well as internal. He explained that consumers did more product stockpiling in 2020 as they packed their freezers to hold out against the pandemic, which did not repeat at the end of 2021. Beyond Meat also relies on building its consumer base through trial at foodservice. Pandemic-related foodservice shutdowns resulted in a bump in drive-thru business, Brown said, and Beyond Meat isn't yet a big player at any of these restaurants — though the company is currently testing its McPlant burger at some McDonald's restaurants.

While the earnings numbers look dismal, Brown said there are many positives. He ticked off some of the company's internal statistics: Beyond Meat is the No. 1 brand in the plant-based meat sector, with the highest brand velocity, high household penetration and repeat rates, and 65% unaided brand awareness among consumers.

"I don't think that we are going to turn on a switch and convert meat eaters. We're just seeing no evidence of that over the past several years."

Managing director and senior research analyst, Cowen

The ongoing coronavirus pandemic, supply chain issues, inflation and more plant-based competitors coming to store shelves have made it a difficult time for the segment overall, Brown said.

"As attractive as it is to try to posit particular theories on what's going on, there's so much noise in the market — just because of the instability around [the] pandemic, the different variants, behaviors, foodservice to retail — that we're just kind of sitting out of that discussion and saying, 'Here are the things we can control,' " Brown said. "We're going to go after those as hard as we possibly can and we're going to grow our business."

After seeing slowing growth in Greenleaf Foods' sales for half of 2021, Maple Leaf's McCain announced in November the company would be doing a comprehensive review of its plant-based division. McCain said on Thursday the result of the review is that growth has slowed, and Maple Leaf will downgrade its 40% plant-based growth estimate to 10% to 15%. The Canadian meat giant will transition from investing in the plant-based division for growth to pursuing profitable growth, McCain said, with a goal of Greenleaf being EBITDA neutral in 18 months.

Maple Leaf's Frank shared some results of the review on Thursday. Refrigerated plant-based meat grew 59% in 2019 and 75% in 2020, he said, but in 2021 it only grew 1%. As the segment took off, he said, 60% of U.S. households tried plant-based meat.

"But consumers' needs simply were not met and they did not repeat purchases," Frank said. "As a result, the category did not reach expected levels of habituation, had very high lapse rates and very low buy rates. This challenge is not unique to Greenleaf, as all major brands and products across the category are experiencing similar challenges, which largely seems to be driven by consumers' experience in terms of taste, price, degree of processing, and use of preparation."

Plant-based is not as large of a part of Kellogg's portfolio, but that company has also seen slower sales for its MorningStar Farms brand. Chairman and CEO Steve Cahillane said on the company's earnings call earlier this month that the slowdown is largely because there are so many new competitors on shelves. He was not concerned about the brand's future.

"You typically see this in new categories with lots of new entrants: lots of trial, not always the highest quality items making their way on shelf," Cahillane said on the call. "And so I think you'll see that shake out."

Impossible Foods, another major player in the plant-based meat space, is not publicly traded and does not report its earnings.

Cowen's Holland said that plant-based meat companies are in a very difficult spot right now. As growth in the category is decelerating, competition is increasing. For Beyond Meat, he said, the company is seeing both its market share and profit potential being squeezed. Add the unexpected issues of inflation, supply chain difficulties and the pandemic, and it makes the category much more challenging.

Another difficult factor: Plant-based meat has very little control over its pricing, Holland said. The segment is working toward price parity with meat as another way to appeal to consumers and compete with the sector. Brown repeatedly said on Thursday's earnings call he believes Beyond Meat will reach parity in one of its products within two and a half years, but that's still far in the distance. In the meantime, products are priced at a premium.

"Two of the biggest factors limiting adoption of plant-based meat are taste and texture and price," Holland said. "Taste and texture, that will continue to evolve with innovation over time, but dealing with the price in the here and now — they can't take [premium] price and still expect to grow adoption."

"There's so much noise in the market — just because of the instability around pandemic, the different variants, behaviors, foodservice to retail — that we're just kind of sitting out of that discussion and saying, 'Here are the things we can control.' We're going to go after those as hard as we possibly can and we're going to grow our business."

President and CEO, Beyond Meat

However, the existing products themselves could become more premium. McCain, who said Maple Leaf is still trying to figure out how its strategy and resources for plant-based are changing, said that is a likely direction for the company's Lightlife and Field Roast brands. He described the way the company is thinking in an answer to an analyst's questions.

"How about a totally different plant-based experience?" McCain said. "[It] might be a better outcome to address a more sophisticated palate looking for just a good taste experience, and not something that is a pretend taste experience. ...That will affect our innovation pipeline and the work that we do there, and that'll unfold over the course of the next ... few years."

Holland said this would be a good place for all of the better-quality plant-based meat companies to focus. While many players in the space have said they were primarily focused on flexitarians, Holland said it might be a better strategy now to focus on premium consumers and vegans — people who are already in the category and can help propel brands forward if the category is slowing down.

On the Maple Leaf earnings call, McCain acknowledged that the company has to do a lot of right-sizing of its cost structure and investment in the space. But it is still committed to plant-based.

"It's a great category growing at 10% to 15%," McCain said. "... Not many categories are growing at that pace, even if it's not 30% or 40%."

At Beyond Meat, Brown said that 2021 was a year of investment in scaling, and 2022 is the year of execution. The company spent much of the last year investing in innovation and scaling, getting ready for big launches, he said. He touted the McPlant burger, which is currently being tested at some McDonald's restaurants in the U.S. and is available at the chain's U.K. restaurants. Beyond Meat also recently launched some U.S. QSR partnerships, including Beyond Orange Chicken at Panda Express and Beyond Fried Chicken at KFC.

There are also new Beyond Meat products coming to consumers soon, Brown said. One is a major product in a new category that's being released as part of the PLANeT Partnership, Beyond Meat's joint venture with PepsiCo. During the earnings call, Brown would not say what that product was — though reports have indicated that it could be jerky. The product will make its retail launch in a few weeks, Brown said, and will be the first of many in 2022.

Holland said that getting into new categories could be helpful for Beyond Meat in the long term, but the products need to be well executed and positioned.

"Ultimately, that's what they need to do: Continue to increase their reach and find those new buyers," Holland said. "It was never their intention, but you certainly can't stay limited to ground beef or plant-based burgers and expect to convert all of the consumers that you would need to make the growth algorithm work."

While executives at Beyond Meat, Maple Leaf Foods and Kellogg are optimistic about the future growth of plant-based meat, Holland said the outlook for the sector is cloudy and depends quite a bit on consumers' recovery from the pandemic. As many people have spent the last two years close to home and relatively isolated, Holland said that trends have tended toward more indulgent food and away from options that seem healthier.

Beyond Meat's Brown said the company didn't stop working toward its long-term goals as the pandemic changed the game. But he sees the plant-based category regaining steam as people start transitioning to more normal lives.

"It's a great category growing at 10% to 15%. ... Not many categories are growing at that pace, even if it's not 30% or 40%."

President and CEO, Maple Leaf Foods

"Should that start to accelerate on its own, I think we're well positioned," Brown said. "But independent of that, we have a number of actions that we've taken that will allow us to see new growth." He said the company has added distribution points, is planning more tactical shopper marketing programs and wider sampling initiatives. And, he said, new innovations are on their way to market.

As he ended the call, Brown told investors to "sit tight. We're going to be coming back, I think, the latter part of this year and giving you guys some good results."

Holland said he will wait to see if Beyond Meat lives up to that promise. In the past, the company's growth, partnerships and products haven't always met its goals. And the investments in R&D, improving efficiency and bringing costs down outlined by the executive team are substantial, but Holland said there is no guarantee they will pay off.

"Their playbook may bear out," Holland said. "But today, they're essentially asking investors to accept the the magnitude of investment they're making, understanding that we have no idea whether this is going to pay off in two years because we know today that the adoption curve is is slowing. It could re-accelerate, but it also could blow up."

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