The combative exchange of information and opinions helps the markets find the right value of products and the companies that produce them. The fact that much of the exchange between market participants involves statements that would make a kindergartener look immature doesn’t diminish the importance. One of the hottest topics in the food space currently is “plant based protein”. I inserted quotes to highlight the prosaic nature of the topic.
Plant based protein has been around for eons. So, making field peas, lentils, tree nuts, and peanuts seem new and exciting shows the real genius of marketing. In the food space, three themes seem to be the key; you can taste the difference, you can create a difference, and/or you can tell your friends and family.
Plant based protein has made claims to all three. First, some, if not all, of the plant-based burger products claim to be just as tasty as traditional beef-based burgers. This claim seems a little strange to me. Typically, a product claims to be “just as good as” or “just as effective as” only if it’s less expensive than its competition. Its value becomes relatively better because you are not sacrificing quality to gain the savings. Since many of the plant based products sell at a substantial premium to the traditional beef products, why settle for something that’s just as good if it’s more expensive?
Second, plant based proteins claim to be better for the environment. This claim allows the buyers to feel that they are making the world a better place. To say the least, all environmental claims are made using fuzzy math. Witness the debate around internal combustion engines versus battery powered vehicles. Proponents of the internal combustion engine claim that the “embedded” energy in the battery packs outweighs the energy savings in the utilization. The consumer can choose either side of the argument depending on their preferences.
Lastly, that you can tell your friends and family about something creates value for some consumers. When something is new or unique, many people find it worthwhile to pay the premium. But what happens when the product becomes standard and commonplace? Can the product maintain that premium?
Another important aspect to the markets involves the potential growth of a product or service. Plant based products have claimed extremely rapid growth in a saturated food marketplace. So, that makes them interesting to potential investors. Experienced investors always compare the percentage growth to the absolute market size to gauge whether it can be sustained in a meaningful way. Additionally, they want to make sure that the people making the claims have not finessed the market definition so that their claims, while true, are also irrelevant. It’s a bit like the fact that every car and truck can claim to be “the best in class” if by definition it’s a class of one in the survey.
The USDA recently updated its food availability and disappearance data through 2017. As always, every database has its limitation, but only the USDA has the resources and longevity to produce a consistent food consumption database. It’s true that a broad definition of plant based proteins (tree nuts, peanuts, and legumes) have shown a strong percentage increase. Over the last five years, per capita consumption of these three categories combined increased by 21%, rising from 16.7 lbs. per person to 20.2 lbs. per person.1 The meat category (beef, pork, and chicken) only rose by 7% during the same time period, but it increased from 154.8 lbs. per person to 165.1 lbs. per person.1 Given the larger base that animal proteins started with, their smaller percentage increase was 10.3 lbs. per person versus plant based protein increase of 3.5 lbs. per person.
Lastly, both categories increased at the same time. While consumers want more proteins in all their formats, they are not substituting one for the other. Given the relatively inexpensive price of animal based protein relative to wages, it appears that animal based proteins will continue to rise. If they return to the 2004 peak at 170.3 lbs. per capita,1 this would add another 5.2 lbs. per capita to overall consumption, representing almost 1.7 billion lbs. of additional U.S. meat consumption. This quantity of demand growth seems like a good market opportunity for a mature segment.
Plant based proteins and animal based proteins have strong appeal to the consumer for different reasons. However, any suggestion that meat based proteins are going away seems to be a poor premise for investment purposes. And, a good plant based story doesn’t need to make that claim for plant based proteins to be a viable option going forward. There is plenty of demand to go around.
1 USDA ERS Food per Capital Disappearance Database