The Future of Plant-Based Food: Opportunities and Challenges

Market Growth and Future Projections

Increased penetration in retail and foodservice channels, effective brand building, and growing demand are driving market growth for plant-based foods. However, challenges such as weakened demand, macroeconomic headwinds, and competitive activity pose risks to future projections.

"The following factors and trends in our business have driven net revenue growth over prior periods and are expected to be key drivers of our net revenue growth over time, subject to the challenges discussed above: • increased penetration across our retail channel, including mainstream grocery, mass merchandiser, club store and natural retailer channels, and our foodservice channel, including increased desire by foodservice establishments, including large Full Service Restaurant and/or global QSR customers, to add plant-based products to their menus and to highlight and retain these offerings;" --- (BYND, sec filing, 2024/Q1)

"And so, I can only hypothesize that that's why it's growing so fast. The business case for us is our retail base is some of the best brand building environments for consumer products brands, much more so than large discounters." --- (UNFI, conference, 2024/06/10)

"In response to the current difficult environment and the negative impact of certain factors on our business and the overall plant-based meat category, beginning in 2022 we pivoted our focus toward sustainable long-term growth supported by three pillars: (1) driving margin recovery and operating expense reduction through the implementation of lean value streams across our beef, pork and poultry platforms; (2) inventory reduction and cash flow generation through more efficient inventory management; and (3) focusing on near-term retail and foodservice growth drivers while supporting strategic key long-term partners and opportunities." --- (BYND, sec filing, 2024/Q1)

"And so, if anything, I would say demand is growing rather than receding. The value proposition is key, but that's the whole premise of pro services is that it creates value and helps our customers right away." --- (UNFI, earning call, 2024/Q3)

"As we seek to grow our net revenues, we continue to face several challenges, including prolonged, weakened demand within the plant-based meat category overall, broad macroeconomic headwinds, including elevated levels of inflation, high interest rates, waning consumer confidence and recessionary concerns in certain geographic regions, adverse changes in consumers’ perceptions about the health attributes of our products, increased competitive activity in the plant-based meat category, and global events such as the war in Ukraine and the conflict in Israel, Gaza and surrounding areas and their potential impact on availability of raw materials and/or distribution of our products." --- (BYND, sec filing, 2024/Q1)

Consumer Trends and Preferences

Consumers are increasingly mindful of their protein choices, valuing quality and brand equity over price. They are cautious yet willing to spend on products they perceive as valuable, driven by international trends and enhanced by first-party data and technological innovations.

"If you think about consumer trends, clearly we know where they're going, we know that internationally, and we know that's going to eventually happen here in the U.S." --- (PEP, earning call, 2024/Q2)

"We've got more first party data than we ever had before. So we think about from a consumer messaging standpoint, innovation types of things that technology can bring to really increase that speed to value in that speed market is equally an area that we're very excited about." --- (K, conference, 2024/06/06)

"And I know the consumer measures value in lots of different ways, not just price, so I was hoping to get maybe a better sense of how the mix of incremental spending for '25 is sort of broken out across what would you consider higher-quality sort of brand equity building versus, let's say, more trade or price-oriented spend, particularly as this is such a sort of a hot button topic among investors right now." --- (GIS, earning call, 2024/Q4)

"We believe that a growing number of consumers are making mindful protein choices in consideration of such findings. In this context, we see our work as enabling consumers to continue to enjoy the experience of" --- (BYND, AGM, 2024/05/23)

"So do you see different behaviors happening everywhere, I think the connecting line it would be, the consumer is more cautious, the consumer is more choiceful, but the consumer is willing to spend in areas where they see value and we see it in our category, right, the more -- the parts of the category there I was referring to." --- (PEP, earning call, 2024/Q2)

Technological Advancements and Innovations

Technological advancements in the plant-based food sector have led to disruptive innovations, such as Beyond Meat's 4th generation products, which are recognized by leading health organizations. These innovations, developed over years, address core challenges in the industry, enhancing both product quality and market acceptance.

"As has been the case with other disruptive innovations in history, innovations that are today commonplace everyday items." --- (BYND, earning call, 2024/Q1)

"The strong advancements in nutrition have qualified the 4th generation beyond burger and beyond beef products to be recognized by the nation's leading health organizations, including the American Diabetes Association, Evidence Based Nutrition Guidelines for its Better Choices for Life program and being included in the collection of heart healthy recipes certified by the American Heart Association's Heart Check Program." --- (BYND, event transcript, 2024/05/23)

"And so this innovation, which took years to accomplish, is something that we think addresses at its core the challenges with the sector and the business." --- (BYND, event transcript, 2024/05/23)

Supply Chain Challenges and Technological Solutions

Technological solutions such as AI, cloud platforms, and cold chain management are being employed to tackle supply chain challenges in the plant-based food industry, leading to significant operational improvements and cost savings. Companies like Tyson Foods and UNFI are focusing on efficiency and waste reduction to enhance their supply chains.

"Their solutions targeted supply chain challenges from many different angles using technologies that include software, artificial intelligence, cold chain management, recyclable materials, freezing technology, monitoring, cloud platforms and fleet management." --- (TSN, press release, 2024/07/24)

"We are taking a similar approach to achieving this fundamental operational improvement that we did in tackling and rapidly achieving the $150 million in annualized near-term reductions we previously discussed as well as the broader supply chain efficiencies we've actioned." --- (UNFI, earning call, 2024/Q3)

"David Palmer: And just a follow-up on supply chain was a constraint for the old Kellogg's and Kellanova, perhaps more than most companies last year." --- (K, earning call, 2024/Q1)

"What I'm describing to you is a new opportunity and a new waste being eliminated from our system, all through supply chain in terms of where we manufacture, what is the capacity utilization, the yields, the labors, all those things you would see in a typically commodity oriented business." --- (TSN, conference, 2024/05/15)

"excluding incentive compensation in the third quarter of both years, adjusted EBITDA would have increased by $4 million, which reflects the benefits of our near-term cost savings initiatives and supply chain efficiency improvements, including our shrink management efforts." --- (UNFI, earning call, 2024/Q3)

Regulatory Environment and Impact

General Mills suggests that regulatory changes are unlikely to significantly impact their plant-based food business due to their experience with various regulatory environments. Kellogg highlights the importance of food safety, advertising, and labeling laws, indicating that these regulatory factors are crucial for the plant-based food industry.

"So the idea that it would have a significant impact on our business one way or the other, I don't think that it will because we've competed in all we've competed with all kinds of regulatory environments." --- (GIS, conference, 2024/05/29)

"of U.S. and foreign economic conditions on items such as interest rates; statutory tax rates; currency conversion and availability; legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations, the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and the risks and uncertainties described in Item 1A below." --- (K, sec filing, 2024/Q1)

Competitive Landscape and Market Positioning

Kellogg's leverages strong product research and pragmatic market-by-market positioning, while Beyond Meat focuses on competitive pricing and expanding affordable, great-tasting products. UNFI differentiates by offering a broad array of innovative products and solutions, helping customers and suppliers thrive in a competitive market.

"The initial research on product and on positioning is very strong. And so this is not anything that's going to really affect your models per se, because we're taking it in a very pragmatic way market-by-market, continuing to build the playbook." --- (K, earning call, 2024/Q1)

"And so I think that made the discussions a lot easier. From a competitive perspective, we're largely following a lot of price increases and obviously, in retail more generally, but also if you look at our largest competitor, they went through a similar process about a year before us." --- (BYND, earning call, 2024/Q1)

"UNFI Details How Solutions Help Customers and Suppliers Differentiate in Competitive Market, Highlights Supplier Circle of Excellence Winners and New UNFI Media Network At its first Winter & Holiday Selling Show of 2024, held at the Mohegan Sun Convention Center in Uncasville, Conn., United Natural Foods, Inc. (the 'Company' or 'UNFI') unveiled a selection of new, innovative products and solutions designed to help food retailers drive growth and profitability during the upcoming winter holiday selling season." --- (UNFI, press release, 2024/06/06)

"And the ability to switch from an agricultural and food system that is destructive to one that's additive through the approach we take cannot be underestimated. So the single most important thing we can do is create great tasting products at a price that people can afford and get them to more and more people." --- (BYND, event transcript, 2024/05/23)

"We believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America." --- (UNFI, sec filing, 2024/Q3)

Sustainability and Environmental Impact

Companies like Kellogg's and Beyond Meat are actively enhancing sustainability in their operations, focusing on improving environmental outcomes, reducing emissions, and promoting equitable food access. These efforts are crucial for the plant-based food industry's environmental impact and long-term sustainability.

""We're excited to work with our customers and partners to improve on-farm environmental outcomes, while increasing overall sustainability across the milling and baking supply chain," said Bob Knief, President of Bartlett, a Savage Company." --- (K, press release, 2024/06/18)

"I'll begin with a brief overview of our Q1 2024 performance, afterwards I'll provide updates on the 5 priorities I outlined on our previous earnings call and how we are building toward our goal of sustainable operations and return to growth." --- (BYND, earning call, 2024/Q1)

"insights on farm and supply chain resiliency. Arva Intelligence, whose mission is to empower farmers to grow their business, while driving a larger environmental asset economy, will use their CropForce™ platform, to measure, report, and verify impacts to the partners' respective emissions reductions, providing scalable knowledge each company can potentially take forward into the development of other Scope 3 initiatives." --- (K, press release, 2024/06/18)

"We are committed to promoting sustainable and equitable food access by tackling the crossroads of hunger, sustainability, wellbeing, and equity, diversity & inclusion." --- (K, press release, 2024/06/18)

Investment and Funding Trends

Companies in the plant-based food sector are actively managing their financing and investment strategies. UNFI and Kellogg are leveraging debt and reinvestment to fund capital expenditures and network optimization. Meanwhile, Beyond Meat and Tyson Foods face financial challenges, indicating a potential need for additional funding to support their operations and restructuring efforts.

"We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise." --- (UNFI, sec filing, 2024/Q3)

"First Quarter 2024 Financial Highlights1 Net revenues were $75.6 million, a decrease of 18.0% year-over-year.Gross profit was $3.7 million, or gross margin of 4.9%, compared to gross profit of $6.2 million, or gross margin of 6.7%, in the year-ago period.Loss from operations was $53.5 million, or operating margin of -70.7%, compared to loss from operations of $57.7 million, or operating margin of -62.6%, in the year-ago period." --- (BYND, press release, 2024/05/08)

"In the first six months of fiscal 2024, our operating income was impacted by $114 million of plant closure charges, $80 million of costs related to a production facility fire and our current intention to discontinue the use of certain productive assets in the Netherlands, $73 million in legal contingency accruals and $31 million of restructuring and related charges, partially offset by the benefit of $24 million of insurance proceeds, net of costs incurred related to facility fires." --- (TSN, sec filing, 2024/Q2)

"on invested capital, making progress on network optimization projects, all of which gives us increased confidence in the full year guidance we first provided last August and allows us to increase reinvestment." --- (K, earning call, 2024/Q1)

"Total debt increased $188 million to $2,151 million as of April 27, 2024 from $1,963 million as of July 29, 2023, primarily related to additional net borrowings under the ABL Credit Facility to fund payments for capital expenditures and investments, partially offset by net cash flow from operating activities." --- (UNFI, sec filing, 2024/Q3)

Global Market Dynamics

Beyond Meat is focusing on growth opportunities and operational efficiency to navigate global market dynamics. General Mills emphasizes consumer needs and diversity, reflecting broader market trends. Tyson Ventures invests in disruptive food innovations, including plant-based options. Beyond Meat also notes varying international demand, highlighting regional market differences.

"To further reduce operating expenses, in the fourth quarter of 2023, we initiated our Global Operations Review, which involves narrowing our commercial focus to certain growth opportunities and accelerating activities that prioritize gross margin expansion and cash generation." --- (BYND, sec filing, 2024/Q1)

"Making Food the World Loves As a global food company, General Mills embraces the diversity of people's needs, keeping consumers at the heart of everything they do." --- (GIS, press release, 2024/04/18)

"Tyson Ventures aims to be the strategic partner of disruptive innovators transforming the food industry and providing sustainable nutrition to a growing global population. Tyson Ventures focuses investments in three" --- (TSN, press release, 2024/07/24)

"Softness in our international retail channel mainly reflected the lapping of large initial pipeline orders in Europe for our chicken innovation launches from a year ago, as well as softer demand in the Canadian market for certain of our beef and pork items." --- (BYND, earning call, 2024/Q1)