CNBC - Mikaela Cohen
KEY POINTS
- The market for plant-based meat is skyrocketing, and it will likely grow to $23.4 billion by 2024, with companies such as Beyond Meat and Impossible Foods leading the way.
- However, meat substitutes and alternatives cost more than animal meat products due to supply-chain issues, higher costs of ingredients and higher costs of production.
- Experts say plant-based meat products could remain more expensive for anywhere from five to 20 years.
The popularity of plant-based meat products from companies such as Beyond Meat and Impossible Foods has skyrocketed in recent years, aided by availability everywhere from supermarkets to Burger King and Starbucks.
“You look at the plant-based category, and millennials and Gen X are attracted to it for health reasons and sustainability reasons,” said Rupesh Parikh, a senior analyst of food, grocery and consumer products at Oppenheimer & Company.
That has helped the plant-based meat industry boom. Grocery sales of plant-based foods that directly replace animal products have grown 27% in the past year, now exceeding $7 billion in sales, according to the Global Food Institute. In total, the global market for meat substitutes is set to grow to $23.4 billion by 2024, according to market research company Euromonitor.
However, one of the biggest deal breakers for potential consumers of plant-based meat is the higher price compared with actual meat.
At major retailers that sell the products, such as Kroger and Walmart, you can buy two Beyond Meat plant-based hamburger patties for $5.99, whereas at the same stores, you can likely get two pounds of ground beef for around the same price and end up with more hamburger patties than plant-based patties.
To make a further dent in the more than $100 billion U.S. meat industry, alternative meat will need to address that price parity.
“As much attention as they’re getting, it’s just a very small fraction of the total meat or hamburger market,” said Carlos Barroso, president and founder of CJB and Associates, a research and development firm specializing in the food and beverage industry. “I think there’s plenty of runway left for them to grow, and people are looking for alternatives, not necessarily to become vegans but to give up meat occasionally.”
While animal meat currently costs less for consumers than the alternative options, experts say this might not always be the case.
Why plant-based meat costs more
Big meat manufacturers have been producing animal meat products for years at a large scale and keeping prices low. Plant-based companies don’t have the same economies of scale.
“Anytime you’re a niche product — and niche usually means you are smaller, more innovative, you’re creating a trend and you’re not one of the big manufacturers — your costs are going to be higher and your prices are going to be higher. It just goes hand in hand,” said Debra Holstein, owner of The Edible Future, an innovation and research consultancy group that’s worked with companies such as Unilever, Kraft Foods and Campbell’s.
Many plant-based meat companies are new and haven’t had the years of production under their belt to match the levels of animal meat manufacturers, Holstein added.
Getting alternative meat to taste similar to animal meat equivalents is one of the primary obstacles that stands in the way of plant-based products, Barroso said. He said companies such as Beyond Meat and Impossible Foods are doing this well but the volume of their production and higher cost of ingredients are keeping their prices high.
Supply-chain problems also prevent plant-based meat companies from increasing their production and lowering costs, Barroso said. Due to the Covid-19 pandemic, getting manufacturing equipment and constructing sites for production can take up to 18 months, and before the pandemic, it could take up to 12 months.
On top of the equipment, getting the necessary ingredients for plant-based meat can be difficult. The common plants used for protein in alternative meats, such as peas, are only being produced in a few countries and then sold around the globe, according to Rinka Banerjee, founder of Thinking Forks, a food and nutrition consultancy group based in India.
“For most factories, the costs of sourcing for plant proteins are high,” Banerjee said. A second challenge for companies is the processing costs of making plant-based meat the same texture as animal meat, she added.
“We are looking at the entire global supply chain on plant protein and seeing how we can build those economies of scale,” Banerjee said. “It’s going to be a while before we reach that, and it will probably take somewhere between 15 and 20 years.”
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Making prices comparable
As Beyond Meat and Impossible Foods expand their products from beef to chicken and into other animal meat alternatives, and with new companies entering the market, what can companies do to bring their prices down for customers, ultimately leading to price parity with the animal meat products?
“We’ve lowered our retail prices and our food service prices twice in the last 18 to 20 months, each time by 15% to 20%, so pretty meaningful price drops,” said Dennis Woodside, president of Impossible Foods. “Currently, our product on shelf is priced a little higher than organic grass-fed beef, so that’s still a premium price, and we know we need to get that down over time.”
Holstein said companies need to do two things to bring their prices down: generate more demand for their products and produce larger quantities of their products.
“It’s a Catch-22; if your demand is not significant, you’re not going to be producing enough to bring the price down,” Holstein said. “If you’re not producing enough to bring the price down, then your demand will not be significant.”
According to Beyond Meat spokeswoman Shira Zackai, the company’s biggest hurdle is scaling its production to meet its current demand. However, she added, the company plans to not only scale its business but underprice its animal meat competitors in at least one type of meat by 2024.
One of the ways the price of plant-based meat products can go down is if the price of the ingredients goes down. Because peas are one of the main ingredients, Barroso said, there is a growing push to plant hundreds of acres of peas across Canada and other parts of the world. He predicted that with these initiatives, a price parity can be seen around five years from now.
Right now, there are some price-comparable plant-based products on the market.
“There are locations where you can buy Impossible at the exact same price as the animal product,” Woodside said. “Probably the biggest one people know best is Burger King, where we’re on the buy-one-get-one-for-$1 menu.”
At some Burger King locations, customers are able to pay full price for a select group of items and buy another for $1 — included in that is the Impossible Whopper, which is the plant-based burger alternative to the beef Whopper. However, the sandwiches are otherwise different prices: for example, in Manhattan, a traditional Whopper costs $5.49 while the Impossible Whopper costs $6.59.
Woodside said Impossible Foods is able to make this product the same price as the animal meat equivalent because they are producing it at scale. Also, these products will start to cost less than animal meat products over time.
“We will be able to price at the same level or lower than the cow. Our entire production process starts with plants — we turn it into meat without using the cow as the middleman,” Woodside said. “Our ingredients require a small fraction of water, small fraction of the land and energy than it takes to raise a cow.”
Animal meat production is likely to continue to cost more than plant-based meat production, Barroso said.
“Cattle have to be fed, and most of them are corn-fed and other feed sources. The conversion rate of that feed is 8-to-1 — 8 to 10 pounds of feed gets 1 pound of beef,” Barroso said. “With peas, it’s 1-to-1, with a little bit of loss, but it’s close to 1-to-1.”
Holstein suggested there are a few more ways companies could lower prices. Companies can develop innovative technologies of their own to become more cost efficient in their production, she said, and big animal meat manufacturers could get involved in plant-based meat production.
Big business getting involved
If animal meat manufacturers enter the plant-based meat market, this could drive down the price of these products.
“Just like General Motors did with electric cars — they didn’t want to create electric cars, they didn’t want to sell electric cars, but they kind of had to stay in business because that’s where the trends were going,” Holstein said. “They just didn’t want to watch Tesla take all the sales, so they reluctantly started making hybrid and electric cars.”
Holstein said this is likely going to happen with big beef companies such as Tyson, Conagra, Cargill and Brazilian company JBS S.A., which is one of the largest meat-processing companies in the world.
“They are jealous. They’re watching these new innovations come along, and at some point, they are going to start making their own beef alternatives,” Holstein said. “It looks like they’re going to be working against themselves, but they’re not.”
Instead, Holstein said, companies such as Tyson and Cargill would likely create a new brand, call it something other than their company name and start making alternative meat products. Those products will be lower priced because the companies already have the cost advantages of producing at a larger scale, she said.
“They know how to generate demand, they have bigger budgets, they already have a huge sales force, they have distribution outlets and refrigerated food trucks,” Holstein said.
Even with the push of bigger producers, Holstein said she doesn’t see plant-based meat reaching price parity with animal meat for another 10 years and she thinks plant-based meat will always be at least slightly more expensive.
“One of the reasons that beef has always been cheaper and always will be cheaper is because these companies don’t follow all of the same guidelines that smaller niche companies do,” Holstein said. “Smaller companies are trying to be very environmentally friendly, they’re trying to follow labor guidelines and be better to their companies.”
