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COVID-19 galvanizes food companies to raise bets on plant-based products

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COVID-19 galvanizes food companies to raise bets on plant-based products

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Swedish retailer Ikea is offering a meat-free version of its iconic meatballs as part of a push for half of all restaurant meals and 80% of its packaged food to be plant-based by 2025.
Source: Ikea AB

The world's biggest food companies are rapidly increasing investments in plant-based products, partly to meet surging consumer demand for alternative protein sources and partly to offset risks associated with meat production that the COVID-19 pandemic has exposed.

The Unilever Group on Nov. 18 set a new annual global sales target of €1 billion from plant-based meat and dairy alternatives within the next five to seven years. In September, the U.K.'s largest supermarket chain, Tesco PLC, announced plans to increase sales of plant-based products by 300% by 2025 compared to sales in 2018. French yogurt maker Danone SA in May said it aims to boost global plant-based sales from roughly €2 billion in 2019 to about €5 billion by 2025.

On Nov. 23, IKEA AB of Sweden announced that half its restaurant meals and 80% of its packaged food offerings would be plant-based by 2025. Nestlé SA's sales of plant-based foods hit CHF 200 million in 2019 and jumped 40% in the first half of 2020. In September, the company introduced a "meatier-tasting" version of its flagship plant burger and launched an oats-and-peas version of its Nesquik cocoa drink in Europe. In the third quarter, "vegetarian and plant-based sales posted strong double-digit growth, supported by new launches," said Nestlé CFO Francois-Xavier Roger on an Oct. 21 earnings call.

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"There's certainly been a lot more interest this year as large companies commit to shift their food portfolios to new plant-based products," said Jim Toy, consumer analyst at research firm GlobalData, in an interview. "They have the potential to steal a large amount of market share" from smaller players such as Beyond Meat Inc. and closely held Impossible Foods Inc., which helped pioneer the shift to tastier meat substitutes, Toy added.

Before the pandemic hit, dollar sales of plant-based foods in the U.S. grew 29% between 2017 and 2019, compared to 4% equivalent growth of total U.S. retail food sales, said the Good Food Institute, a U.S. non-profit group that promotes meat alternatives. In the first half of 2020, more than $1.1 billion of venture investment flowed into alternative proteins compared to investments of $534 million for all of 2019, according to Farm Animal Investment Risk & Return, or FAIRR, a network of investors with $25 trillion in assets under management.

"It takes 1,000 liters of water to get 100 calories from the cow, whereas it takes 38 liters of water to get 100 calories from potatoes," said Jeremy Coller, a British private-equity veteran and founder of FAIRR, in an interview. "We're starting to realize all those economics."

Even companies whose sales and profits are heavily dependent on milk, pork, chicken and beef are diversifying. In October, The Kroger Co. unveiled more than 50 new plant-based foods, including chicken-less patties, nondairy cheeses, and ice cream made from oat milk. The following month, Tyson Foods Inc. said it would begin selling its Raised & Rooted range in Europe, the first expansion of the plant-based brand outside the U.S. In August, Hormel Foods Corporation launched a new line of pea-based "ingredient solutions" to help food manufacturers create new plant-based offerings.

While there has always been a market for vegetarian and vegan foods, the new products also target a different segment of the population: "flexitarians," who want to eat less meat but not eliminate it altogether. Many consumers are altering their diets for health reasons and because they worry about the climate impact and vast natural resources required to produce animal protein. Plus, there is growing concern about large-scale meat processing on animal welfare grounds. The pandemic has accelerated those shifts.

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Sales of meat substitutes so far constitute less than 1% of the global meat market, according to UBS. In a Nov. 2020 estimate, using a base case scenario, UBS forecast that plant-based meat sales would increase to $50 billion by 2025, or 2.5% penetration of total meat consumption volume — equivalent to about 4% on a U.S.-dollar basis. In a more optimistic "upside" scenario, that figure could reach $72 billion, UBS added. A 2019 Barclays report, meanwhile, forecast sales from the wider plant-based market to hit $140 billion by 2029.

"Due to rising demand and a growing population, global meat consumption is on the rise, especially in the U.S., which currently makes up about $270 billion of the $1.4 trillion global meat industry," said Barclays. "We believe therefore that there is a bigger market opportunity for plant-based (and maybe even lab-grown) protein than was projected for electric vehicles 10 years ago."

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Similar changes are underway in China, which alone consumed half of the world's pork in 2019, according to the Organisation for Economic Co-operation and Development. In 2016, the Chinese government set out new dietary guidelines aimed at halving the country's meat consumption by 2030 to fight obesity and climate change.

To tap the growing demand for alternative proteins in China, Nestlé in May said it would spend CHF 100 million to expand its pet food plant and open its first Asian facility for plant-based products in the port city of Tianjin. In September, Beyond Meat said it is building two production facilities near Shanghai. Walmart Inc. has teamed up with Qishan Foods, also known as Whole Perfect Food, to sell meat substitute products in China. And in early 2020, Chinese snack maker Baicoaowei, which is owned by PepsiCo Inc., launched a plant-based sausage snack that it hopes will usher in "a new era of meat."