That’s why Beyond Meat, Oatly and Co. the big losers in the stock market

A great future has long been predicted: companies such as Beyond Meat, Oatly or Swiss producers such as Planted, who want to radically change the market for vegan substitutes and make it big.

But lately these companies are under a lot of pressure; the shares of listed companies have only known one direction for some time and that is downwards. Has the hunger for replacement products such as vegan sausages or burgers made from pea protein already disappeared?

Not quite, because the reasons are varied.

With the IPO, Beyond Meat started to rise. In May 2019, shares of the California-based meat substitute manufacturer rose to nearly $66 per share — a whopping 160 percent higher than the price at which the shares were issued that morning. It was the best IPO in the US since 2000.

Even then, there were voices that the stock was probably completely overvalued. That would explain the first price drop in the same year – but not the significant drop since mid-2021. After solid ups and downs, the share has continuously lost value since then. The price is currently one-sixth of its IPO day price — and nearly 5 percent of its July 2019 high.

It was no different for Swedish oat milk manufacturer Oatly. This stock also had a strong IPO in May 2021, rising from its entry price of $17 to a high of just under $30. It now trades between $1.20 and $1.30 – also a fraction of where the Oatly stocks stood just two years ago.

Declining demand is now used as an obvious reason. Purely on the basis of turnover, meat and milk substitutes still belong to a niche market: according to figures from the Bundesamt für Landwirtschaft, milk substitutes (milk, yoghurt, cheese, quark) were only earned 4.2 times in Switzerland in 2021 – despite the strong growth percent of the total market since 2017. And for meat substitutes that is only 3 percent. However, more recent figures are not yet available.

Because this is (still) a niche market, it is now speculated that the market for vegan products has reached a ‘natural frontier’: ‘Is the boom over?’ many are now wondering. And analysts even say that manufacturers of replacement products “look like a fad whose 15 minutes of fame are already over.” Others say the “vegetarian boom” is “a legend.”

The declining interest is cited as one of the reasons for the slow stock prices: those who want to eat vegetarian or vegan are already doing so, explains an SRF analysis, for example. In Switzerland, only 5.3 percent are completely vegetarian. According to the analysis, this is a niche market that is not constantly growing.

However, this argument ignores the importance of the so-called “flexitarians”. The boundaries of the market do not run along individual people, but within the consumption of these people. This is evident from the figures in Coop’s “Plant Based Food Report 2023”: The proportion of people in Switzerland who consciously avoid animal products several times a month (“flexitarians”) is constantly increasing. In 2022 this was 63 percent; in 2014, 40 percent said they were “flexitarian.”

This means that the same number of people can still choose to consume meat or milk. The question is how often they do that. How much space is left here is impossible to predict.

After a surge during and shortly after the pandemic, sales of meat alternatives in the US have fallen in 2022 compared to the previous year.

In Switzerland, they will probably have stabilized at the same time. The largest retailers Coop and Migros do not publish detailed figures. At Watson’s request, Coop says: “Last year demand for meat and milk substitutes stabilized at a high level.” With more than 1,800 vegan products, the company has the largest range in Swiss retail.

And Migros also reports that growth has slowed down after the Corona period. Nevertheless: «The demand for these products is still increasing and we are very satisfied with the development. The relatively young buyers also show us that the range will become increasingly important,” says the retailer. The discounters Aldi and Lidl think the same, which are expanding their range due to the high demand. Vegan meats, tofu and burger alternatives are currently the most popular at Aldi.

Nevertheless, it is clear that in 2022 turnover on the Swiss market for meat substitutes fell for the first time. Even if this was not the case in all categories, it is clear that the steep growth rates have taken a hit over the past year.

But instead of past lust, another reason could be to blame: inflation.

In times of rising prices, consumers often switch to cheaper products. And prices are the Achilles heel of the replacement industry: they are – still – in most cases higher than their natural competitors. This fact is all the more evident in high inflation countries such as the US. The Financial Times describes it this way:

Homegrown problems added to Beyond Meat’s problems. In November, Bloomberg published an article that revealed something unsavory. Accordingly, there were insufficient hygiene standards in some factories in the US. Photographs showed mold growth on the walls, and listeria was also found in random samples.

While shares of Beyond have already started to plummet, reports like this are another blow to a food company. Probably also as a result of this, the Beyond stock has since all but been able to catch up.

And speaking of health: the fact that people increasingly want to eat healthy is no longer in the cards of many producers of meat substitutes. According to a Deloitte study, many early consumers in the US believed that the health benefits would apply to all foods made from plants. According to Deloitte, far fewer people believe in that these days. Because the fact is: vegetable substitutes are generally not less calories or healthier.

At the beginning of August, Beyond Meat presented its latest figures. They weren’t good: Q2 sales fell 31 million to 102 million, and as a result, the company had to adjust its full-year expectations – always a bad sign. And this despite the fact that Beyond Meat has already implemented cost savings, for example by laying off employees. And the company is still losing money. The stock market reacted immediately and the share fell by more than 14 percent at times.

Another reason for these poor numbers could also be the situation on the market. Since the introduction of vegan ‘meat’, more and more companies have started producing it. The problem for the hitherto successful so-called “first movers”, who were the first to graze the market: major players such as Unilever, Kellogg’s, Tyson Foods and Nestlé also came along. For example, in the milk replacer business, it was Danone who, like Oatly, began harassing the company. Such food giants generally have considerably greater market power and therefore put smaller, innovative start-ups under pressure.

Due to the increased pressure in the market, the gross margin at Beyond Meat has become negative in 2022. This means: with every dollar invested, the company loses its operating profit.

Last but not least, the next innovation on the market likely plays a role in Beyond Meat’s crash: lab meat. Research has been going on for years and lab-grown meat has been allowed to be sold in the US since June. This puts the producers of plant-based ‘meat’ in trouble.

Laboratory meat is still very expensive at the moment. However, there are signs that it will also be ‘The Next Big Thing’ for investors – and that the predecessor is no longer as interesting: while the investments in Beyond Meat and Co. lab meat producers are currently receiving record-breaking loans.

In Europe, the situation for producers of conventional alternatives is slightly better. In Switzerland in particular, one company seems to be defying the dynamics of the market: Planted. Thanks to its pioneering work, Planted is one of the major players in the meat substitute industry in Switzerland. The company’s production volume has grown significantly since its establishment in 2019. Planted is the largest plant-based meat producer in Switzerland and claims to have the highest resale percentage of meat substitutes.

Contrary to the industry trend, Planted continues to grow. The company now employs more than 200 people and, according to its own statements, should have 300 by the end of the year. Planted expanded to Germany, Austria, France, Italy, Great Britain and the Benelux. All products are made in Switzerland, except for the vegan bratwurst. Due to a lack of space, it is produced with a partner company in Germany.

How does Planted counter the negative trend? A decisive advantage, especially in times of inflation: Planted’s vegan products are no more expensive in Switzerland than conventional meat. And in terms of consumer healthcare, there’s another merit. Christoph Jenny, co-founder of the start-up, explains to Watson: “Unlike other suppliers, our products only use natural ingredients, so without additives and flavor enhancers.”

The company is particularly troubled by the fact that the vegan market is being destroyed by foods that fail to deliver on their promises. “There are a lot of bad products on the market,” says Jenny. He thinks this is causing many consumers to stop trying other products after the first try.

Isn’t Planted afraid of competition from the laboratory? “We view the current development of laboratory meat with interest and openness. We see competition as an incentive to create even better products,” says Planted. The technology is not necessarily central, there is a firm belief that consumers “ultimately choose the best product, where taste, price, health aspects and ecological balance are central.” And: “We welcome the competition and initiatives aimed at protecting and preserving our planet.”