The Exchanges

Q Okay, so let's talk about the plant-based meat world then, and just starting with the high level, like what has been the, there's been lots of headlines around, you know, troubles in the category, declining sales, particularly for the, the big players, which is basically impossible and beyond. Give me some numbers to put behind that. Like, what have we actually seen happen in the market?

A Well, if you think you kind of step back prior to COVID, this was a category that was growing mid-single digits, uh, mid-single to high single digits, call it, you know, 2014 through 20 18, um, prior to COVID. Then what you had seen, uh, when Beyond Meat became, went public in 2019, you had seen, you know, all the buzz around the category and the brand. You had seen the volume grow, you know, 15, 20% in 2019, so accelerated. And then in 2020, when you had the big COVID bounce with everybody eating at home, restaurant consumption being down, you know, you had seen the category growing 40%. Um, so, you know, very nice, you know, improvement. And what happened at that point, there was a view among folks in the industry that the biggest impediment for plant-based meat consumption Was household penetration and trial. And the thought process was, hey, you know, we've had this, this huge dislocation in the food environment in the US with this big 40% increase in volume for the category in 2020. We've just accelerated household penetration by a number of years just within 2020. And the thought process was, you know, it lifts, it rebases category consumption higher, and that just further, you know, reinforces the, the optimism and bullishness for consumption of the category. Uh, and what's happened since then is about, I think, 33 consecutive months now of volume declines. Uh, the categ…

AI assessment note: “about, I think, 33 consecutive months now of volume declines.”

Q Okay. Um, and maybe we start by actually contrasting it a little bit, because there's, there's the plant-based meat category we're going to spend most of our time on, but there's also the plant-based milk or plant-based drink world. It feels like they're They're taking diverging paths at the moment. Is that right?

A Very much so. I think what you've seen more recently in the past six to nine months, you've also seen volumes in consumption soften for plant-based beverages. We think really because of just elasticity, and you've seen, you know, mid-teens price increases having been taken in this category over the past year or so. So, more recently to date, yes, you are seeing a little bit softer consumption in plant-based beverages. However, if you go back over the past You know, five years or so, plant-based beverages have been a much stronger category, and it also has a much longer history, you know, called a thirty-year history relative to plant-based meat really just being more of a past, you know, five to seven-year sort of evolution.

AI assessment note: “Very much so. I think what you've seen more recently in the past”

Q I mean, you said these things are not price competitive today. Maybe you can give me some numbers around that. Like how, what, how much of a price premium would I pay for a plant-based meat product versus a meat, the, the, the traditional meat alternative today? And then like, what do we know anything about? What is the, what's the premium a, a larger market might bear if any.

A So there's two ways to answer this question. One is in the absolute sense, where depending on the level of price promotion and discounting, I mean, you can see plant-based meat anywhere from a 20 to 30% price premium per pound over animal meat all the way up to over double the price. Uh, whereas for plant-based beverages, uh, you know, in, in that sense, you're looking at maybe, you know, double the price Per, you know, per liter of cow's milk in some cases. However, if you think about the plant-based beverage category, it's all relative. So if you look at the plant-based beverage category, that slots in at a mid-priced product, cheaper than organic milk, but more expensive than cow's milk. So on a relative basis, as a consumer, say, ah, it's going to be more expensive, but you know what? I have the benefits because I'm lactose intolerant, or, you know, I don't like the taste of cow's milk. And by the way, It's cheaper than organic milk. So it's, on a relative basis, it's not, it's not that crazy. But in the meat space, you don't really have an organic part of the market that's really been built up. So not only is it an absolutely higher price premium, but there's no other brand, you know, category out there that makes it look less expensive in absolute terms. So it's kind of a double whammy for plant-based meat that you don't have in beverages. And when we, when we talk to con…

AI assessment note: “you can see plant-based meat anywhere from a 20 to 30% price premium”

Q And then, okay, so we talk about price, talk about health. Um, you mentioned another one, which is like, what are the actual products that are being sold? And is it all ground beef and ground beef derivatives, or is it structured products and things like that? Where are we in that evolution of the product suite?

A You know, it's still very much in, in the early phases with, Penetration towards ground beef products. And if you think about some of the, the cannibalization that's out there, you know, for Beyond Meat to launch the patties, and then to launch a ground product, and then to launch a preformed meatball. You know, when I was growing up, my mom would make meatballs, and she would buy the ground beef from the store and just roll them up herself in the kitchen. You know, so it's, you're thinking about how you're building this category, you're selling products that are commoditized, that interact Interplay with each other. So it's not that incremental. Even, you know, the jerky, the Beyond Meat jerky, again, like, what's the market for plant-based jerky, you know, in this country relative to the resources you put behind it? It's just, you know, I think the, the ideation has not, it's been pretty underwhelming overall for the category. I think Impossible's done a better job with that in terms of some of these convenience foods and, you know, fajitas and whatnot. But I think what's interesting, too, is there is this notion in the industry that consumers are buying plant-based meat instead of Beef, which is not the entire story. Uh, what we hear from consumers is that about almost 60% of consumers who are buying plant-based meat are not substituting for beef. It's for a food other than …

AI assessment note: “it's still very much in, in the early phases with, Penetration towards ground beef products.”

Q And then there was like a series of articles and exposés saying, wait a second, this stuff actually isn't as healthy as you Might have thought it was, and that, that seems to have killed some of the enthusiasm. Do we see products coming in the pipeline that are actually healthier, and do you, do you see this as a, can the, can the market turn this narrative back around?

A We think so. Um, there's a lot of development, especially looking at, you know, a whole industry of private companies, you know, that are out there, you know, working pretty feverishly, uh, on the R&D side, whether it's Better quality ingredients, better processing technologies that improve mouthfeel and texture. Uh, I mean, I think the Beyond Steak product that rolled out has done a nice job reducing sodium content, you know, in terms of some of the cholesterol, um, you know, advantages of that product. So, you're definitely seeing it coming into the market, but it's going to take time, and, you know, we, we speak to investors, and we say, look, we're positive on the long-term growth of this plant-based category. We literally mean Generational. 20 years. This is not going to happen in, you know, a two or three, you know, year investment horizon for a lot of folks that are out there. So it's going to take time, but yes, there's a lot of, a lot of investment, a lot of innovation in this category. So we think it's only a matter of time before you do see other ingredients coming in that really supersede what's in the market now.

AI assessment note: “We think so. Um, there's a lot of development, especially looking at”

Q stage investment activity has declined substantially in this space as well. What do you see as, as sort of the next wave from a competitive landscape perspective here? Are there like obvious next leaders coming behind Impossible and Beyond? Is it still just a mishmash of Early stage private companies that who knows if any are going to break out? Like, how do you think about the pipeline of companies?

A Well, you know, I think it's a combination. I think if you look at the, the investment landscape, the, the biggest issue that that's really changed over the past five years is the competition for VC dollars from fermentation, right? I mean, if you go back to 2017, there was really no investment at all in fermentation. That was material. Whereas in 2021, 2022, I mean, you had seen about, I think, like two billion dollars of investment in, in the fermentation space as opposed to just traditional plant-based food. So I think what's changed in the financing environment, the investing environment is there is competition for that investor dollar now at the margin in terms of where that goes between, you know, even cultivated protein. I mean, cultivated protein Had almost two billion dollars of investment back in 2021 from, from investors. That was really nonexistent five years ago. So there's definitely a bit more tension now in terms of the investment community, higher hurdle rates for that investment, because it's not just a plant-based market anymore as technology is, is advancing. So that's going to raise the bar for, you know, better business plans, you know, better business models, better ideas, you know, from these startups, which again, I think they're out there. Look at redefined meat, you know, some of these three D meets that are out there that can get you into that Struct…

AI assessment note: “Look at redefined meat, you know, some of these three D meets that are out there”

Q That's interesting. And so I guess that's, that's a sort of semi-positive story for impossible, right? Like they're gaining a share and a key portion of the market, but it appears what they're doing is stealing from another part of the plant-based protein or plant-based meat pie, as opposed to growing the pie overall.

A It is, and I, you know, the, the other standout aspect for, for Impossible as well is this, is this heme, this heme ingredient, you know, that, that's in there, that, that makes the burger, you know, you know, bleed more like regular animal meat, um, and it's, it's, so if, if you're a consumer, and, and you're just saying, look, you know, I'm, I'm sort of interested in buying this category, um, it tastes like beef, but there's no beef in it, um, That freaks me out a little bit. You know, there, there's a certain reluctance there to, to take that, that step, you know, be brave and, you know, try the product. Whereas with plant-based beverages, uh, you know, oh, I love, you know, good humor, toasted almond bars. There's an almond milk. It's an easy sort of, you know, conversion, you know, for a consumer from cow's milk or soy milk or rice milk, whatever it may be. You know, I eat Cheerios. I like oats. Let me try oat milk. Uh, so you have that sort of mentor hurdle in the, in the, in the, in the plant-based meat space. And I think, you know, the other issue too, when you think about the category is, How is the category growing? If you look at the innovation in plant-based meat, look at the products that are out there. It's ground beef. It's sausage. It's meatballs. It's patties. It's all ground beef product, and a big part of the issue is you have technological constraints up to …

AI assessment note: “It is, and I, you know, the, the other standout aspect”

Q early markets, do we have data on sort of what the penetration has been in those markets, and is there any differentiation in terms of, as the hangover has set in, in the past couple of years, is it that, ah, we're finding, you know, inability to expand beyond the early diehard adopters, or is it that there actually never really were any early diehard adopters in the first place?

A Well, I think if you look at adoption, and you look at a traditional You know, sort of, you know, S-curve for the adoption of innovation. You figure your, you know, kind of, you know, innovators and your early adopters are the first, you know, what, two, five, 10% of the market. Right now, household penetration for plant-based meat is about 20%. You look at where household penetration is for plant-based beverages, you know, plant milk, it's about over 40%. And in Europe, you know, plant-based beverages have a penetration of 50%. So, you know, one could easily argue that you're still very early in the days of adoption for plant-based meat, and if you think about sort of the, you know, the structural trend here going forward, what we do know factually is looking at, you know, western food habits and food consumption, the prevalence of meat in the diet, you know, as you start seeing economic growth in other parts of the world, and this natural kind of trading up the food curve, Into, into higher price proteins, uh, you've got some significant resource constraints long-term. So, you know, in, in, in one sense, it, it's hard to see another way out of this without plant-based diets increasing. You think about the Paris Climate Agreement, you know, pretty much all of the signatories at this point are already behind their goals just a couple of years in, uh, you know, so do you see mor…

AI assessment note: “Right now, household penetration for plant-based meat is about 20%.”

Q How do you think about it from a price perspective? I mean, that seems to be the, the biggest rub in the early days is can we make cultivated meat that is like even in the ballpark of traditional animal protein?

A Exactly. And I think part of that issue is just going to be sticking with it, you know, until the, you know, the cost curve comes down. And I think what's really nice about that is seeing just the, the level of interest, you know, from VC, you know, and private equity, you know, sort of funding these businesses that, you As long as they're willing to kind of stay in the path, you are going to see that cost curve come down. So it's only a matter of time before you see, you know, price parity kick in. And, you know, hopefully by that point, uh, you know, you also see a little more distribution in stores as well as it's commercialized.

AI assessment note: “it's only a matter of time before you see, you know, price parity kick in”