Impossible foods, beyond meat, the price parity of battle with real meat

The popularity of plant-based meat products from companies like Beyond Meat and Impossible Foods has skyrocketed in recent years, thanks to availability everywhere, from supermarkets to restaurants, Burger King and Starbucks.

“Look at the plant-based category and millennials and Gen X are attracted to health and sustainability reasons,” explains Rupesh Parikh, senior analyst of food, groceries and consumer products at Oppenheimer & Company.

This has helped the boom in the plant meat industry. Sales of plant-based food groceries that directly replace animal products have grown 27 percent in the past year, now exceeding $ 7 billion in sales, according to the Global Food Institute. In total, the global meat substitute market will grow to $ 23.4 billion by 2024, according to market research firm Euromonitor.

However, one of the most important breaks for potential consumers of vegetable-based meat is the higher price compared to real meat.

At major retailers that sell products like Kroger and Walmart, you can buy two herbal Beyond Meat vegetable burgers for $ 5.99, while in the same stores you’re likely to get 2 pounds of ground meat around the same price and you’re done with more burger pasta than vegetables.

To make more strides in the meat industry of more than US $ 100 billion, alternative meat will have to deal with this price parity.

“As much attention as they are getting, it’s only a very small fraction of the total meat or burger market,” said Carlos Barroso, president and founder of CJB and Associates, a research and development company specializing in the food and beverage industry. . “I think they have a lot of clue left for them to grow up and people are looking for alternatives, not necessarily to become vegans, but to give up meat from time to time,” he added.

Although animal meat currently costs less for consumers than alternative options, experts say this will not always be the case.

For years, large meat manufacturers have been producing animal meat products, producing products on a large scale, and keeping prices low. Plant companies do not have the same economies of scale.

“Whenever you’re a niche product and the niche usually means you’re smaller, more innovative, you’re creating a trend and you’re not one of the big manufacturers, your costs will be higher and your prices will be higher, just goes hand in hand, ”said Debra Holstein, owner of Edible Future, an innovation and research consulting group that works with companies such as Unilever, Kraft Foods and Campbell’s.

Many plant meat companies are new and have not had years of production at the same level as animal meat manufacturers, Holstein added.

Getting alternative meat to taste similar to animal meat equivalents is one of the main hurdles hindering plant-based products, Barroso said, adding that companies like Beyond Meat and Impossible Foods are doing well, but the volume of its production and the higher cost of ingredients keeps prices high.

Supply chain problems also prevent plant meat companies from increasing their production and reducing costs, Barroso said. Due to the Covid-19 pandemic, getting manufacturing equipment and building sites for production can take up to 18 months and, before the pandemic, can take up to 12 months.

In addition to the equipment, it is difficult to get the necessary ingredients for herbal meat. Common plants used for protein in alternative meats such as peas are only produced in some countries and then sold worldwide, according to Rinka Bannerjee, founder of Thinking Forks, a food and nutrition consulting group based in India.

“For most factories, the costs of supplying vegetable protein are high,” Bannerjee said. A second challenge for companies is the processing costs of making plant meat have the same texture as animal meat, he added.

“We’re examining the entire global vegetable protein supply chain and seeing how we can build these economies of scale,” Bannerjee said. “It will be a while before we get to this and it will probably take between 15 and 20 years.”

As Beyond Meat and Impossible Foods expand their products from beef to chicken and move on to other animal meat alternatives, and with new companies entering the market, what can companies do to reduce their prices in the customers and ultimately achieve price parity with animal meat products?

“We’ve reduced retail prices and food services twice in the last 18 to 20 months, each time between 15% and 20%, so that pretty significant prices are falling,” said Dennis Woodside, president of ‘Impossible Foods. “Currently, our product on the platform is priced a little higher than organic grass-fed meat, so it’s still an excellent price and we know we need to reduce it over time.”

Holstein said companies need to do two things to reduce their prices: generate more demand for their products and produce larger quantities of their products.

“It’s a catch of 22; if your demand isn’t significant, it won’t produce enough to lower the price,” Holstein said. “If you don’t produce enough to reduce the price, your demand won’t be significant.”

According to Beyond Meat spokeswoman Shira Zackai, the company’s main hurdle is scaling up its production to meet its current demand. Although, he added, the company plans to not only scale its business, but underestimate its competitors in animal meat by at least one type of meat by 2024.

One of the ways it can lower the price of vegetable meat products is if it lowers the price of ingredients, Barroso said. One of the main ingredients in vegetable-based meat products is peas, and there is a growing drive to plant hundreds of acres of peas across Canada and other parts of the world. In 5 years.

Right now, there are some comparable, plant-based products on the market.

“There are places where you can buy Impossible at the same price as the animal product,” Woodside said. “Probably the biggest thing people know best is Burger King, where we get a $ 1 menu.”

At some Burger King locations, customers can pay the full price for a select group of items and purchase another for $ 1, including Impossible Whopper, which is the alternative plant-based burger to Whopper’s calf. However, sandwiches are priced differently: for example, in Manhattan, a traditional Whopper costs $ 5.49 while the Impossible Whopper costs $ 6.59.

Woodside said Impossible Foods is able to get this product to have the same price as the equivalent of animal meat because they produce it on a large scale. In addition, these products will begin to cost less than animal meat products over time.

“We can price at the same level or lower than the cow. Our whole production process starts with plants, we turn it into meat without using the cow as an intermediary,” Woodside said. “Our ingredients require a small fraction of water, a small fraction of the land and energy of what it takes to raise a cow.”

Animal meat production is likely to continue to cost more than plant meat production, Barroso said.

“Cattle must be fed, and most of them are fed corn and other food sources. The conversion rate for this food is 8 to 1, 8 to 10 pounds of feed. you get 1 pound of beef, ”Barroso said. “With peas, it’s 1 to 1, with a bit of a loss, but it’s close to 1 to 1.”

Holstein suggests that there are a few more ways for companies to lower prices. Companies can develop their own innovative technologies to be more profitable in their production, or said, if large animal meat manufacturers get involved in plant-based meat production, this would also lead to lower prices.

If animal meat manufacturers enter the plant 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 had to stay in business because that was the trend,” Holstein said. . “They just didn’t want to see Tesla take all the sales, so reluctantly they started making hybrid and electric cars.” Holstein said this will likely happen with large beef companies such as Tyson, Conagra, Cargill and the Brazilian company JBS SA, which is one of the largest meat processing companies in the world.

“They’re jealous. They’re watching these new innovations come out, and at some point they’ll start crafting their own beef alternatives,” Holstein said. “It looks like they will work against themselves, but they are not.”

Instead, Holstein said, companies like Tyson and Cargill would likely create a new brand, say something other than their company name, and start making alternative meat products. These products will be priced lower because companies already have the benefits of producing on a larger scale, he said.

“They know how to generate demand, they have bigger budgets, they already have a huge sales force, they have distribution points and refrigerated food trucks,” Holstein said.

Even with the push from larger producers, Holstein said he doesn’t see herbal meat reaching price parity with animal meat for another ten years and believes that herbal meat it will always be at least a little more expensive.

“One of the reasons beef has always been and always will be cheaper is because these companies don’t follow the same guidelines as smaller niche companies,” Holstein said. “Smaller companies try to be very environmentally friendly, they try to follow work patterns and be better for their companies.”

Impossible Foods ranks 24th on this year’s CNBC Disruptor 50 list.