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Looking Beyond Meat

Burger King Impossible Whopper, one of many meat substitutes coming to fast food restaurants.
photo by Tony Webster

Investors and restaurants alike are betting big that customers will fall for meatless meat – so much so that KFC is evaluating an offering that, while still fried, is no longer technically chicken.

Beyond Meat Inc. went public in May, and since then its stock has been volatile but has performed well overall. Shares rose more than 800% in the first two months of trading. The company said in late July that it expects to be profitable by the end of 2019. Beyond Meat’s main competitor, Impossible Foods Inc., is not yet publicly traded and has not announced plans for an initial public offering. But based on activity in the secondary market, investors seem likely to flock to the maker of the Impossible Burger when they can.

For me, curiosity recently won out, and I gave Burger King’s Impossible Whopper a try. I was impressed – it was a pretty good sandwich. I have also tried the Beyond Burger, which I found less convincing as a substitute for beef. It wasn’t bad, but in my opinion, Beyond Meat needs to keep working on its product.

My own taste test aside, it’s likely that restaurants will increasingly offer a meat version and an “impossible” version of an item side-by-side. You can already find Beyond Meat and Impossible Foods offerings at Dunkin’, Carl’s Jr. (or Hardee’s, depending on where you live), Burger King and White Castle. Subway and KFC are primed to follow. Beyond Meat has announced additional deals with Famous Dave’s, Tim Hortons, Del Taco, TGI Fridays and even meal-kit service Blue Apron. Customers can also buy Beyond Meat directly in some grocery stores; Impossible Foods has said it, too, will offer products directly to consumers now that it has secured the necessary approval from the Food and Drug Administration.

Only 5% of the U.S. population identifies as totally vegetarian. But many Americans are increasingly concerned about the health impacts of meat consumption and the environmental impacts of meat production. Unlike traditional meat alternatives – say, Gardenburger or Tofurkey – Beyond Meat and Impossible Foods market their offerings mainly to meat-eaters. Make a burger substitute that tastes enough like meat, the theory goes, and meat lovers will cut back on the amount of meat they consume even if they don’t give it up altogether. Based on the explosion of sales in this sector, the approach seems to be working. Barclays estimates the market will reach $140 billion over the next 10 years, The Wall Street Journal recently reported. So the move toward expanded meat substitutes is probably real and lasting.

But just because plant-based meat substitutes are likely to stick around does not mean investors should pin all their hopes on Beyond Meat in particular.

Even if meat substitutes do take off in a big way, if you invest in a particular company you could still lose out if you fail to pick the ultimate winner. Unfortunately, there is no guarantee that the first company out of the gate will continue to dominate the field. If other customers, like me, prefer Impossible’s burgers to those offered by Beyond, the company second to the market could still come out on top.

The bigger risk is that barriers to entry in this space are low. Food juggernaut Nestle SA has announced that it will launch the “Awesome Burger” in the fall through its Sweet Earth brand. The plant-based burger will mimic beef in the way Beyond Burgers and Impossible Burgers try to do. Morningstar Farms, owned by Kellogg, has offered plant-based alternatives for 40 years but is now expanding its footprint in light of enthusiasm for new meatless offerings. Kraft Heinz’s Boca Foods brand has refreshed its packaging and presentation in hopes of doing the same. Tyson Foods has debuted meat-free offerings. Perdue Farms and Hormel’s Applegate make blended meat and veggie entree options for grocery shoppers. All these companies can draw on huge resources from their established operations to support production, distribution and marketing.

There are some industry-wide risks, too. Cattle ranchers have pushed to prohibit companies from using “burger,” “meat” or “sausage” to describe any product that did not come from an animal raised and slaughtered in a traditional way. Seven states have already enacted such laws, a potential problem, especially for a company called “Beyond Meat.”

Food trends are also always open to the risk of changing tastes. Some critics have pointed out that the new meat substitutes incorporate many processed ingredients and tend to be high in sodium, suggesting the purported health benefits may be overblown. (Beyond Meat has earned a better report card when it comes to their products’ reduced carbon footprint, though.) Even though I don’t think plant-based “meat” is a flash in the pan, the product is still in its early days. Whether it will become a mainstream part of the American diet or remain a niche option is not yet obvious.

Eaters, I encourage you to try an Impossible Whopper or other meat substitute of your choice. You may be pleasantly surprised. Investors, approach Beyond Meat and other players in the space with caution for now. You have a lot more to lose than your lunch.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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