Catalyst with Shayle Kann - Reviving the stagnant plant based meat market

Episode Date: September 28, 2023

It was 2020 and plant-based meats were hot. Sales were up 45% that year and expectations were high. The industry set its sights on performing as well as plant-based beverages, which had reached about a 15% dollar share of the U.S. cow-based milk market at the time. In the $300 billion U.S. meat market, a 15% share would be a massive $45 billion prize. But then, starting in 2021, plant-based meats hit a wall. U.S. sales began three consecutive years of declines. Headlines described plant-based meats as “bleeding” and “just another fad”. So what happened? In this episode, Shayle talks to John Baumgartner, managing director of equity research for food and healthy living at Mizuho Securities. He explains the major factors that led to the decline—and why he’s still bullish on the long-term growth of the industry. They cover topics like: Why the plant-based beverage category is so different from plant-based meats Major factors in sales, including the Covid-19 bounce, flatlining household penetration, and inflation The under-no-circumstances crowd that will not consider plant-based meats Positive indicators for growth potential from other markets, such as Taiwan and western Europe Improvements in taste, mouthfeel, health, and price that could reinvigorate the industry Recommended Resources: Mizuho Securities: Plant-Based Food Market Overview & Outlook Good Food Institute: 2023 outlook: The state of the plant-based meat category Deloitte: Plant-based meat gets a reality check Sign up for Latitude Media’s Frontier Forum on January 29, featuring Crux CEO Alfred Johnson, who will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.

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when it comes out in October, Latitudemedia.com. And now here's the show. From the studios of PostScript Media and Canary Media. I'm Shail Khan, and this is Catalyst. When 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.

Well, my household used to buy beyond meat burgers. I'd say fairly regularly, but for some reason, right now it's been, I don't know, maybe nine months. Apparently we're not alone. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices

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I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital Capital on Spotify, Apple, or wherever you get your podcasts. I'm Shail Khan. I invest in revolutionary climate. at Technologies at Energy Impact Partners. Welcome. Okay, so here's what you normally expect to see from a new technology that is destined to take over a market. Upon commercial introduction, it starts slow. Small distribution, maybe high prices, a few true believers. And then it starts to

catch on. The adoption curve bends upward. The product begins to achieve scale and distribution. Prices fall. The early adopters give way to the early majority, and the curve basically keeps bending upward until the product reaches a reasonably high level of penetration. And that was basically the trajectory that it seemed like the new wave of alternative protein or plant-based meat products were on. Led by the pioneers, which is basically impossible foods and beyond meat, they became somewhat household names. They were offered at fast food chains.

Companies went public, et cetera, et cetera. And then the traditional curve bent downward, which is to say that sales have actually declined. And we're not nearly yet at the level of penetration where that's what you would expect. There have been a series of articles about this, and it's reflected also in the pretty painful journey of Beyond Meat's share price, which as of this recording, is down more than 80% from its highs in 2019. It's also had a bunch of downstream effects on the next generation of alternative meat companies, where funding in the private markets and venture funding is down dramatically from previous years, well beyond the overall market downturn trend. But a couple of years of sales data

is just a couple of years of sales data. So where do we stand from both a short-term and a longer-term perspective? What is actually happening in this market? And how much do we and don't we know about the actual growth of alternative protein as a category? For this one, I brought on John Baumgardner, who is the managing director of equity research for food and healthy living at Mizzuio. Here's John. John, welcome. Thanks, Jill. Thanks for having me. So we're going to talk about what the hell is happening in the, I guess, plant-based meat category.

First question for you, what do you call the category? Plant-based meat, meat alternatives. Okay. And maybe we start by actually contrasting it a little bit, because 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 taking diverging paths at the moment. Is that right? Very much so. I think what you've seen more recently in the past six to nine

months, you've also seen volumes and consumption soften for plant-based beverages. We think really because of just elasticity, and you've seen mid-teen's 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 and plant-based beverages. However, if you go back over the past five years or so, plant-based beverages have have been a much stronger category. And it also has a much longer history, called a 30-year history, relative plant-based meat

really just being more of a past, you know, five to seven-year sort of evolution. 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 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? Well, so if you think you kind of step back prior to COVID, this was a category that was growing mid single digits, mid single to high single digits, call it, you know, 2014 through 2018 prior to COVID. Then what you had seen when Beyond Meat went public in 2019, you had seen all the buzz around the category and the brand. You had seen the volume grow, you know, 15, 20 percent in 2019, so accelerated. And then in 2020, when you had the big COVID bounce with everybody eating at a home, restaurant consumption being down, you had seen the category growing 40%. 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 huge dislocation in the

food environment in the U.S. 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 it rebases category consumption higher, and that just further reinforces the optimism and bullishness for consumption of the category. And what's happened since then is about, I think, 33 consecutive months now of volume declines. The category was down 3% in 2021. It was down 8 or 9% in 2022. and then this year so far in 2023, it's down about 15%.

So net, net, where we stand right now in September of 2020, category volume is 5% higher than where it was in September of 2019, but definitely not what anybody had expected in the throes of the consumption increase when COVID first started. It's interesting that it's a COVID-tied thing. There's so many categories where, like, COVID seemed like it had dramatically accelerated some technology transition, and then it sort of turned out to be a little bit ethereal. One thing that's interesting about this category, my recollection is you could probably correct me

that impossible and beyond, part of their strategy to get into the market wasn't necessarily going direct to consumer immediately. It was selling through restaurants and stuff like that. And so I think it's, I find it kind of, and then, you know, also the other things that we saw during COVID in the sort of heat of all this was some of these announcements around like Burger King carrying an impossible burger and stuff like that. So, you know, you could have imagined a world where, all right, we all were home for some number of months or years. So we were testing out new things as we were all cooking. But then as we went back out into the world, we continued to purchase the same alternative proteins, albeit at restaurants rather than grocery stores.

But it seems like that's not really happening. It's not. I think what you had seen, you had I mean, I think Impossible has made some of the, you know, the stickiest gains, you know, with Burger King there. You know, I think Beyond Meat's been, it's been more disappointing, you know, in the sense that there were a couple of trials with, you know, A&W up in Canada, you know, Tim Hortons. You had a few products that were limited time offers on menus that didn't stick. Beyond also had some relations with Dunkin' Donuts here in the U.S. and the breakfast menu, you know, that didn't stick in a number of markets as well. And I think the issue that we had seen, and even in the food service category, was where these products have sold the best, it's basically on the coasts. And it's sort of been in a kind of flyover country where it hasn't really been able to scale up. And so you look at that from a penetration perspective, it's been disappointing.

Even in our consumer surveys, there's only about maybe 10% of consumers that say, you know, I'm likely to purchase a plant-based meat product in a restaurant. rather than an animal-based traditional beef, you know, protein product. So I think the uptake in food service hasn't really been as great, number one. And then number two, from a food service operator's perspective, you know, when you think about the complexity on the grill, you're not making this stuff side by side because consumers push back, you're contaminating in the plant base with the animal meat products. So you have to kind of segregate the grill. That creates complexities there.

You know, if you're an operator, if you're McDonald's, for example, or an operator, you can say, wait a minute, you know, I have the choice of, you know, this summer, this fall, you know, name your time period, where I can launch a plant-based menu on the item and appeal to, you know, you know, a smaller X percent of the population, or with less resources, I can launch a new chicken sandwich, which may instantaneously appeal to 70 percent of the population. And it feels that that's sort of been the environment we've been in the last couple of years, even with QSRs and food service operators, you know, what's the path of least resistance? it's going down the path that's tried and true,

and you sort of know how it's going to play out. And I think that's also been an uphill battle for plant-based meat, that it is very novel with a very uncertain conversion for the consumer. You mentioned the early penetration highest on the coast, and I think that kind of stands to reason. I would suspect that correlates well with probably where there are vegetarians, for example, and climate consciousness and maybe even wealth and things like that. That sort of makes sense.

But what I guess you would have imagined in another world is penetration fastest on the coast and then continuing to increase on the coast while starting to slowly bleed inland, basically. I guess in terms of those 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 the past couple of years, is it that we're finding 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? Well, I think if you look at adoption and you look at a traditional sort of S-curve for the adoption of innovation,

you figure your kind of innovators and your early adopters are the first, what, two, five, ten percent 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 structural trend here going forward,

what we do know if actually is looking at, you know, West 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 higher price proteins, you've got some significant resource constraints long term. So, you know, in one sense, 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 the signatories at this point are already behind their goals, just a couple of years. years in. You know, so do you see more of a push from, you know, governments, you know, getting behind

and marketing some of these plant-based alternatives to hit their climate goals long term? So, you know, there's a number of factors where you can argue you're still in the very early days and a number of structural drivers that are going to drive growth. Now, that being said, in the short term, when you think about adoption for this category, 20% household penetration, and when you think about, you know, who's not buying it, you know, there's about, we call it the under-nose circumstance. crowd. There's about one third of consumers out there tell us they're not buying plant-based meat. They're not interested. This is about 20% of consumers that are not interested in plant-based beverages. So you've got a little bit of a larger pushback on the meat space. The consumers who are eating

plant-based meat, health benefits tend to be the top purchase driver. Now, if you think about the pushback this category has received over the last couple of years, the pushback is on health. It's over-processed, sodium. It's really not that healthy for you. So that's sort of been an impediment to growth, both in terms of repeat consumption from existing buyers as well as getting new buyers into the fold. And in our view, that's been the biggest issue with this category is the health credentials have been difficult to stand apart, number one. And then in terms of winning with taste and price, you know, the price is not competitive really at all, especially things. thinking about plant-based beverages relative to cow's milk.

And even on taste, you know, we would argue that the products in the market today, you know, they're not, you know, they're not the finished product. You should see improvements in both texture and taste and nutritional content going forward. We can get into that a little bit later. But those are the biggest impediments right now. It's, you know, early adopters, you know, tend to buy this based on health benefits which can be questionable, you know, depending on what you're looking at. And then winning on taste and price, neither one of those aspects are, you know, really ideal

at this point either. Yeah, so you hit on some key things that I want to talk through. I guess there's sort of two pieces to me. One is, given that we're in this somewhat anemic environment for plant-based protein, what does it mean for these early leaders in the category beyond an impossible in particular, like what is happening to their businesses? And then I think we should talk about, you know, what do we think, and you alluded to some of this, what might it take to reinvigorate this market? And do we see products coming down the pipeline, whether from the companies or others that might meet that need. So first, talk to me about the result of what's been happening in this market on Impossible

and Beyond. Well, I mean, if you, you know, as the category volumes have been declining, I mean, you've seen Impossible go from not even in the retail market, you know, three, four years ago to about, you know, 10 or 11 percent share of the market right now. the bulk of that share has come at the expense of Morning Star, which is owned by Kellogg. You've seen Morning Star share grow from, you know, 30% leading the category to about 20% now. And Morning Star is the more like traditional veggie burger type of thing? It is. Correct. Correct. And it's also more of a frozen product, whereas beyond impossible, that's more than a refrigerated case.

And then looking at other brands like, you know, Canagra owns the Gardein brand. You know, that market share has been stabilized. about seven or eight percent beyond meat's been stable at low double digits private labels increase a little bit from high single digit to low double digit percent so as the category of volumes have declined you've seen impossible ramping up from zero to where it stands right now most of that shares come at the expense of morning starting that traditional category but what's interesting is if you look at frozen versus fresh you've actually seen the frozen part of the category performing the refrigerated fresh part of the category. And I think what's interesting there is in the refrigerated category,

you're being merchandised right next to traditional animal meat. In the frozen case, you don't have that competition sitting next to you on the shelf. So whether that means it's easier for consumers to have, you know, price point shock because they realize how much more expensive the beyond meat patties are relative to, you know, conventional animal meat, or there's just, you know, not a real other option in the frozen case, you have seen the frozen category outperforming the fresh case the last couple of years. That's interesting. And so I guess that's a sort of semi-positive story for Impossible, right?

Like they're gaining a share in a key portion of the market, but it appears what they're doing is stealing from another part of the plant-based protein or plants-based meat pie as opposed to growing the pie overall. It is. The other standout aspect for impossible as well as this hem, this hem ingredient, you know, that, that, that, in there that makes the burger, you know, bleed more like regular animal meat. And it's, it's, so if you're a consumer and you're just saying, look, you know, I'm, I'm sort of interested in buying this category. It tastes like beef, but there's no beef in it. That freaks me out a little bit. You know, there's a certain reluctance there to, to take that step, you know, be brave and, you know, try the product. Whereas with plant-based beverages, you know, oh, I love, you know,

good humor, toasted almond bars. There's an almond milk. It's an easy. sort of conversion, you know, conversion, you know, for a consumer from cows milk or soy milk or rice milk, whatever it may be. I eat Cheerios. I like oats. Let me try oat milk. So you have that sort of mentor hurdle in the plant-based meat space. 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 this point in time where you don't really have

the ability to produce a steak product, a structured product, like a filet. And that's where most of the value is in this category. And I think where you have had innovation, where you've seen impossible outperform a little bit, is expanding consumption occasions. If you're going to grow this category, think about plant-based beverages. You can drink it in a glasses of beverage. You can have it in your cereal bowl in the morning. You can have it as an ingredient, you know, a creamer in your coffee. You can use it as an ingredient in a recipe, you know, when you come home at the end of the day for dinner. You can interact three, four, five times a day with the product and not get tired of it. Whereas plant-based meat, that's a center of plate product. So if you're going to have red meat

call it once a week, that's four times a month, if you're going to say, hey, we're going to substitute half of our red meat occasions with plant-based, you're talking two consumption occasions a month, relatively to be two or three times a day for plant-based beverages. So if you're this early part of the adoption cycle and the S-curve, it's in the interest of the category to innovate in a way where you can increase consumption frequency and get it into

a consumer's repertoire. So if that means you innovate with your burgers for at-home occasions on the grill, fine. You innovate with a plant-based fajita. Something you could bring microwave will bring it to work, pop up in the microwave, have it for lunchtime, have it as a snack. You haven't seen the industry at large really do that.

Impossible has, which is where it's sort of stood out. But, you know, Beyond Meat, for example, launching Beyond Burger version 2.0, 3.0, 4.0. It's not an iPhone. This is not a situation where you hook somebody on basic functionality, and they stick with you one, two, three years down the road because now, you know, you've got a better internet explore, you've got better text messaging. This is food. And for a lot of consumers, if you have, you know, a bad or unfavorable interaction the first time out of the gate, you're not coming back for version 2.0 and 30. You're done. And I think that's been part of the struggle

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Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify. Apple or wherever you get your podcasts. All right, so let's talk through the, you've mentioned all of them, but I want to go into a little bit more detail on the things that might help reinvigorate the market. So let's start with price. I mean, you said these things are not price competitive today.

Maybe you can give me some numbers around that. Like how much of a price premium would I pay for a plant-based meat product versus the traditional meat alternative today? And then like, what do we know anything about what is the, what's the premium? a larger market might bear, if any. 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. Whereas for plant-based beverages, you know, 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 getting me 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 on a relative basis, 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 category out there that makes it look less expensive and absolute term. So it's kind of a double whammy for plant-based meat that you don't have in beverages. And when we talk to consumers in our consumer surveys, you know, about, you know, call it 40% of consumers, even in the higher income, so 100K annual income and higher, even 40% of those consumers are looking for price parity with animal meat.

And about 25% of consumers are looking for a discount relative to animal meat in order to buy the category. So there's still a fair amount of ways to go to bring prices down to block out that hurdle for folks. Okay, so sort of high level, to get to a significantly bigger market appears, Plant-based meat is going to need to be near or at parity with traditional meat. So there's a price component to this.

I'll talk about the health thing for a minute. So I do think, just anecdotally, that seems to have been a significant part of this story, right? Which, like, there was, people got excited about plant-based meat. I think, I don't know, for whatever variety of reasons, but health was probably one of them. And then there was like a series of articles and expose as saying, wait, second, this stuff actually isn't as healthy as you might have thought it was. And that seems to have killed some of the enthusiasm. Do we see products coming in the pipeline that are actually healthier? And do you see this as a, can the market turn this narrative back around?

We think so. 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 on the R&D side, whether it's better quality ingredients, better processing technologies that improve mouth feel and texture. 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, 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, when 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 a two or three 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 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. And then, okay, so we talk about price, talking about health. 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? You know, it's still very much in the early phases with penetration towards ground beef products. And if you think about some of 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 pre-form meatball, you know, when I was, 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 you're thinking about how you're building this category, you're selling products that are commoditized that interact and 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 in this country relative to the resources you put behind it? It's just, you know, I think 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. 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 beef,

whether it's poultry, pork, seafood, eggs, non-meat, you know, pasta, pizza. So even thinking about the market saying, look, we're going to make this product to, you know, compete with animal meat or be an alternative to it. That's not what the end consumer is even looking at. So I think that also sort of, you know, should, you know, be incorporated into the innovation idea for these companies, you know, what's the actual occasion that we're trying to substitute for? It's not just beef. And I think that's what's been missed along the ways as well. I'm curious your take. So I live in venture capital world, right? And my perception of what's happened here is so there was back back when you know beyond one public and it's share price shot

upward and uh you know there was as you said there's a wave of private companies that have come behind that so a lot of funding went into those companies and then now it's been a tough journey for for the incumbent in the category impossible and beyond in particular for the past couple of years and so you know you could see this in the data the like early stage investment activity has declined substantially in this space as well. What do you see 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? How do you think about the pipeline of companies? Well, I think it's a combination.

I think if you look at the investment landscape, the biggest issue, the, the biggest issue, that that's really changed over the past five years is the competition for VC dollars from fermentation. If you go back to 2017, there was really no investment at all in fermentation. That was material. Whereas in 2021, 2022, you had seen about, I think, like $2 billion of investment 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 even cultivated protein. The cultivated protein had almost $2 billion of investment back in 2021 from investors.

That was really non-existent 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 advancing. So that's going to raise the bar for 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 redefine meat, you know, some of these 3D meats that are out there that can get you into that structured product that will be able to appeal to the 70% of the meat market that is, cuts and fillets and structured products. The real unlock is for value growth over time in this category.

It's not going to be in the ground meat space. So there's clearly opportunities that are out there. But the other perspective, too, is just. just sizing your market properly. You know, I think one of the big drawbacks for this category, going back to 2019, when Biala in public, was how big can this market be? You know, the knee-jerk analysis, the mental shortcut was saying, hey, you know, plant-based beverages have a 15% value share of the cow's milk market.

So if we take a 15% share of the meat market in the U.S., which is $300 billion, boom, there's a $45 billion market in the next 10 years. And you're saying, wait a minute, time out. There's a half dozen differences in this approach between these categories with, you know, number one being just food intolerance. I mean, look at the lactose intolerance in this country that help kind of catapult plant-based beverages to where they are today. This alpha-gal syndrome, this red meat allergy affects what, less than 1% of the population.

That's going to limit you, you know, your momentum coming out of the gate, number one. Number two, look at the difference between value share and volume share. Yes, plant-based beverage is 15% value share of the category, but because it's priced at a premium, it's about an 8 or 9% volume share. And if you're telling us the goal in plant-based meat is you want to price that parity with animal meat, well, you're going to have even double the volume share

that plant-based beverages does in order to have that same value share. And, you know, that wasn't really factored in. You know, just technology limitations, price gaps. I mean, it's funny because if you go back to the 1970, Cornell University, which is a big sort of USDA hub in the ag industry, they were in 1970, they were forecasting that plant-based, you know, extenders and analogs based off soy would comprise 10% of meat market demand by 1985. And here we are in 2023, you know, we're even close to that.

So, you know, this industry has had, you know, fall starts before with just the bullishness of the market and not really recognizing the right way to size, the addressable market and where the stumbles could emerge along the way. I think we've seen that pain over the past three or four years, and the market's better off for the long term going forward, but yes, it's been very painful for the last few years. So you mentioned cultivated meat for a second. I did want to ask you about that. Obviously, even earlier days there, you know, in theory, cultivated meat has the benefit of, from a health perspective, it could be identical to traditional meat. There could be ethical reasons why people will like it. It, you

ultimately could produce the same product. Price obviously is potentially a big catch along with regulatory and other considerations. But I'm curious because you've done all these consumer surveys, have you asked about cultivated meat in those surveys yet? And do we have a sense of how people are going to think about cultivated or lab grown or cell-based protein, whatever you're going to want to call it? We haven't dug as much into that in survey. It's just because it's so new and so few folks even tried the product at this point. But I think our, our, our, on the market is, I mean, look, you know, people love their beer, you know, and beer is brewed, you know, beer is fermented and, you know, it's produced in vats. So theoretically, it's,

the consumers is, is comfortable consuming that kind of a product. Now, if you move it from a brewed beverage to a brewed protein, again, is there sort of this initial ick factor you have to sort of get over for a lot of folks? Yes. But if you're looking at it from the perspective of, you, we can cultivate a protein that is just like animal protein, not processed, no artificial ingredients, collars, flavors, whatever it may be. You know, it's got a similar sodium component. Maybe it's even a little bit better. I mean, you would think once you sort of get, once you sort of as a consumer recognize, hey, you know, I drink brewed beer, you know, I can have cultivated protein. You know, in some respects, I would argue that maybe it's even an

easier mental move for folks than it is consuming soybean or wheat products that taste like beef. How do you think about it from a price perspective? I mean, that seems to be the biggest rub in the early days is can we make cultivated meat that is like even in the ballpark of traditional animal protein. Exactly. And I think part of that issue is just going to be sticking with it until the cost curve comes down. I think what's really nice about that is seeing just the level of interest from VC and private equity, sort of funding these businesses, that as long as they're willing to kind of stay of the path,

you're all going to see that cost curve come down. So it's only a matter of time before you see, price parity kick in. And hopefully by that point, you also see a little more distribution in stores as well as it's commercialized. All right. So stepping back then, you know, you said, when you say that you're bullish on the market,

you mean over a generational time span. So I don't know, give me your overall picture on this market. and over a shorter time span than generationally over the next few years, what's your best guess as to what happens in this category? Well, our thought process is you look at the next 12 to 24 months, we would rather own plant-based beverages as opposed to plant-based meat thematically, just because the category is proven itself out. Our view is that even though the category for beverages has softened over the last 6 to 9 months,

it's really been elasticity, you know, having to 15% price increases. it's not surprising the volumes down a bit. But if you look at where per capita consumption is in the U.S., you're talking about 3.4, 3.5 liters per person, the U.S. is one of the highest consuming countries in the world already. And you look at other countries, Spain, Taiwan, Western Europe, who have per capita consumption even higher than where the U.S. is today. They continue to grow.

So just because the U.S., you've got decent penetration thus far, doesn't really imply ceiling for the category. So you take that plus the fact. You have oats coming into the market, you know, opportunities in food service, creamers, more ingredients. You know, our thought process is you should see a growth in flexion occur first in plant-based beverages, number one. And then I think as you get out, you know, over a multi-year period, you know, where we sort of see this category shaking out is, I think a lot of this category going more to a B to be type of market. You look at all the private companies that are out

there working these new technologies, whether it's processing technologies, ingredients, technologies. They don't really have a keen interest in developing a brand at retail. They would more rather license their products to brands in the market. So our thought process is you'll probably see private label ramp over time to a high teens percent of the market, more or less where it is in plant-based beverages and the rest of the food industry. If you look at what's known as, you know, sort of these challenger brands, these startups in the industry, when you look at other sort of, you know, fast growth categories, health and wellness. categories, whether it's Greek yogurt, you know, the yogurt category, you tend to see these

sort of challenger brands, these new entrants sort of top out at about a, you know, a 15, 16% share of the market. They're about half that share right now. So we think you'll see more representation from new brands coming into the market over time, licensing, you know, some of this technology that comes into the market. And I think, you know, in terms of the big three, you know, Morningstar, beyond meat and Impossible, those will probably remain the big three just because they have sort of that first mover advantage.

lot of that is going to hinge on their ability to innovate and stay relevant relative to new brands coming into the market. But yeah, we would argue in top three, more or less stay at the top three, you see a larger penetration of private label and a larger penetration of smaller brands that pop up. All right. Final question. What is your personal favorite alternative protein product? Personal favorite would be oat milk. You're in the drink category. Fair enough. Absolutely. Absolutely. All right, John. Thank you so much for doing this. Really interesting. Thanks, I appreciate it. John Baumgartner is managing director of equity research for food and healthy living at Mizzuho Securities.

This show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to today's topics. PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag, transportation, and logistics, advanced materials and manufacturing, and advanced computing. This episode was produced by Daniel Waldorf. Mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. I'm Shale Khan, and this is Catalyst.