Stock markets provide important insights into which industries are on the rise and which are heading down.
Look at the trend for Dean Foods, the dairy market monopolists, over the last five years, and you’ll see a clear downward path in share price, from over $16 a share five years ago to under $2 currently. You didn’t need me to tell you that—all you have to do is view the dairy aisle in pretty much any grocery, to see that space once given over to milk and cream has been replaced by soy, almond, and coconut “milk”. Or just have a 90-second conversation with the owner of a small dairy farm.
You can also read about this trend in the prospectus for the high-flying Beyond Meat (BYND) initial stock offering: “A key analogy for both the approach to and the scale of our opportunity is the strategy by which the plant-based dairy industry captured significant market share of the dairy industry. In the United States, the current size of the non-dairy milk category is equivalent to approximately 13% of the size of the dairy milk category. According to the Mintel Report, the non-dairy milk category in the United States was estimated to be approximately $2 billion in 2017. The success of the plant-based dairy industry was based on a strategy of creating plant-based dairy products that tasted better than previous non-dairy substitutes, packaged and merchandised adjacent to their dairy equivalents. We believe that by applying the same strategy to the plant-based meat category, it can grow to be at least the same proportion of the approximately $270 billion meat category in the United States, which over time would represent a category size of $35 billion in the United States alone.”
(By the way, IPO statements are great ways to learn about important trends in new industries. I suggest you review the BYND filing to better understand how they see their role in the established food business.)
For now, the markets are telling us that a whole new food industry is being born for plant-based “meat.” As I wrote in my previous post, the new stock offering from BYND has gone crazy, rising in less than three weeks from an initial price of $25 to around $90 a share. A lot of market analysts will tell you that BYND is way overpriced, and shouldn’t be valued at something in excess of $5 billion. Another fake-meat startup, Impossible Foods, is being valued at more than $2 billion, before it even goes public, according to one report I read. These two companies together, at more than $7 billion, aren’t that far behind Tyson Foods, the behemoth in the meat industry valued at about $30 billion, except that Tyson has been in business for 85 years.
I heard an analyst from Motley Fool, a consumer stock advisory service, caution on a video discussion against buying into BYND. “Margins for food products tend to be low,” he said.
A number of readers here have reacted negatively to the BYND excitement because of concerns about the possible presence of glyphosate (the poison in Roundup) and because of corporate manipulation of prices and promotion. They may be right as far as the stock is concerned—it may well flame out. But the company is definitely onto some important trends in food consumption in the U.S., including concerns about animal welfare, the environmental impact of Big Ag practices, and concerns about climate change.
One overlooked outcome from all the hype is that good “real” food could benefit. Raw milk producers tell me that business continues to boom for many of them, despite the crash in pasteurized milk products. I think that what may be happening is that what we sometimes call “good” food may become more popular, and valued. Yes, people may put almond milk in their smoothies, but when they want real food to feed their children, raw milk yogurt and kefir and eggs from pastured hens will be the choices. When they want a special meal to celebrate an anniversary, then real steak from grass-fed beef, or real chicken from pastured chicken, will be the choices. If the price for such items is double or more what the commodity Big Ag variety costs, that’s okay, because people understand you have to pay for quality.
I’m bringing a bunch of Beyond Meat burgers to a cookout tonight, to see how I like them and how others react. It’s an expensive treat: the “burgers” pictured above run $6 for two quarter-pounders, which works out to $12 a pound for veggie-based “meat”. Pretty rich. Yet when I sought out the Beyond Meat burgers at a New Hampshire Whole Foods Market on Friday afternoon, they were among the last packages available. “Amazing,” said a meat counter man. “I just filled up the shelves a couple hours ago.”