How the pandemic scrambled the plant-based food industry

The pandemic tested the plant-based food industry, causing startups to pivot to retail as restaurants closed and forcing them to figure out how to sustain interest in the emerging sector. | Getty Images/iStockphoto

Despite the highs and lows of the pandemic, the future of the plant-based sector still looks bright.

For a couple years, the future looked like it could be meat-free.

In 2019, the plant-based protein startup Beyond Meat celebrated the most successful IPO in over a decade and a few months later Burger King put an Impossible Whopper on every menu.

When the pandemic hit and Americans panic-bought groceries, conventional meat sales rose by around 40 percent compared to the prior year and stayed there for months, while sales of plant-based meat surged 65 percent.

Two years later, though, pandemic-fatigued consumers are sending mixed signals. Research market firm IRI found that the sector’s growth has begun to decelerate, with refrigerated plant-based meat sales down 6.6 percent in November 2021 from the year before, though sales were nearly 30 percent higher than November 2019.

Kellogg’s Morningstar Farms, Beyond Meat, and Maple Leaf Foods (owner of vegetarian brands Lightlife and Field Roast) — three of the largest plant-based food producers — all reported earnings shortfalls for Q3 of 2021, and several high-profile trials of plant-based meats in fast-food chains have flopped.

In recent months, a flurry of headlines cast doubt on the future of the once red-hot sector. The Financial Times asked, “Has the appetite for plant-based meat already peaked?”, DW declared “Demand for plant-based food products declines amid pandemic,” and the Food Institute, a food industry news outlet, said the slowing growth signaled a “niche future” for the category.

Taken together, the news doesn’t sound great for meatless startups, and feeds a narrative that the early burst of growth had more to do with novelty than sustainability. But a few companies having a bad quarter doesn’t define a whole industry, the graveyard of failed fast-food items is large (pour one out for Taco Bell’s underperforming cult-favorite Bell Beefer, which was essentially a sloppy Joe), and slowdown from a pandemic-induced high may not tell us too much about the long-term prospects of an industry that is still in its infancy.

For one thing, fast food giants have made it clear that they still believe plant-based meat is a worthwhile bet. In the first two weeks of 2022, KFC launched a meatless chicken product made by Beyond Meat, Chipotle introduced an in-house pea-based chorizo, and McDonald’s McPlant burger — made by Beyond Meat — arrived in 600 locations yesterday.

“Every one of our pieces of research suggests plant-based diets will continue to grow and grow,” Kevin Hochman, president of KFC US, told me. “Will there be blips when there’s an onset of a pandemic? Of course. We view this as a long-term trend.”

Jennifer Bartashus, a senior analyst with Bloomberg Intelligence, agrees. “Because it’s a young industry and because there’s a lot of volatility, you’re going to have times that go up and down. But when you look at the long-term, I think there’s been a fundamental shift in how people think about their health.” She predicts plant-based meat and dairy alternatives will compose 5 percent of the global market by 2030, up from about 0.5 percent in 2021.

That would be far from dethroning animal meat from the center of the dinner plate. And even as plant-based protein has been growing, albeit slower, Americans are still eating more (and more expensive) animal meat than ever — an estimated record-high 224.63 pounds of red meat and poultry per capita in 2020, 0.2 percent more than in 2019.

The future of plant-based meat and dairy matters beyond the bottom line of startups and fast-food franchises. Alternative protein is poised to play an important role in reducing the suffering of animals on factory farms and cutting greenhouse gas emissions from the food system — something humanity must do to reach Paris Climate Agreement targets.

The pandemic highs and lows for the plant-based food industry

In the spring of 2020, Covid-19 ripped through America’s slaughterhouses, where a disproportionately Black and brown workforce toiled shoulder to shoulder in already-dangerous conditions. With too many employees out sick to manage some production lines, farmers brutally killed a backlog of millions of pigs and chickens, then tossed them into landfills or sent them to rendering plants to be turned into pet food and other products, which helped contribute to meat shortages.

Those shortages, combined with slaughterhouse and factory farm conditions making front page news, could help explain some of the rapid growth in plant-based meat sales in the early months of the pandemic. The sector grew by 148 percent in the week of March 22, 2020 — just after the first Covid lockdowns began — and notched around 65 percent growth in the months after.

Over one-third of Americans also reported that the pandemic made them more conscientious and open to new experiences, including new ways to eat — a promising change for plant-based meat advocates.

Natalie Behring for AFP via Getty Images

Workers chop and package beef at Jones Meat & Food Services in Rigby, Idaho, May 26, 2020. Some slaughterhouses shut down across the US after thousands of Covid-19 cases were confirmed.

“I think the pandemic was net positive on plant-based growth since consumers have been made hyper-aware of issues within meat supply chains and meat itself, and they’ve gotten the opportunity to cook and try new plant-based products,” says Kimberlie Le, CEO and co-founder of Prime Roots, a plant-based meat company that harnesses koji — a fungus used in Japanese cuisine — as its main ingredient.

The eye-popping retail growth can also be explained by the steep drop in restaurant dining as lockdowns shuttered eateries. “A lot of the food service demand moved to retail for a substantial part of the year,” Anne-Marie Roerink, president of market research and consulting firm 210 Analytics, told me. And retail responded, she added: “More stores started carrying refrigerated plant-based alternatives and/or added more items to the case.”

But as restaurants reopened, consumption patterns began to return to normal and plant-based meat growth fell back to Earth. And while it was unrealistic to expect the sector to maintain the sky-high growth of 2020 and early 2021, the supply chain problems felt throughout the economy eventually came for the meatless meat industry too, putting further downward pressure on growth.

In summer 2021, the price of yellow peas rose when a drought in Canada cut pea production in the country by 45 percent. Sixteen percent of US plant-based meat products are pea-based, including Beyond Meat’s, and many plant milks are too, like Ripple and Sproud.

“These players are small,” Bartashus said. “They don’t have the scale that the big CPG [consumer packaged goods] companies have. They get hit harder when raw material prices rise.” And because many players in the space use third-party manufacturers, “supply chain issues had a big impact on them. Ultimately that means if the product’s not in stores, [consumers] won’t buy it because they can’t buy it.”

That has happened, to some extent, with Beyond Meat. According to DecaData, a customer transaction data provider, Beyond Meat has had difficulty filling some of its orders, which could explain some of its revenue shortfall. (When asked for comment, a Beyond Meat spokesperson cited its introduction of more than a dozen new products over the past two years and said: “We can’t comment on specific fill rates, but variability in Q3 was a result of multiple factors, including severe weather and related water damage to inventory.”)

The company is also facing much more competition. For awhile, much of the market share was eaten up by early entrants like Beyond Meat, Impossible Foods, Gardein, Boca, Morningstar Farms, and Lightlife. Now most grocery chains have their own private line of vegetarian products, major meat producers like Tyson and Smithfield offer plant-based meats, and they’re all competing with dozens of new startups for limited shelf and menu space.

Johannes Eiseile/AFP via Getty Images

As the market for plant-based meat grows, early entrants like Morningstar Farms and Beyond Meat now compete with dozens of startups.

Many plant-based startups find early sales through small and mid-sized restaurant chains, or university and corporate cafeterias, but many of these opportunities dried up during the pandemic. The customers either went out of business, went through bouts of temporary closures, or were forced to simplify their menus.

Some startups have seen success through bypassing retail and food service altogether. Deborah Torres, CEO of Atlas Monroe, a vegan chicken company based in San Diego, told me they were already selling directly to consumers before the pandemic, which put them in a good position in early 2020 when people wanted groceries and food delivered.

Sales doubled during the pandemic for the company, in part because they made it onto the VC reality show Shark Tank a few months before the first wave of lockdowns, but they were also able to purchase and renovate a manufacturing facility faster because the pandemic meant they had less competition for contractors. Expanded manufacturing capacity enabled them to go from producing 1,000 pieces of their chicken product per week to over 20,000 pieces.

Courtesy of Atlas Monroe

A plant-based chicken sandwich from startup Atlas Monroe. The company managed to double its sales during the pandemic by opening a production facility and relying on direct-to-consumer sales.

But the direct-to-consumer approach was met with challenges unique to the pandemic — US Postal Service delays in the summer of 2020 hit California hard, leading to spoiled food. “Where orders were previously arriving within two days priority with no complaints, now orders were arriving within 4-7 days on average,” Torres said. This resulted in some orders arriving spoiled or wet — orders they had to refund. They also had to decline business opportunities in Canada due to closed borders.

Where the plant-based food industry goes from here

One model often used to assess the development of a new technology is Gartner’s hype cycle, which was developed by the consultancy firm in the 1990s and follows products from initial innovation, to the “peak of inflated expectations,” to the “trough of disillusionment,” and finally to steady, productive growth.

Gartner

The Gartner hype cycle is a model used to assess the development of a new technology. Food industry analysts disagree on where exactly plant-based meat lies today in the cycle.

Henry Gordon-Smith, founder of food consultancy Agritecture, told the Financial Times that the hype around plant-based meat has peaked and is now in the “trough of disillusionment,” but Bloomberg Intelligence’s Bartashus sees things a little differently.

“If you look at individual products, like alternative-meat burgers, maybe the Gartner hype cycle applies, given that trial was accelerated by highly publicized campaigns like the Impossible Whopper at Burger King,” she said. “But it could be argued that plant-based chicken, bacon, lamb, eggs, etc. are all at different stages of the hype cycle than burgers.”

I think she’s right, and that we might see more hype around plant-based products that have yet to really impress consumers — or barely even exist.

For decades, the plant-based industry largely focused on alternatives to milk, ground beef, sausage, and breaded chicken. But the human diet is much more expansive than that. Now we’re seeing plant-based seafood and bacon, more kinds of chicken, and more varieties of dairy products like cheese and yogurt. And there’s only one good vegan egg product on the market. Eventually, some of these companies may produce products that rise to the level of popularity the Beyond and Impossible burgers have experienced, further bolstering the entire market.

And Gordon-Smith of Agritecture doesn’t necessarily think the “trough of disillusionment” phase is all negative for the industry — it may cause some startups to fail or get acquired by bigger players, which can in turn lead to improved efficiency and better products, leading to more growth down the road.

But longer-term obstacles to scaling up remain: according to the Good Food Institute, a nonprofit that advocates for alternative proteins like plant- and cell-based meats, the industry will remain vulnerable to ingredient shortages unless it invests more in ingredient sourcing, research for alternative ingredients so it isn’t so dependent on peas, wheat, soy, and coconut oil, and better relationships with ingredient manufacturers.

But the pandemic itself may yet prove an inflection point for the plant-based protein sector. With standard food consumption patterns suddenly disrupted, millions of Americans were introduced for the first time to a new and ultimately more sustainable way of eating.

“People went through phases during the pandemic — people retreated to comfort foods,” Bartashus says. “But on the tail-end of that, and as Covid becomes endemic, peoples’ consciousness of their health and their health choices, things that they do to feel better about themselves, are things that are enduring.”