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Food giants are catching on to consumer shift towards plant-based proteins

Increasingly consumers are reducing their meat and dairy intake and seeking protein substitutes driven by health and environmental concerns. Technology is expected to accelerate this trend, with the emergence of products, from steaks to seafood, that mimic the taste, texture and flavour of meat, fish and dairy, without using the actual animals.

But just how significant is this shift? And how are investors and food companies responding to the change?

FAIRR’s collaborative investor engagement on sustainable proteins set out to address these questions in 2016 by engaging major food retailers and manufacturers on the business case for protein diversification. Initially backed by 36 investors managing $1.25 trillion of assets, the engagement is now supported by 74 institutions including Schroders, NN Investment Partners and Boston Common Asset Management.

This collaborative investor engagement now represents combined assets of $5.3 trillion, indicating that investors are serious about the shift towards low-carbon proteins. And companies that are embracing the protein shift are reaping financial rewards.

Market transformation

Greggs’ total sales rose by 7.2% year-on-year and its share price has enjoyed a record high since the launch of its vegan sausage roll. Beyond Meat reported revenues of nearly $88 million in 2018 (an increase from$16 million in 2016), and its IPO this year was the most successful IPO for a major US company this century.

In the US, 66% of consumers are already eating less of at least one type of meat, so it is little wonder that meat-free protein sales are growing at nearly 25% as opposed to just 6% growth in cooked meat sales.

Future projections by J.P Morgan and Barclays see plant-based meat capturing 10% of the meat market in 10-15 years, while AT Kearney predict that plant-based and cultured meat will comprise 60% of the market by 2040.

So, with pressure coming from consumers and investors, which companies are best poised to undertake a protein transition? Based on responses to our engagement, our assessment of 25 of the largest food retailers and manufacturers finds wide variations in preparedness for rising demand for alternative proteins.

Our overall rankings are based on six factors:

  • Materiality – whether companies understand and recognise the risks of high exposure to animal proteins
  • Strategy – whether companies have commitment to manage risks in animal protein supply chains and increase exposure to alternative proteins
  • Product expansion – how companies are using R&D, resourcing, acquisitions, investments and product development to expand alternative protein portfolios
  • Consumer engagement – how companies are using branding, marketing and merchandising to encourage consumers on sustainable diets
  • Tracking and reporting – whether companies are tracking the right metrics to understand their exposure to animal proteins
  • Investor engagement – the extent to which companies engaged with the investor coalition on this issue

Leaders and laggards emerging

Overall, we’re encouraged by the results. Alternative proteins are a clear driver of business growth, which is why 64% companies in our engagement included terms like “plant-based” and “vegan” in their annual reporting and/or quarterly earnings calls to investors in 2018/2019.

Over 87% of retailers have ramped up their own-brand plant-based products, seeing alternative proteins as a way to gain competitive differentiation and increase consumer footfall.

Five companies – Unilever, Tesco, Nestle, Marks & Spencer and Conagra Brands – are leading the way and can be defined as ‘proactive’ in their approach to leveraging the shifting protein landscape. These companies recognise that a high dependence on animal-based ingredients is a material risk to their business, have completed or are planning to undertake risk assessments on their commodity supply chains and are making strategic investments to expand their range of plant-based products.

Four firms (Amazon, Hershey, Costco, Saputo), in contrast, have a ‘reactive’ approach to this issue. For example, while Costco and certainly Amazon Whole Foods have a sizable plant-based portfolio, we found no evidence of how these companies are managing risks linked to their considerable animal protein supply chains or what growing their exposure to meat and dairy will mean for their carbon and water footprints.

It’s becoming clear for both food retailers and manufacturers that in a rapidly changing world, a diversified protein portfolio is an increasingly critical part of managing the ESG risks in their supply chain, satisfying consumer demand and meeting shareholder concerns.

Read the Appetite for Disruption report here