Concerns about health, ethical food production and climate change are growing. Here’s how to invest in plant-based foods.
Growing consumer concerns about health, ethical food and climate change are creating opportunities to invest in the burgeoning plant-based foods market.
The global plant-based food market is projected to grow at a compound annual growth rate of 11.9 percent between 2020 and 2027 to reach more than US$74 billion, as per Meticulous Research.
This major growth spurt is being fueled in large part by increasing consumer demand for plant-based alternatives to meat and dairy. Calls from buyers for transparency and ethical practices across the food supply chain are also growing louder and buoying interest in plant-based options.
Interestingly, rising consumer demand for plant-based food products is not a sign that a large percentage of the population is going vegan or vegetarian. Rather, it is indicative of a shift to what’s being called a “flexitarian” diet in which consumers still choose animal-based food products, but opt for more plant-based alternatives at the same time. According to research firm Nielsen, 98 percent of consumers who purchase plant-based meat alternatives also buy animal meat.
This food trend is especially prominent in the younger people who are keen on reducing the environmental impact of rearing livestock. For example, a survey from the Food Institute found that 65 percent of Generation Z members living in the US prefer a more “plant-forward” diet, while 79 percent are choosing meatless options at least once or twice per week. Additionally, market research firm IRI has reported that 41 percent of US households purchase plant-based milk.
Similar trends in plant-based foods are prevalent among Canadian consumers as well, and restaurants in North America are increasing their plant-based menu offerings to include alternatives to meat and dairy.
The fact that plant-based products appeal to many non-vegetarians and non-vegans is a huge bonus for plant-based food companies, as it creates a much large market for their products.
Another big boon to the plant-based food industry is increasing investor interest in the sector. In the US alone, plant-based food companies were on the receiving end of more than US$747 million worth of investments in 2019, up by 11 percent over 2018. In the first six months of 2020, investors contributed more than US$1.1 billion in venture capital to startups producing plant-based alternative to meat.
Here the Investing News Network looks at how to invest in plant-based foods and how to capitalize on this growing trend as more and more North Americans reduce their meat consumption.
How to invest in plant-based foods: Pure-play plant-based food stocks
As with any food industry segment, investors interested in the plant-based food sector should look for quality publicly listed stocks that are led by strong management teams and have product portfolios that allow them to successfully compete in their given sector. In an emerging foods sector like the plant-based foods, the key ingredients for success are taste, price and convenience. And that recipe for success applies to both individual companies and the plant-based foods industry as a whole.
“As a company, the core will be whether your products replicate or improve upon the taste, cookability, cost and nutrition of the products they seek to displace,” Paresh Patel, chief executive and co-founder of publicly traded acquisition vehicle Natural Order Acquisition (NASDAQ:NOAC), told Forbes.
In 2019, Los Angeles-based Beyond Meat’s initial public offering heralded the dawn of the plant-based food era, encouraging more and more investors to take a stake in the meatless market. The company makes plant-based meat substitutes, including burger patties comprised primarily of pea protein. In the US and Canada, Beyond Meat’s products can be found in the meat sections of many grocery stores and on the menus of several restaurants.
Tattooed Chef is targeting the frozen plant-based foods category with pre-prepared products that are organic and rich in protein. Founded by CEO Sam Galletti, who has more than three decades of experience in the food industry, the company grows and manufactures the food it sells. According to IPO Edge, “Tattooed Chef is planning a big marketing push in 2021 into more retailers like Walmart and Target as eat-at-home trends look set to continue for the foreseeable future.”
US-based multinational food manufacturer Ingredion provides plant-based ingredients to companies manufacturing vegan products. Ingredion earned a spot on Ethisphere’s World’s Most Ethical Companies for the seventh year in row in 2020, and also made Fortune Magazine’s World’s Most Admired Companies list for 12th consecutive year as of 2021.
Other plant-based food stocks of various sizes and types include:
How to invest in plant-based foods: Food and grocery giants
The shift in consumer preferences toward more meatless options has prompted food industry giants such as Kellogg Company (NYSE:K) and major grocery store chains such as Kroger (NYSE:KR) to invest heavily in expanding their plant-based food offerings.
Kellogg’s food portfolio, which includes its cereals, snacks and meat alternatives brand, is 86 percent plant-based. In 2019, the company’s MorningStar Farms brand introduced a line of burgers, bratwurst and sausages. Recently, the company put out a call for “pitches on unique plant-based ideas that support digestive wellness” as part of an Innovation Challenge in collaboration with Future Food-Tech.
In late 2020, Kroger added 50 plant-based products to its Simple Truth brand, including non-dairy cheese, oat milk ice cream and a plant-based alternative to chicken. The product line already featured meatless burger patties and sausages, non-dairy sour cream and cookie dough ice cream. The grocery store chain also carries plant-based food brands including Beyond Meat, Lightlife and Tofurkey.
Canadian favorite Maple Leaf Foods (TSX:MFI), which acquired plant-based meat and cheese company Field Roast Grain in 2018, now makes a pea-protein-based line of hot dogs, along with other alternative meat products. The company plans to build a US$310 million plant-based protein plant in Indiana. Hormel Foods (NYSE:HRL) also has a plant-based product segment, and recently added the Happy Little Plants brand; it includes a pepperoni-style pizza topping.
How to invest in plant-based foods: Venture capital trusts and investment funds
For a more diversified route to gaining exposure to the plant-based foods market, investors may want to consider venture capital trusts (VCTs) and investment funds.
According to online trading company IG International, “One of the biggest benefits of investing in a VCT is that it can allow you to gain exposure to private companies that are not publicly listed. The fact they hold a variety of investments in multiple sectors also reduces risk.”
However, investors should be aware that although a number of VCTs have taken positions in the plant-based food market, many also hold investments in companies associated with meat production, which may not be palatable or desirable for vegan investors.
Those who want an investment fund with more of a plant-based focus can look to Eat Beyond Global Holdings (CSE:EATS,OTC Pink:EATBF), the first investment issuer in Canada that is purely focused on the global plant-based food market. The firm’s equity investments in this sector include The Very Good Food Company, Good Natured (CSE:GDNP), Above Food (which has reserved the TSXV ticker symbol ABOV) and private companies Eat JUST, Nabati Foods, SingCell and TurtleTree Labs.
“We created Eat Beyond to make it easy to invest in the future of food and provide retail investors with access to the very best companies in the sector,” said Eat Beyond CEO Patrick Morris. “The space has seen enormous interest from the market for brands such as Beyond Meat, but that was really just the tip of the iceberg. The diverse range of innovation taking place in this sector is staggering.”
Other investment firms solely focused on the plant-based food industry include Stray Dog Capital, Veg Capital, Blue Horizon and Natural Order Acquisition.
How to invest in plant-based foods: Plant-based food ETFs
Taking a position in an exchange-traded fund (ETF) is a great option for investors who don’t want to go all in on one company, or aren’t interested in picking specific stocks. ETFs provide exposure to a sector while mitigating the risks of holding shares in a single company.
As of the date of this publication, there is only one ETF labeled “vegan”: Beyond Investing’s US Vegan Climate ETF (NYSE:VEGN). VEGN excludes holdings that represent animal cruelty or environmental harm. However, it’s worth noting that the ETF’s top 15 holdings are more representative of the technology sector than the food and beverage sector, meaning it might not fit the bill for plant-based investing.
While not a not a pure vegan play, the First Trust NASDAQ Food & Beverage ETF (NASDAQ:FTXG) does carry some of the top stocks mentioned in this article as part of its primary holdings, including: Archer-Daniels-Midland, Ingredion, Hormel and Kellogg.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Naturally Splendid Enterprises is a client of the Investing News Network. This article is not paid-for content.