Beyond Meat: Scaling ethical consumerism

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Ethical consumerism has become the new business buzzword, very much an extension of the earlier commercial virtue-signalling we saw as swathes of business added ‘sustainability’ to their company goals. It’s apparent that no industry has left this narrative unturned, from the rise of ‘organic’ products in cosmetics to ‘green’ products in financial markets. But if we’re talking about ethical consumerism from a revenue-generating perspective, how successfully do altruistic motives actually change the structural habits of consumers?

Perhaps one of the most pertinent business ventures to explore for its relevance to this question would be meat substitute producer, Beyond Meat. As we see ads for the Beyond Burger or an option in the restaurant’s menu for a Beyond Meat dish, we can feel the desire to be an ethical consumer shift from the periphery to the fore. Having reached a peak valuation of $14 billion as the stock price broke the $200 mark in 2019, Beyond Meat investors need to ask the question; whether the social construct of ethical consumerism can lend itself to not just profitable but also defensible business models?

Beyond Meat entered the market at a pivotal time, when the consumer preference for sustainable and healthy living had matured from dinner table discussions into tangible demand. Recognising that ethical consumerism was now becoming an available part of the cultural narrative and supercharging this, allowed them to catalyse an impact that incumbents had not been able to. 

To understand how the trend of meat consumption may evolve, we can look at a parallel concept in ethical consumerism with a very similar trendline. While food and waste is not something we often think of in tandem, the necessary change facing the meat industry is very similar to what happened surrounding waste and pollution as we scaled production post industrialisation. We slowly but surely realised that while waste could not be done away with, it was in urgent need of management.

Cradle to cradle economy.

“The ruling paradigm up until the 1970s was that waste is a natural by-product of efficient manufacturing in a world in which resources are plentiful. Once we became aware of resource constraints and of pollution, we gradually acquired a new perspective: waste is bad. This new paradigm became more powerful and led to cleaner production and recycling. Another paradigm shift is currently underway: the idea that waste is wealth – the cradle-to-cradle paradigm. The new rallying cry is not to produce less, but to produce differently.”

Source: The golden opportunity of paradigm shifts – THNK

Similarly, the narrative around meat has also evolved from ‘meat is a necessary staple’ to ‘meat is bad’, with WEF pushing a global effort to find alternative sustainable protein provisioning.

From ‘meat is a staple’ to ‘meat is bad’.

Beyond Meat has leveraged the “meat is bad” narrative to create its existing customer base.  These customers, in the face of their growing desire to ethically consume, are self-motivated to look beyond ingrained habits of meat-consumption to arrive at plant-based alternatives. Having captured a share of these ‘self-motivated customers’ it continues to optimise for taste and texture, with an increased effort to better address customer expectations of health.

The active consumer: motivation and convenience. Through optimising for consumer motivation and convenience, businesses are able to shift their value capture model from one that simply addresses the demand of an emergent trend to one that envelopes it.

Despite these efforts to increase market share, Beyond Meat’s customer base will most likely be limited to the finite number of ‘self-motivated’ consumers. Importantly it should be noted that 93% of Beyond Meat’s consumers are in actual fact meat–eaters, not vegetarian or vegans as popularly perceived. Then self-motivation is a tricky proposition to scale for a primarily flexitarian consumer base. The next phase of transformation and access to the larger flexitarian market will be catalysed at the point where convenience reduces the necessity for self-motivation. Convenience arrives when meat is no longer considered ‘bad’ and is profitable, while aligning with ethical motivations. 

Reinstating meat as staple.

When we think of ‘meat is profitable’, no ethically aligned solutions immediately spring to mind. This is because one of the innovations best positioned to capture value in this oncoming transformation – cultured meat – is still very much in its nascency. Cultured meat has the potential to satisfy ethical concerns without the inconvenience of changing fundamental consumer preferences – serving altruism without compromise. Instead, it seeks to augment the consumer’s inherent motivation with added convenience, producing a more scalable and defensible alternative to competing plant-based innovations. 

In the face of this movement towards the final stage of meat consumption, ‘meat is profitable’, it becomes apparent that the ethical consumption narrative continues to evolve into an irrefutable consumer transformation. While Beyond Meat’s success has largely pivoted on its ability to address the trend of ethical consumerism, it faces limitations because of its inherent requirement to change consumer behaviour. 

Down the Rabbit Hole

1. Tapping into the ethical consumerism narrative: The environmental impact of cultured meat production vs livestock meat production

Ethical consumerism is driven by factors of environmental impact on land, greenhouse emission and energy consumption as a result of industrialised meat production. 

“There is … a highly unequal distribution of land use between livestock and crops for human consumption. If we combine pastures used for grazing with land used to grow crops for animal feed, livestock accounts for 77% of global farming land. While livestock takes up most of the world’s agricultural land it only produces 18% of the world’s calories and 37% of total protein.”

The Reuters diagram “Cultured Meat – What’s at Stake” compares the scale at which cultured meat would be able to shift the dial towards sustainable living, with cultured meat requiring 99% less land and water than livestock agriculture. 

Source: Environmental impacts of food production – Our World in Data (2020)

2. Theory of Reasoned Action

The theory of reasoned action, formed in the late 60s by Martin Fishbein and Icek Ajzen posits that consumers make decisions based on an intention to create or receive a specific outcome. If we’re assuming the consumers are rational actors, then they may act specifically when they perceive their decision will be met with an equally specific result. Essentially that volition and intention predict behaviour. This theory has often been abstracted into the field of marketing, but we can see how ethical consumerism as a broader concept appeals to this trait in the consumer. The specific act of seeking out ethical products is met with a signalling of the consumer’s values, social standing and ethical considerations. 

The process can more generally be abstracted as follows:

1. Attitude: Individual evaluates suggested behaviour as positive 
2. Subjective norm: Individual believes others want to perform the behaviour
3. Motivation: a combination of attitude and subjective norm creates higher intention 
4. The individual is more likely to perform the behaviour 

The original equation posited by Fishbein and Ajzen:

BI = (AB)W1 + (SN)W2

In which:

• BI = behavioural intention
• (AB) = one’s attitude toward performing the behaviour
• W = empirically derived weights
• SN = one’s subject norm related to performing the behaviour

Source: The theory of reasoned action by Martin Fishbein and Icek Ajzen (1967-1980)

3. The objective value in the ethical consumerism narrative

There is an urgency here in “feeding the world” that is portrayed as a social issue, however, the race is in fact not defined by altruism to feed the world, but rather where value will accrue. Sustainable and humane agriculture is a happy byproduct of the natural evolution of economics within the industry.

Source: Editor’s Essay | The new asymmetric play in agronomy* – 4th Quadrant

Exposure Thinking

Tier 1: Direct exposure to alternative meat companies

The alternative meat industry is projected to capture 10% of the $1.4 trillion global meat industry reaching $140 billion over the next decade (Barclays). Direct exposure to this could be distributed across three types of companies that operate in the alternative meat industry.

Type	Description	Product Example: Plant-based meat	Company Example	Product Example: Cultured meat	Company Example
Technology component innovators	These are the companies solving for the specific technological components required to make alternative meat a scalable, affordable product	Protein source - pea and soy protein are used the most in the alternative meat industry due to consumer familiarity and cost-effectiveness but as protein producers and alternative meat producers compete to innovate and drive the price down, new entrants or variations of existing proteins may emerge at a more competitive price.	Cargill: currently the company offers plant-based protein through the food and beverage segment - a protein market predicted to reach $40.6 billion by 2025. It offers a range of proteins including soy, corn and pea.  Solar Foods: a Finnish company working on fermented protein powder called Solein. Solein is made by applying electricity to water,  releasing bubbles of carbon dioxide and hydrogen captured from the air. It results in a near tasteless powder which is about 65% protein and will cost about €5 per kilo when it hits the market in 2021	Medium for cultured meat growth - currently the industry is seeking a more efficient medium than the predominantly used fetal bovine serum (FBS) currently sitting around a $1000/L price point.	Biftek.co: creating a plant-based medium to grow muscle stem cells instead of conventional fetal-bovine-serum (FBS) Meatable:  eliminates the need to remove any tissue from an animal – a development that would make it the least invasive method for sourcing cells yet.
Technology component suppliers	These are companies that bridge the gap between cultured meat technology and other meat producers through the supply of components required for the transforming manufacturing line.	Extrusion process technology - during extrusion, proteins undergo thermal and mechanical stresses that create the plant-based meat texture and form	Buhler Group: a Swiss multinational company that is known for equipment and services that touch on grain/foods, consumer foods and advanced materials for food production. Their extrusion technology covers the entire process from raw material intake to cooking, drying and cooling.	Bioreactors are the machines inside which cells proliferate and transition into meat.	Future Food Technologies: patented bioreactor supplier of the hardware and cell lines that anyone would need to become a manufacturer of lab-grown meat.
Producers & distributors	These are companies closest to the consumer end and solve for the production and distribution of end product for consumption. Due to the nascency of the industry, we would often find vertical solutions that operate as end-to-end service providers while the industry builds infrastructure around the innovations.	Go-to-market plant-based meat: Burger patties, sausages, minced meat	Beyond Meat:  producer who manufactures plant-based end-products. Apart from receiving a supply of basic ingredients and key proteins, the production, packaging and distribution to retailers and consumers are conducted by the company.	Go-to-market cultured meat: beef, pork, chicken, fish	Memphis Meats: big names such as Cargill and Tyson Foods have invested and could potentially act as partners for the production and distribution supply chains. Alternatively, when they produce the go-to-market product, they will have to scale facilities similar to Beyond Meat to meet the demand.

Tier 2: Publicly listed big food companies 

Big food companies like Hormel and Tyson, are moving to compete with the technologies that could disrupt their existing value chains. While they introduced plant-based meat substitutes (e.g. vegetarian burger patties) even before the likes of Beyond Meat came onto market, their consumer messaging was less exclusive. The less optimised taste and texture of the earlier big food products, coupled with commercial perception of incumbents prevented these companies from frontrunning the wave of ‘ethical consumerism’. In the face of this, many big food companies are now investing directly in or partnering with more specialised alternative meat producers.

Big meat / Food	Market Cap (May 2020)	Exposure to alternative meats
Tyson (TSN)	$17.7 billion	Investments: Memphis Meats (Cultured meat) Products: Raised and Rooted (Launched June 2019) source
Hormel (HRL)	$25.9 billion	Products: Happy Little Plants (Launched September 2019) source
Cargill	Private entity ($113.5 billion)	Investments: Memphis Meats (Cultured meat) and Aleph Farms (Cultured meat) Products: Launching 2020 plant-based meat product source

Tier 3: Broad market exposure to ethical consumerism 

In an endeavour to ride the broader ethical consumerism trend, we can observe the rise in the number of funds that incorporate environmental, social and corporate governance (ESG) screening –  with 564 ESG Consideration funds holding $933 billion in assets under management at the end of 2019. ESG Consideration funds are defined as companies that make considerations in their strategy but do not adopt sustainability as a central objective. As a result of the nascency of ethical consumerism and the broader ESG transformation it’s not surprising to see a much smaller cohort of efforts in a clear commitment to sustainable funds. 

Akin to this thinking, Beyond Investing, an impact investing platform together with its research arm Beyond Advisors launched a US Vegan Climate Index (VEGAN)  in June 2018. Based on the Solactive US Large Cap Index (a proxy to S&P 500), the VEGAN index is a passive, rules-based index of U.S. mainly large-cap stocks, screened according to vegan and climate-conscious principles. US Vegan Climate ETF (VEGAN:US) provides direct exposure to this index.

US Vegan Climate Index (VEGAN):

Exclusions	Exclusion Breakdown	Impact Metrics
41% of the market capitalization of the Solactive.  The excluded large-cap companies are replaced with mid-cap companies that adhere to the principles allowing the indices to benefit from the growth value in cruelty-free, vegan transformation.	Animal testing: 15.9% Animal-derived products: 13.3% Animals in sport or entertainment: 0.3% Fossil fuel: 4.9% Energy production from fossil fuel: 2.9% Military and defence: 3.8% Other environmental and human rights violations: 0.8%	An investor in this new index will avoid funding the slaughter of 13 animals a year for every $1,000 invested

Source: Beyond Investing Press Release

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