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The rise and rise of vegan foods

Publication Date: 10 Oct 2019 - By Manika Premsingh By Manika Premsingh
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Thematic Equity USA UK Consumer Retail

The food industry is changing. As consumers are becoming more aware of their diets’ health and environmental impact, business is responding by supplying more alternative food and drinks like plant-based proteins, alternative milks and milk-based products, non-alcoholic beverages and even vapes.

And the market looks promising. According to the Vegan Society, a 75-year-old Birmingham-based organisation, the number of vegans in the UK has quadrupled between 2014 and 2018. Further, it expects that by 2025 vegans and vegetarians will account for one-fourth of the population and furthermore, flexitarians or semi-vegetarians will constitute about half the population. ““A combination of health, ethical and environmental concerns are driving people to consume less meat and dairy, even though they are not  vegan nor vegetarians. The key driver of growth is the increase in flexitarians” says Debora Fang, former Vice President, Mergers and Acquisitions (Food and Refreshments) at Unilever and a consultant with ReachX. 

As a natural extension of this trend, the vegan business has been booming. Global sales for meat alternatives were estimated at $19.5bn in 2018 according to market research firm Euromonitor. The UK market is a small fraction at present, valued at around £560m in 2016, but has good prospects with one in every six products launched in 2018 carrying a vegan claim according to Mintel, a market research and insights firm.

Vegan start-ups are flourishing

The Vurger Company, a London based restaurant established in 2016, raised £600,000 in crowdfunded investment in just two years of operation. The support for both the industry and the company is evident in the fact that it raised 30% of its investment within 30 hours of starting its fund-raising drive. It is now planning to open another establishment, an appreciable rise from what started as a market stall three years ago.

Along similar lines, Neat Burger is another newly launched vegan restaurant in London, which intends to open in 14 locations in Europe over the next two years, besides others in the UK and also the US. It is presently in the process of raising £15m according to media reports. Neat Burger boasts of some of the same investors as Beyond Meat (NASDAQ: BYND), the US-based vegan-burger company, which made an impressive debut at the NASDAQ earlier this year. From its IPO price of $25, the stock had gained 645% by June 10, and for good reason. The company is growing at a meteoric rate and it that is the sign of things to come - Tyson Foods (NYSE: TSN), a meat behemoth, has a 5% stake in in the company and it now sells its meat-free patties to restaurant chain, TGI Friday’s - the prospects could look good for Neat Burger as well. While the Vurger Company and Neat Burger are creating dedicated vegan dining spaces, other companies are focusing on the product alone, which is then sold across various platforms.

Consider the example of London-headquartered Moving Mountains, an early-stage company that has launched its vegan burger, available at multiple locations across the UK. Unlike Moving Mountains burgers, however, which are available at pubs and restaurants, other vegan start-ups are targeting supermarkets. A case in point being Darlington-based Hooba foods, which produces a range of vegan foods from mushrooms. It launched a crowd-funding campaign late last year to raise £250,000. According to media reports, it is growing fast as well, with a 286% increase reported in November last year for the financial year to date.

A slightly different model for vegan foods has been adopted by another London-based company called Allplants, which provides frozen meals on delivery. It started in 2017 and raised £7.5mn in Series A funding from Octopus Ventures among others, which is said to be the largest investment yet by a vegan company in the UK. Supermarkets spot the vegan opportunity

But it is not just start-ups that see the opportunity in the vegan market, the highly competitive British supermarkets are also joining in. Tesco (LON: TSCO), which accounts for a third of grocery sales in the country, has just announced its vegan range called Plant Chef. It plans to provide the range across 450 stores and expects to offer 267 such products by mid-November. This launch follows the success of its Wicked Kitchen products, which included vegan meals. A line of 20 products was launched under the label last year, and saw 2.5m unit sales within 20 weeks of the launch, far exceeding the company’s projections.

Similarly, Sainsbury’s has launched its Love Your Veg range of vegan products, besides stocking third party products that cater to the vegan palate. In a bid to encourage consumption of these products, it launched a three day meat-free butchers’ popup, where customers could try samples and buy them at discounted prices. A 65% increase in sales of vegan products was the impetus for the amped up marketing efforts.

It's also not just meat substitutes that consumers are looking for - the chain has also started stocking vegan Christmas foods for the upcoming season due to the current popularity. Alternatives to milk-based products are also witnessing a sharp rise in demand. A case in point here is Sainsbury’s alternative cheese, which saw a 300% higher than expected sales in the first month of its launch. This isn’t surprising, because “milk alternatives are much easier to switch to, compared to transition to a plant-based burger," says Fang. The success of Sainsbury’s alternative cheese is also an extension of this perspective.

Waitrose isn’t far behind either, having launched dedicated vegan sections in 130 stores. According to media reports, the company points to the rise of flexitarianism as the potential driver of vegan and vegetarian sales. Over a quarter of evening meals in the UK are now in the category of vegan/vegetarian.

Just the start

And this appears to be just the start of what will be a disruptive change in the food industry. As Fang points out “Major FMCG companies are upgrading their portfolio through improving their existing brands, launching new ones as well as making acquisitions in the plant-based space”. This will give them more scale in the years to come. Rising environmental focus is only gaining ground, also adding to the popularity of foods with significantly lower carbon-footprint than meats, besides achieving the humanitarian objective of making food cruelty free. The Economist called 2019 the ‘Year of the Vegan’, but by the looks of it, the next one may well be the start of its decade.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Manika Premsingh

 

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London, United Kingdom

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