Millions of Americans will be firing up their barbecues this week for the 4 July Independence Day celebrations, and this year will see more plant-based burgers than ever thrown on the grill. 
The meteoric rise and explosive stock market debut of Los Angeles-based meat substitute producer Beyond Meat has underscored expectations for growth in the plant-based protein category, a market with a long runway of growth ahead.
Plant-based foods and beverages are growing extremely quickly in the United States (see chart below). Domestic sales of plant-based meats are up 24 per cent year-on-year versus 7 per cent growth last year, while plant-based dairy alternatives now comprise 13 per cent of the total fluid milk category, according to Beyond Meat.
The milk alternatives market opportunity is clearly palpable, but the main story is meat. With analysts at Barclays estimating the global meat market to be worth $1.4trn, the growth opportunity for plant-based protein producers is considerable.
Plant-based meat alternatives currently account for just 1 per cent of this huge market, with recent analysis from JP Morgan estimating the global plant-based protein market could grow to $100bn over the next 10 to 15 years.
The prospect of rapid growth in the food away from home channel is an important part of this positive outlook.
Beyond Meat’s initial success in introducing its products into American restaurant chains such as TGI Fridays, Carl’s Jr and Burger King suggests a compelling opportunity for future rollouts.
For restaurants, plant-based burgers present an opportunity to appeal to customers who may be looking to reduce consumption of animal protein.
Meanwhile quick service consumers have shown a far greater interest in non-beef offerings of late, with sales of beef sandwiches flat over the past six years while sales of chicken and non-meat sandwiches have grown at a high-single-digit to low double-digit pace.
Burger King is already seeing the benefits of introducing plant-based protein products to its menus. It was the first large US chain to launch a plant-based burger, the Impossible Whopper. The fast food giant is seeing as much as double-digit sales growth in key test markets for the Impossible. When rolled out nationally, the new product could 1-2 per cent to Burger King’s top line.
McDonalds, on the other hand, has been more circumspect about the category but comments that it is watching progress closely. Its introduction of Nestlé’s Vegan Burger in Germany suggests that a “Beyond Mac” may not be outside the realms of possibility.
Given the average share within the top 12 major branded food players within the US is only 33 per cent, there is plenty of room for multiple winners in this expanding category.
The key for success in plant-based meat, though, is innovation and providing consumers with value-added products that satisfy both the stomach and the conscience. We will be looking for opportunities in stocks that can exploit this tremendous opportunity.
Arun Daniel is co-manager of the JOHCM US Small Mid Cap Equity fund. The views expressed above are his own and should not be taken as investment advice.