McDonald’s announcement that it will release a plant-based line known as McPlant in 2021 sent shockwaves through the hospitality industry.
It is a critical move for three reasons. First, it is an acknowledgment by one of the world’s largest restaurant chains that sustainability is the future for food products. Recent research by the Plant-Based Food Association found that demand for plant-based foods rose 90% during peak panic-buying periods in mid-March. Since the demand for the product has remained 35% higher than total retail food.
Second, it’s a move that could potentially dispel one of the industry’s darkest practices—factory farming. Analysts at animal protection organization World Animal Protection US told Plant Based News that the move represents an opportunity for Americans—who consume the most meat in the world—to “easily reduce their meat consumption and lower the overall demand for factory-farmed meat.”
Third, McDonald’s decided to self-produce their meatless product rather than partner with third-party companies like Beyond Meat and Impossible Foods. The restaurant represents a potentially game-changing business partner for many plant-based companies. Walking away is a sign that the plant-based space is about to get even more competitive.
And business is expected to be booming soon. A market study by London-based global research firm Meticulous Research anticipates the plant-based market to grow at a combined annual growth rate (CAGR) of 11.9% between 2020 and 2027, topping out at a value of $73 billion.
Changing Consumer Behavior
Most of this growth can be attributed to the COVID-19 pandemic because it forced some people to re-evaluate their diets, the study says. Combined with global studies showing COVID-19 attacks people with underlying health issues the hardest, the spike in demand for meatless products begins to make sense.
Another reason for the growth is that some governments relaxed restrictions on the alternative meat industry. In June, the Food and Drug Administration (FDA) relaxed its regulations on heme, the ingredient that makes fake meat taste like the real thing. This allowed Impossible Foods to compete with Beyond Burger in grocery stores, opening a $100 million market for the company.
While there are still plenty of critics who won’t touch the stuff, there is evidence more open-minded foodies are warming to the idea of substituting meatless products in their meals. In January, Gallup found that 40% of Americans have eaten a meatless product for a meal.
The Impacts of Factory Farming on the Environment
Factory farming is a driver of global warming. It releases vast volumes of greenhouse gasses into the atmosphere during every part of its “supply chain.” For example, forest clearance for agricultural production often releases carbon sinks in the soil.
A recent study in the Berkeley Economic Review found the meat industry emits 15% of global greenhouse gasses. Most of it is due to the energy expended to feed animals.
“The GHG problem is even more pervasive when compared to its non-meat alternatives: plant-based meats have a carbon footprint 89% less than a beef burger. In order to combat the various problems that the meat industry created, some solutions were proposed; a notable example was the meat tax.,” the study says.
However, both Beyond Meats and Impossible Foods could become a consumer-friendly solution to these problems if they are scaled correctly, Berkeley analysts said. The study suggests restaurants could offer these companies an avenue to sell their product at lower premiums than at supermarkets. Currently, both Beyond Meat and Impossible Food products sell for around $12 per pound.
Restaurants can achieve this outcome in two ways. First, they could lower their cost per pound by buying in bulk. Maybe, more importantly, the rapid-pace growth of the industry also “means that increased demand can overcome the lower revenue margins of the burgers. This makes the products both accessible and profitable while providing enough revenue for the companies to reinvest in R&D,” the study concludes.
Competition
The analysts at Berkeley credited Beyond Meat and Impossible Foods for the job they’ve already done to decrease their cost to consumers. Partnering with companies like Taco Bell, Pizza Hut, and Burger King, afforded the companies the ability to scale up production, but hasn’t greatly impacted their prices.
One reason is that the companies are also manufacturing their product for their partners. In September, Beyond Meat announced it is opening a manufacturing plant in China to help reduce costs. Meanwhile, Impossible Foods still manufactures their product in Oakland, California.
But, this is exactly why McDonald’s choosing to self-manufacture is a big deal. The combined annual revenue of both Beyond Meat and Impossible foods is approximately 1/10th of McDonald’s annual revenue.
This gives McDonald’s an immense capital advantage for R&D. It can simply spend some of its annual revenue whereas Beyond Meat and Impossible Foods will need to raise capital or take on debt. In essence, McDonald’s can afford to lose money while it competes for space in the plant-based market, while current companies must raise revenue to pay down debts. Entering this king of direct competition with McDonald’s also increases the likelihood that one or both companies will get purchased by the burger behemoth.
Conclusion
Small business owners will not be immune from this competition either, as the outcome is likely to decide the fate of the hospitality industry soon. Will restaurants be forced to sell plant-based products stamped with the Golden Arches label, or will a crop of small businesses step in to make alternative meats more accessible?
In either case, small business owners need to begin preparing for the inevitable. From making menu adjustments to signing contracts with new suppliers, now is a prudent time to consider adding plant-based products to any business. Some businesses will need to revamp their entire concept to adapt to changing consumer demands. As they say: Chance favors the prepared.
