Plant-Based Renewal In The Food Industry

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Includes: AMZN, RAD, TSN
by: Rogier van Vlissingen
Summary

Convenience foods got us in nutritional trouble, but healthy can still be convenient.

The counter-trend, towards plant-based whole foods, has momentum reflecting the fact that it is now at least 50 years in the making.

There is a demarcation line defined by the paradigm shift in nutrition represented by the work of T. Colin Campbell in The China Study.

In the movie Forks over Knives, we see Drs. Alona Pulde and Matthew Lederman taking their patient, Lee Fulkerson on a shopping expedition to teach him how to buy food. In the plant-based nutrition area, this is becoming almost the new normal, for food labels are designed to deceive, with things such as 57 different known names for sugar. Dr. Robert Ostfeld, the cardiologist who runs the Montefiore Cardiac Wellness Center, makes it slightly more convenient for himself by offering a half-day in-house orientation for all of his new patients and including significant others in order to ensure support at home. In the classroom format, he can cover 50 or more people in one session. The class goes over the nutritional principles and their application in how you run your kitchen, and it goes over products with an emphasis on what is locally available and what you need to get online. Recently, there was also an interesting story about a New York City Doctor, Dr. Robert Graham, who went to culinary school.

In short, anyone who is in the food business, or the supermarket business, particularly if they are in health food, has the option to learn from these practices and use it to help refine their offerings. Hazel Henderson recently discussed a new book on the food system, Nourished Planet: Sustainability in the Global Food System.

The new plant-based economy has become very serious, very quickly as is shown by recent investments by the likes of Tyson Foods (TSN) in Beyond Meat and Memphis Meats and other meat alternatives, alongside private food giant Cargill, which has sold off its last feedlots last year. There was an extensive report about the transition at Tyson in the August 20th edition of Business Week. Venerable White Castle, a private company, introduced the Impossible Slider, which is actually a veggie burger, not a lab-grown meat product, like some of these other start-ups are developing. The video linked above is very instructive, with avowed meat-eaters saying it is beefier than an actual beef burger - giving new meaning to "where's the beef?" We see V-Bites in the UK recently buying a former Kellogg's (NYSE:K) plant and increasingly penetrating the supermarket channel. Equally, a recent piece in the Guardian leaves no doubt that fake meat is here to stay. Increasingly, plant-based food options are ending up on supermarket shelves, such as PlantPure in Publix.

We see Bill Gates and Richard Branson investing in Memphis Meats, along with Prince Khaled Bin Alwaleed, who is also opening his own chain of vegan restaurants in the Middle East. Branson is on record as believing the end of animal husbandry is not far off. Fair to say, something is afoot. There certainly is a lot of buzz. Enough to speak of an emerging trend, and major players are carefully positioning themselves. Importantly, it pays to realize that this trend is actually 50 years old because that is how far back the first scientific discoveries go in this area. The fast food and fast-casual restaurant business is introducing more and more vegetarian, vegan, or fake meat options. In Chinatown, it's been increasingly available for years, both in restaurants and in supermarkets, such as New York's Maywah Vegetarian Supermarket.

New offerings are showing up in supermarkets all the time, one of the most notable features being the inroads made globally by various milk alternatives, expected to grow from $7.5 billion in 2016 to over $14 billion by 2022. By 2016, these plant-based milk alternatives had a 33% household penetration rate in the US. Entire new food categories are being developed.

In this article, I want to unpack these market developments into the components of pro-active, transitional, and defensive, with the ultimate emphasis on health care, which will be the clincher, because doctors are starting to make food recommendations. I will suggest the major developments that are ahead.

Food Trends

We see Tyson Foods take over Tecumseh Poultry, another indication that "organic" is going mainstream. The various investments listed in the introduction are proof positive of a growing trend.

I propose that there are three stages to these food trends:

  1. 'Better' food: "organic," "natural," "grass-fed," "free range," "wild-caught", and other labels, some with more meaning than others, indicate a growing interest in returning to what is perceived to be healthier food - more farm than factory. This is transitional, for it is nutritionally often meaningless.
  2. Next come the vegetarian and vegan trend: driven by concerns for the environment as well as animal cruelty, this is a search for alternatives that is actually not very well defined. As the joke goes: you can eat potato chips and drink Coke and call yourself vegan. This is more about what people don't eat (meat, and/or fish, and/or dairy, and/or honey) than about what they do eat, although there is assumed to be a health dimension to this which is generally confirmed by research and made famous by such research as the Adventist Health Studies from Loma Linda University, and many other studies.
  3. The Whole Foods, Plant-Based trend, which is founded in the nutritional science of T. Colin Campbell and his Center for Nutrition Studies at Cornell, all of which goes back to The China Study, which was the popularization of his 50 years of research. This part of the trend is based on nutrition, i.e. on what you do eat, and specifically it prescribes, Whole Foods (i.e. less processing is better). Raw or cooked is fine, but refined products with additional steps of processing are frowned upon and in general, the addition of sugar (highly processed, extracted), oil (highly processed/extracted), or salt are avoided. This nutritional trend is feeding into the health care debate, for increasingly, the analyses show that nearly all of the leading causes of premature death, including CVD (cardiovascular disease), type 2 diabetes, RA, MS, several cancers and others, are susceptible to prevention or reversal with a whole foods, plant-based diet.
  4. There is an Association for Plant-based Foods and it reports sales are up 20% in 2018, which is an enviable trend anywhere, but certainly in the food business.

Naturally, there are many other would be diets, but none with the scientific basis of the whole foods, plant-based diet. The growing acceptance is commensurate with the fact that it is 100% solidly evidence based. AMA and ACC (American College of Cardiology) are recommending it to hospitals nationwide and adoption is proceeding apace, and the state of California is on track to make it mandatory in schools and prisons, and New York is probably not far behind. ACE (Endocrinologists) are likewise in support because of the proven track record for preventing and reversing diabetes type II.

It is starting to no longer be acceptable to feed children proven carcinogens (cured meats) for lunch: LA County took the lead, New York City is about to follow suit, and more is in the works at the state level, specifying there must be a plant-based option for every school meal. It's happening even in Texas with Midland Hospital in the lead, but it is being promoted city-wide and throughout West Texas, from Midland, and in East Texas the town of Marshall went plant-based.

Investing in fake meat and other transitional products

Any transition towards a more plant-based food system is going to take a long time, probably a generation or two. 'Fake meat' is a transition product, for nutritionally there is really no need for it. The basis for it is more psychological. Something like a burger has become such an accepted feature of casual eating out that having an alternative seems attractive. However, it should be noted that this is a phase that can pass very quickly, which is what I am seeing with many people who make the transition. Before they go plant-based, they think they might like something like a veggie burger, or a 'vegan cheese' (typically from nuts and seeds) but once they get adjusted, they tend to move beyond that stage. Nevertheless, we are a long way from peak veggie burger, so opportunities will come along either at the VC stage or eventually as some of these start-ups will go public.

However, if you were Tyson Foods, or other such food conglomerates, these investments are defensive and the same could be true if there is a lot of food business in your portfolio. Investing in a startup might be attractive for some, and the exit strategy is very likely a buyout by a major food business. The model for this is the acquisition of Kashi cereals by Kellogg's, Ben & Jerry's by Unilever (NYSE:UL), and the examples of Tyson and Cargill cited above. However, by the time Cargill gets out of feedlots and moves into fake meat, they see something coming. Bill Gates and Richard Branson unquestionably see that the meat industry is environmentally unsustainable, so they are positioning with the alternatives.

FastCompany called it a meatless meat explosion last December. In relative terms, it is an explosion, if you consider starting from near zero. In absolute terms, it is still small, but the growth rates are significant and all the major players are jockeying for position. The list includes Sweet Earth Foods (acquired by Nestle (OTCPK:NSRGY)), Lightlife (acquired by Maple Leaf Foods (OTCPK:MLFNF)) as well as Field Roast.

One thing is clear, this is all still start-up or early stage territory, and some of these companies are being acquired by major food businesses before ever hitting the public markets, but no doubt we'll see some of these players go public eventually. The early stage investors fall into two categories, the traditional food companies invest defensively to capture changing tastes, and investors like Gates and Branson undoubtedly have sustainability as a primary driver. Plant-based foods use a fraction of the resources of meat-based foods by a factor of ten or more.

For the retail investor, the opportunities are mostly very limited. You would not buy Tyson because they invested in Memphis Meats. Tyson sounds educated when they argue they are becoming a protein company and are diversifying the kinds of protein they provide. That sounds convincing on the surface, until you understand that the new nutritional science really says the key problem with the Western diet is not just animal protein, but too much protein in general, as an adult male needs only 5-10% of calories from protein male and a female can even get by with as little as 3%.

The Role of Nutrition in Food and Medicine

Convenience, not nutrition, has been the principal driver of the food business. It has all resulted in a massive nutritional deprivation, that we can no longer afford. The food business has been part of the problem set in health and nutrition. We have a runaway tsunami of diet-related illness from diabetes to heart disease, cancer, RA, MS, and so on. The food business of the future will need to become part of the solution set.

What is most significant about the plant-based trend is that it makes nutrition the central focus. It is not merely a diet, it is an all-new nutritional paradigm, represented by the T. Colin Campbell Center for Nutrition Studies at Cornell. With such massive health benefits that it becomes the first stop in the medical system. It is emerging as a new specialty, Lifestyle Medicine, which is growing by leaps and bounds. Doctors are driving the bus, for it is a welcome change to practicing medicine instead of drug dealing.

An apple a day keeps the doctor away. We are literally finding out what that means. In other words, we are coming back to the old Hippocratic saying of: Let food be thy medicine and let medicine be thy food. And as the medical profession is rediscovering this truth, doctors are increasingly prescribing food and the real healthcare reform is taking place within the emerging profession of lifestyle medicine and projects such as the Healing America tour.

Plant-based certifications

In all, this movement is picking up speed, and what investors should look for is not only the food business but how restaurant chains are positioning themselves. There are two emerging certifications, Plantricious and PlantPureCommunities, and the outcome will be that restaurants which conform even a part of their menus to these standards will get referrals from local lifestyle doctors who are putting their patients on a plant-based diet. Just "vegan," does not cut it and "vegetarian" is nutritionally meaningless also, but these labels are intended to ensure meaningful standards.

We should also note that there are approaches out there aimed at tracking healthy eating, including monetizing healthy habits for insurance purposes, such as the 4leaf program and Zipongo. These kinds of initiatives are the perfect corollary to the fact that the new opportunities in food, is for food to become part of the solution, not part of the problem. The food industry as a whole has largely sold out health and well-being to convenience, but there is a sea-change coming in terms of consumers demanding better food options and the way to get ahead of that trend is to focus on becoming part of the solution. New insurance models are sure to emerge. Kaiser Permanente has been one of the leaders.

The promise is that the good brands that produce quality could be just what the doctor ordered and literally make their way into patient instructions, such as you will find in the Montefiore Cardiac Wellness Program and other such programs. One of the programs that is currently expanding this message far and wide is the Healing America Tour, which has also been posting some interesting videos. Look at a recent example from Louisiana - a gentleman who is shedding a regimen of a dozen pills or so in favor of plant-based nutrition.

At the supermarket

Supermarkets are on the move. Whole Foods Market is getting a new boost from its ownership by Amazon (AMZN), but other markets are following the trend. We just got a new Shoprite (parent Wakefern is a cooperative) in what used to be a food desert, at Bruckner Commons in the Bronx, and that is the end of my ever going to Manhattan for any food items. They even have a 'retail nutritionist' on staff, who previously worked at Whole Foods, and knows the whole food, plant-based diet inside and out. In another example, Wegmans' supermarket in upstate New York grows their own organic vegetables.

If you look at the website of the Plant Based Food association, you will currently find about 120 brands there, some are of long standing, but the majority are new and all spawned of this trend. Some examples: Blue Diamond, Beyond Meat, Campbells, Dr. Bronner's, Fig Food Co., Gikorgio Fresh Mushrooms, Milkadamia, Tofurky, Treeline Cheese, Triton Algae, Upton's Naturals, Nature's Path Organics.

Another part of the healthy trend, with food positioned as part of the solution, not part of the problem is Delice Global, and its products, particularly Kim's Magic Pop, which I can now find at my local ShopRite. The products can be made fresh on-site with the Delice equipment.

As an interesting look-back, the recently abandoned potential merger of Rite Aid (RAD) with Albertsons (NYSE:ACI), whatever else might be wrong with it, actually made strategic sense in light of these trends: it would have been a hedge on the trend we are discussing here, for it would tend to grow supermarket traffic at the expense of pharmacy traffic.

Baby Foods

Baby Food is another promising category, for once people have got the message for themselves, naturally they want to help their kids from ever developing all the diseases that are associated with the standard American diet. Jennifer Gardner started Once upon a Farm, an organic baby food company. Plus, you will find plenty of online advice for healthy, plant-based baby foods.

20% growth and counting, plus collateral benefits for ESG investors

From an investment standpoint, ESG (Environmental, Social, Governance) the criteria used are usually absurdly inadequate. Surely Tesla ($TSLA) made it into ESG portfolios - it should have failed all three criteria: it is environmentally dubious, Socially irresponsible (witness recent developments, and treatment of former employees, etc.), and a disaster from a governance standpoint (witness the SolarCity rescue). However, plant-based nutrition cuts out the middlemen - you eat the plants yourself instead of subcontracting a pig or a cow or a chicken to eat the plants for you, adding cholesterol and fat, both of which you don't need and it produces order of magnitude reductions (10-fold or more) in carbon footprint, one customer at a time.

In other words, the shift to plant-based nutrition comes with a massive reduction in resource utilization, as we are reminded by Grain and the Institute for Agriculture and Trade Policy. The meat industry is presently already responsible for over 50% of GHG emissions and is trending up as other sectors of the economy are reducing their carbon footprints. Given that, with the shift to plant-based nutrition, you are rapidly improving our carbon footprint, this area should be a dream opportunity for ESG investors. Energy retrofitting of buildings is another major sector, but it pales in comparison to the opportunities in food, hospitality, and health care.

Conclusion

Plant-based nutrition is an area full of promise and full of fallacies. One clear demarcation line is if a product is sound from a dietary standpoint, i.e. if it meets the requirements of the new plant-based nutritional paradigm. The second-tier opportunities, such as transition foods are likely to be fads in the end. Some 'vegan' foods are bad or worse nutritionally than what they replace. Particularly the romance with supposedly 'healthy' oils among vegans is deleterious. Taste preferences aside, extra virgin olive oil, coconut oil, or motor oil are all just pure fat and not healthy. So is food the solution or the problem? From a nutritional standpoint, the answer is easy. Fads come and go, in food as well as elsewhere.

How strong is the trend? When you realize the potential power of the doctor recommending certain foods and/or places to shop or eat, I think you may get a flavor of the market forces that are being unleashed by this paradigm change in nutrition. I am expecting that in the near future we will see more of the effects in public company stocks, both with existing companies and start-ups reaching the IPO stage. We are at the outset of a major trend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I do have some involvement in these developments on a non-professional basis. I am the team lead for the Bronx in Plant-Pure Communities, and working closely with the emerging plant-based community in the Bronx, as well as with politicians actively interested in these developments.