‘Real’ meat maker Cargill may emerge big winner in plant-based food as buzzy startup boom fades

Cargill is hardly a household name among consumers — even though it’s the largest privately held company in the U.S., with $165 billion in revenue in its fiscal year 2022. The 158-year-old Minneapolis-based agribusiness giant produces a slew of branded and private-label meats and food ingredients and offers a wide range of agriculture-related products and services.

In the last few years, flying somewhat under the public radar, Cargill has also become a formidable player in the plant-based meat industry, which has come back down to Earth after its meteoric rise about a decade ago, when venture-capital-backed disruptors Beyond Meat and Impossible Foods came on like gangbusters. Traditional meat companies, including Tyson Foods, Hormel Foods and Chinese-owned Smithfield Foods, jumped on the bandwagon, and the marketplace was soon flooded with faux beef, chicken and sausage.

Strategically, Cargill joined later in the game, and is now positioning itself to win the food fight that its competitors started.

In February 2020, almost a year after Beyond Meat’s IPO, Cargill introduced private-label plant-based patties and ground products for global retail and foodservice markets. Later that year, the company came out with a branded line — called Crave House, featuring plant-based burgers, ground, meatballs and sausages — for those same markets, as well as e-commerce channels. Additionally, Cargill began marketing several plant-based protein ingredients, made from soy, pea and wheat, to food and beverage manufacturers worldwide.

“We are a unique player,” said Florian Schattenmann, Cargill’s chief technology officer and head of research and development. “We have everything from the ingredients to the final meat-processing and distribution, and don’t play in fancy brands. That’s our strategy. I wouldn’t say it’s tempered, but deliberate and thoughtful, knowing where our strengths are and not overbuilding in watching the market.”

While as a private company Cargill is not required to break out its various operations and revenue streams, Schattenmann said that its plant-based business is still relatively small. Yet it’s continuing to grow as part of Cargill’s wider alternative-protein portfolio, which includes not only plant-based products and ingredients but also cultivated, or lab-grown, beef, chicken and fish, made from animal cells.

“That’s why this is a ‘and’ story for us,” Schattenmann said. “We expect, over the next 25 to 30 years, 70% more protein consumption [among] an increasing world population. That protein has to come from somewhere. We want to be that diversified protein supplier.”

Investing against Beyond Meat, Impossible Foods

Cargill is playing the long game, judging that the plant-based meats on the market today aren’t satiating enough consumers and dedicating resources to innovate the category. “Cargill is one the few companies that is making the investments and partnering with outside companies to develop a portfolio,” said John Baumgartner, managing director of equity research at Mizuho Securities USA, who follows the industry.

Given Cargill’s sheer size, he said, “the amount of capital they can put into plant-based products is far more than Beyond Meat or Impossible can invest.” Meanwhile, a number of executives at other traditional meat companies “think it’s a fad not worth investing in,” he said, granting Cargill even more competitive leverage.

While it’s certainly proven to be much more than a fad, the plant-based meat market has fizzled since the hoopla surrounding Beyond Meat’s initial public offering in May 2019. Shares soared 163% on the first day of trading, amidst predictions that the overall market might reach $140 billion over the following decade.

Those forecasts proved to be overly optimistic, as lackluster consumer demand, the pandemic and inflation impeded the industry’s growth. As of early June, the category’s sales had declined for 28 consecutive months, Baumgartner said.

Beyond Meat’s performance last year exemplifies the downturn. The company cut more than a fifth of its workforce, its stock dropped by nearly 80% and net revenue fell by 9.8% year-over-year, to $418.9 million from $464.7 million.

According to a recent Bloomberg report, employee shares of privately held Impossible Foods have seen the value of their stock fall by 89% since 2021.

Generally, though, the industry’s forecast is not entirely gloomy. A report released in April by the Good Food Institute (GFI), a nonprofit think tank that promotes alternative-protein foods, stated that retail sales of plant-based meat in the U.S. slightly declined, by 1%, in 2022, to $1.36 billion from $1.38 billion.

“It is important to note that those results are on top of high double-digit growth [over the previous few years],” said Caroline Bushnell, GFI’s vice president of corporate engagement. According to the GFI report, from 2019 to 2022, combined U.S. plant-based meat sales grew 43%, to $2.2 billion from $1.6 billion, across retail, foodservice and e-commerce channels. “There are strong consumer tailwinds supporting the category,” she said, citing surveys in which a majority of consumers say they are actively trying to reduce their meat intake or increase plant-based food consumption.

Meanwhile, Cargill has been busy expanding its plant-based/alternative-protein food business by aligning itself with a growing number of food-tech startups to augment the company’s in-house R&D. “There are still innovation hurdles to overcome,” Schattenmann said. “There are certain areas where we have core expertise and should innovate ourselves.” But sometimes the internal process is too long and costly, he said, and that’s where seeking outside knowhow makes sense.

Cargill has a strategic partnership with Cubiq Foods, a Spanish startup that has bioengineered vegetable oils to improve the taste, mouthfeel and nutritional value of plant-based meats and more closely mimic animal meats. The collaboration could help Cargill customers develop tastier plant-based products that look, smell and feel just like traditional options, the company said in a statement announcing the deal.

Cargill has invested in Puris, the largest North American producer of pea protein, a widely used ingredient in plant-based meats, and Netherlands-based Enough, which has developed a fungi-based, fermented food ingredient, rich in protein and fiber, used to make a variety of vegan foods. Cargill also has an investment in Bflike, a Belgian food-tech company whose plant-based ingredients are used to produce faux meat and fish.

In April 2022, Cargill joined in the largest funding round in the cultivated-meat industry to date, contributing to a $400-million investment in Berkeley, California-based Upside Foods. Last fall, Upside’s lab-grown chicken was declared safe for human consumption by the Food and Drug Administration, the first such designation in the U.S. This dovetails with Cargill’s earlier stake in Aleph Farms, an Israeli startup that grows meat directly from beef cells using a 3D tissue-engineering platform.

What to expect for plant-based meat in next decade

Cargill’s calculated approach to plant-based meats coincides with the nascent industry’s trajectory. Health-conscious consumers were eager to sample burgers and nuggets that weren’t made from animals. But the taste and texture weren’t close enough to the real thing, the long lists of processed ingredients turned people off and the prices were comparatively too high. So the hype died down, leading companies to either drop out or formulate new-and-improved products.

“Consumers say they want to make sustainable choices, but the industry needs to make that easy for them to do,” Bushnell said. “If we can give them products that taste just as good [as animal products], are priced competitively and are maybe better for them, that’s a really easy choice to make.”

That seems to be the trail that Cargill is following. It’s leveraging deep knowledge in animal-based food production and ingredients to enter a marketplace it believes has plenty of room to grow, particularly in North America. “If you look out over 10 years, we expect somewhere around 8%-12% growth,” Schattenmann said, noting that the European market has already achieved critical mass.

Despite Cargill’s vast financial wherewithal to invest in food technology that improves plant-based meats, it will take time to bring those products to market and then convince enough consumers who were turned off by the first wave of products to come back to the new-and-improved ones. “The challenge is the same as when introducing any new food products, which is differentiating yourself and over time gaining consumer share,” said Seth Goldstein, an equity strategist at Morningstar Research Services.

And then there’s the consumer’s appetite to pay a premium price for plant-based meat. “They may prefer traditional meats, largely because of the higher costs. Until the cost comes down, the market will be more limited,” Goldstein said.

Plant-based meats will likely never be Cargill’s primary business, so it must be willing to hang in there, unlike its big-meat competitors who scaled back their efforts before they gained traction. For example, Baumgartner pointed out, Hormel’s Happy Little Plants product exited Nielsen retail distribution in 2020. Tyson’s Raised & Rooted is tracking at annualized Nielsen retail sales of just $3 million, as retail availability has declined by about two-thirds from the peak in September of 2021.

“Even at Nestle, where one could argue it is far more experienced in downstream marketing to consumers, its Sweet Earth brand is generating $30 million in annualized Nielsen retail sales, but sales in May were down over 50% year-to-year and retail distribution is down at a similar rate,” Baumgartner said. So Cargill’s biggest competition will be the established plant-based meat companies, like Beyond and Impossible, he said.

The future of plant-based meat might be analogous to the ongoing transition to electric vehicles. Early adopters paid a premium to buy an EV from Tesla, Rivian or Lucid, while the major automakers tiptoed into the market. As the barriers have come down, especially price and more charging stations, Ford, GM, Hyundai, Volkswagen and others have made major commitments to move away from internal-combustion vehicles.

Wide adoption of any new technology, whether an Impossible Whopper or a Tesla Model Y, is all about scalability. So while pioneers Impossible Foods and Beyond Meat forged the plant-based meat industry, it could well be that Cargill, a large, traditional meat maker, will be out front in taking it mainstream. “Scale will be a big part of managing this entire supply chain well,” Schattenmann said. “We know how to scale.”