In the eyes of most analysts, the plant-based meat category is arguably the greatest invention since sliced bread. The market potential is projected at $85 billion, and the two leading companies—Beyond Meat and Impossible Foods—have been courted by the media with the fervor usually reserved for tech rock stars, not traditional food companies.

However, whether these meat alternatives, once seen as the exclusive domain of 'Earth utopians,' can become a mainstream product category that replaces animal meat, as industry advocates claim, remains an open question.

As the holiday season, including Thanksgiving, approaches and consumers flock to supermarkets, plant-based meat may appear on dinner tables more frequently than ever before. But both Beyond and Impossible face significant financial challenges in turning their visions into reality.

Beyond Expectations?

From any angle, these two competitors have built impressive financial foundations.

Beyond Meat was founded by Ethan Brown in 2009, using pea, rice, and mung bean proteins as core ingredients, and beet juice to mimic the 'bleeding' effect of traditional beef. The company received funding from Kleiner Perkins, a renowned Silicon Valley venture capital firm that helped tech giants like Amazon, Google, and Twitter rise. Additionally, early investors included Bill Gates.

In 2013, Beyond's first products, primarily plant-based chicken, hit Whole Foods Market. In 2016, food giant Tyson Foods acquired a 5% stake.

The company went public in May of this year, and its stock price soared 163% immediately, rising from an IPO price of $25 per share to over $65, marking the best first-day IPO performance since 2000. On that day, the company's market value jumped from about $1.5 billion to $3.8 billion.

Brown has said he was delighted to see 'market recognition' of what he calls its 'crazy pace of innovation.' Since then, the stock has pulled back somewhat but remains strong overall. In the first half of this year, revenue reached $107 million, a 256% increase from $30 million in the same period in 2018; gross margin improved to 33.8% in the second quarter of this year from 15% in the same period in 2018. However, net loss per share was still $0.24, narrower than the $1.22 loss in the same period in 2018.

Earnings released on October 28 showed net revenue up 250% year-over-year to $92 million, gross profit rising to $32.8 million (35.6% gross margin), and net income of $4.1 million, compared to a net loss of $9.3 million in the same period last year. The company is currently valued at around $9 billion, down from a summer peak of $14 billion.

Impossible's Incredible Journey

The other star company, Impossible Foods, was founded by Pat Brown in 2011 and uses a different strategy to mimic the appearance and texture of beef. It uses genetically engineered soy leghemoglobin, or heme, to give its products a 'bleeding' quality.

The company's early funding rounds included $75 million and $108 million, with investors including Google Ventures, Khosla Ventures, Viking Global Investors, UBS, and Bill Gates. Since 2016, the company has raised additional funds multiple times: $75 million in 2017, $114 million in 2018, and another $300 million earlier this year. To date, it has raised nearly $800 million across 12 rounds, with a valuation of about $2 billion—twice that of a typical unicorn ($1 billion).

'We're fortunate to have excellent investors,' Impossible founder and CEO Pat Brown told CNBC in an August interview. 'When we need capital to support growth, there's never a shortage of great investors.'

In an interview with CFO Dive, Impossible Foods CFO David Lee said that despite the company's considerable scale and Beyond Meat's strong public market performance, it has no immediate plans to go public. Lee said, 'Most of the management team comes from large public companies, and we are increasingly operating to the standards of a global public company. Retaining the ability to choose capital from public or private markets is an important strategic option, but we have not announced any IPO or direct listing plans.'

How Big Is the Market?

Analysts are still debating the size of the plant-based meat market—whether it will rival the entire meat market or remain a small fraction forever. But the most frequently cited figure is $85 billion, based on demand for non-dairy milks like almond, soy, and oat milk. The logic is that consumers who buy alternative milks may also be interested in alternative meats.

However, there are differences between the two markets. Sales of alternative milks are largely driven by medical conditions like lactose intolerance—people buy them because they 'have to,' which doesn't necessarily apply to plant-based meat. How many people will buy it purely on its own merits?

Brian Holland of D.A. Davidson believes the potential buyer base for plant-based meat is far smaller than consensus expectations. He said, 'We are cautious about the total addressable market because compared to the lactose-intolerant population, the number of non-meat eaters is only about half, so frequent buyers of plant-based meat may be far fewer than those of plant-based milk.'

This perspective changes the valuation outlook for Beyond Meat. Holland believes the company's fair stock price should be $130, well below the July high of $235 (an 840% premium over the $25 IPO price). In early September, his firm advised investors to sell the stock, which then fell nearly 4%. As of mid-September, Beyond's price-to-sales ratio remained extremely high at 57 times.

To align its price-to-sales ratio with established food companies like Nestlé, Tyson Foods, ConAgra, and Kellogg's—which have already entered the plant-based meat business and trade at price-to-sales ratios between 0.8% and 2.4%—Beyond would need to achieve annual sales of $3.7 billion, 22 times its revenue over the past year.

Competition Heats Up

Meanwhile, Beyond and Impossible face increasingly fierce competition, and the real battle for market dominance is about to begin. Meat and consumer goods giants such as Hormel, Smithfield, Perdue Farms, Nestlé, and Unilever are all developing their own products. Tyson Foods sold its stake in Beyond earlier this year and is applying what it learned to its own products.

Caroline Bushnell, associate director of corporate engagement at The Good Food Institute, told CFO Dive that several large companies are even repositioning themselves as 'protein companies.' The influx of traditional players will force Beyond and Impossible to bring their price-to-sales ratios closer to industry standards, and there's reason to believe they can eventually do so.

In 2013, when both Beyond and Impossible were in their pre-revenue stages, producing a single plant-based patty cost as much as $315,000 because funds were primarily directed to R&D and prototyping. By 2015, when Beyond's products launched, the cost had dropped to $11—still high. It's expected to fall to $4.30 in two years, which, while still elevated, would approach the cost range of traditional animal products.

Achieving this goal requires substantial R&D investment. Since both companies position themselves as R&D-driven tech enterprises, they are prepared to invest heavily to lower production costs. Impossible's Lee told CFO Dive, 'We are very willing to invest in R&D because it's the source of our future competitive advantage. We can produce 100 prototypes a week; we are a tech company.'

The Road Ahead

To directly challenge animal products, Beyond is pursuing a multi-pronged strategy: reducing prices through R&D to below animal protein alternatives; extending its brand into adjacent categories; and expanding into Europe and Asia—with Asia being the largest market.

Alexia Howard of Sanford Bernstein expects Beyond's profitability to continue improving, partly due to traditional issues facing the animal meat industry, such as disease outbreaks, which lab-processed plant-based meat doesn't face. Howard noted, 'Next year, African swine fever in China could drive up meat prices, which might make plant-based options appear relatively cheaper, helping to support pricing and margins.' She also mentioned that the company plans to build its own production facilities for final-stage production rather than relying on third-party contract manufacturers. 'This can save more costs and improve margins, especially by avoiding transportation costs and double freezing, but installing capacity may increase capital expenditures.'

Impossible, meanwhile, is focused on improving production efficiency. This summer, after addressing complaints about product shortages, it partnered with global food producer OSI Group, expecting to quadruple production by the end of the year.

Given consumer preference for the health benefits and sustainability promises of plant-based meat, the market potential is enormous, though its exact size remains unclear. Cost remains the primary obstacle, and if Beyond, Impossible, and their well-known competitors can overcome it, they could indeed scale up, grow, and turn profitable.

Thomas George, president of investment research firm Grizzle, told Bloomberg, 'Sustainability carries much more weight in the overall value proposition than it ever has.' But ultimately, much depends on price. 'The biggest expectation baked into the stock price is that they can eventually be cheaper than beef. If they can be perceived as 90% as good as beef and 30% cheaper, that would be a decisive turning point.'