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Home Business News

Impossible Foods’ business booms as demand for plant-based meat grows

by The Future Coin
June 23, 2020
in Business News
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Impossible Foods’ business booms as demand for plant-based meat grows
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Starbucks Impossible sausage breakfast sandwich.

Source: Starbucks

Impossible Foods is known for its plant-based meat alternatives, but it’s expanding its breadth of products, buoyed by a cultural movement, an unforeseen pandemic and — in true Silicon Valley fashion — science. On Tuesday it announced that its Impossible Breakfast Sandwich has been added to Starbucks’ menus and most  of its locations in the U.S.

With 22g of protein, the Impossible Breakfast Sandwich features savory Impossible sausage made from plants, which is combined with a cage-free fried egg and aged cheddar cheese and served on an artisanal ciabatta bread.

“Starbucks’ commitment to add more plant-based ingredients to its menu is a new benchmark for large corporations,” said Dr. Patrick O. Brown, founder and CEO of Impossible Foods. 

Michael Kobori, chief sustainability officer at Starbucks, said this is part of the company’s sustainability initiatives and an effort to meet increasing customer demand for plant-based options.

Impossible Foods, which ranks No. 49 on CNBC’s 2020 Disruptor 50 list, makes meat, dairy and fish products from its patented plant-based ingredients that have been backed by celebrities like Katy Perry and Serena Williams, but Impossible Foods CFO David Lee told CNBC it’s trying to position itself away from the plant-based movement so often associated with a niche food industry.

All we need is more and more meat eaters to love our product.

David Lee

Impossible Foods CEO

“We don’t think of it as an alternative (meat) industry. We think we’re making better meat consumed by the meat eater — competing on the level playing field with a better product,” Lee said when asked about the association to a young plant-based market. “That’s how we define our focus.”

Lee said 9 out of 10 Impossible buyers are traditional meat eaters, bolstered by recent events like the meat shortages from the Covid-19 pandemic and a recent expansion into 1,000 grocery stores. It also boasted a fresh round of $500 million, making its valuation at approximately $1.3 billion.

The company’s Impossible Whoppers are in 7,500 Burger Kings nationwide, but it declined to provide sales numbers. Burger King parent company Restaurant Brands provided an update on sales in May earnings. In the U.S., comparable sales growth at Burger King for the first quarter was negative 6.5%. During the precrisis period, in January, February and the first two weeks of March, it posted positive comparable sales growth in the U.S. in the low single digits, and it highlighted the sales being driven by “continued strong contribution from the Impossible Whopper and improved performance in the value layer of our menu.”

Earlier in 2020, Burger King added the Impossible Whopper to its value menu to reach more diners earlier.

Burger King says there was a big bump in foot traffic after it tested the Impossible Whopper in St. Louis in April 2019.

Impossible Foods

While the restaurant business has been hurt, it hasn’t been as bad as the restaurant industry overall, Impossible Foods said. It also began a direct-to-consumer channel for direct shipment amid the pandemic. 

As it increases its reach to retailers and consumers, it’s aiming for a similar placement as it has with its restaurant partners.

“With Burger King we began to discuss the importance of making sure the Impossible brand was right next to their core brand — the Whopper,” Lee said. “To be able to give meat eaters another great option for breakfast is an important milestone,” he said about a recent new Impossible sausage option for a croissant sandwich on Burger King’s menu. 

Lee said the company has seen an increased grocery store footprint of 18 times since March and expects to see a rise to 50 times more by the end of 2020. And it’s depending on that scale — particularly of converted meat eaters — before it can lower prices to be more comparable to traditional meat. “All we need is more and more meat eaters to love our product,” Lee said.

A report by The Good Food Institute and the Plant Based Foods Association said that plant-based food and beverage sales were about $5 billion in 2019, which represented an 11% increase from 2018, with meat alternatives as the largest plant-based food growth. Analysts say they expect to see continued double-digit growth through 2020. 

Boosting exposure to consumers

To this point, Impossible has been focusing on the food-service sector, and Beyond Meat has been focusing on consumers and the grocery sector, analysts told CNBC. But a new direct-to-service channel and new retail partnerships such as with Kroger are likely to boost its exposure to consumers — especially those in rural areas — according to food research analyst Cara Rasch. “A lot of people have tried to do online shopping during the pandemic, and some people are finding they like it and might not have tried it before,” she said. 

“The pandemic made it clear we needed to launch our direct-to-consumer offering much sooner than we thought,” said Khosla Ventures founding partner and early Impossible Foods investor Samir Kaul. “It’s only been a couple weeks, but I think that will be very meaningful.”

Lee and Kaul said the company plans to compete with its science-based ingredients and R&D investment. Much of the recent funding will go toward R&D and supply chain, which larger food conglomerates have a leg up on. When asked about whether it can muscle larger companies with supply chain power, such as Nestle, which is bringing its Sweet Earth alternative-protein brand to the U.S., or Kellogg, which launched Incogmeato, Lee said it’s betting on those meat-conversion stats. “We believe that if we bet on the core consumer — the meat eater — then our ability to grow with the supply chain will grow with that demand.”

Kaul said such options by larger manufacturers are still validation. “They can’t say, ‘Oh, this plant-based stuff is niche’ and then announce their own products,” he said. “We’re Silicon Valley tech investors taking on large industries. This is kind of where our bread and butter is,” Kaul said. “I can guarantee you the top Ph.D. scientists are going to want to work at Impossible and not Nestle or Kraft.”

Impossible wouldn’t comment on whether an IPO is in store like it’s competing brand Beyond Meat, which went public last year. Rising traditional beef prices have also positioned companies to capitalize.

But as the market matures, there’s going to be consolidation, according to analysts.

More from Disruptor 50:
Meet the 2020 CNBC Disruptor 50 companies
Ginkgo Bioworks CEO on scaling up Covid-19 testing: ‘If we try, we can win’
How GoodRx built a $2.8 billion business by helping consumers find drug discounts

“A lot of the larger food companies are not only trying to introduce their own brands but they’re trying to acquire these smaller companies,” Rasch said. “Some larger food companies might be interested in trying to purchase Impossible Foods.”

Lee declined to comment on future funding expectations or potential acquisitions, only saying, “We are open to any partner that has our aligned mission, and are open to anyone who can help us achieve our mission and business needs as fast as possible.”

While alternative meat is still considered a young market sector, speediness is a necessary ingredient, according to analysts.

There’s pressure to get wider distribution and grow “as fast as a possible as quickly as possible,” especially after Beyond Meat went public last year and has already moved into global opportunities, according Rob Dickerson, managing director of equity research for food producers at Jefferies.  It’s still too early to say whether the broader meat market will embrace the brands like Impossible, beyond trying it once or twice. “The key is to have consumers try it, like it and then buy more,” he said. 

TUNE IN: Find out more about Impossible Foods’ partnership with Starbucks from Impossible Foods CEO Pat Brown on CNBC’s “Mad Money,” with host Jim Cramer, Tuesday, June 23 at 6pm ET.

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