There’s a change afoot in the food industry. The growing global population, coupled with an increased focus on health and sustainability, has the industry looking to alternative meats. That includes plant-based products, as well as those cultivated from animal cells. “The food industry is undergoing a major revolution,” Telsey Advisory Group analyst Sarang Vora wrote in a June 26 note. Over the next decade, the focus will continue shifting towards sustainable and healthy products, he said. “Furthermore, as the world feeds the growing population — estimated to reach ~10B by 2050 from ~7.8B in 2020 — the need to leverage agriscience and technology, use novel sources of protein, and innovate food products is key to our future,” he added. While plant-based products are already on store shelves, cultivated meat is just getting introduced to American consumers. A select few had their first official tastes after the Department of Agriculture approved the sale of cell-cultured chicken by Good Meat and Upside Foods in June. So far, it’s only been available through specific restaurant partnerships. That means the investment opportunities right now are largely in public companies that make plant-based products, although investors see plenty of opportunity down the road for cultivated meat, also known as cultured meat. The rise, fall and future of plant-based meat Plant-based meat has been around for decades. However, it saw a resurgence in the last few years in what Jordan Bar Am, a partner at McKinsey & Company who focuses on alternative proteins, dubs plant 2.0. Between 2019 and 2020, the plant-based market in the United States grew around 46%, he said. There were new products by public companies such as Tyson Foods and Kellogg, as well as from private ones. In May 2019, plant-based darling Beyond Meat went public, surging 163% on its first day of trading . The stock ultimately ended the year 202% higher than its $25 initial public offering price and continued its ascent in 2020, gaining more than 65%. Then, consumer interest in plant-based meat waned. “We found that there were a lot of people trying the product, but not a lot of people repeating the product,” Bar Am explained. “It didn’t taste as good as they wanted it to taste and it also was really expensive.” In 2021, Beyond Meat shares tumbled nearly 48% and then sank a staggering 81% in 2022. Yet that’s not the end of the story. There are still parts of the plant-based market that are growing, like fully-cooked nuggets, while others, like ground beef, are more challenged, Bar Am said. “We’re at a spot now in the plant-based market where as the fervor has died down, we’ve seen the category getting cleaned up,” he said. Meanwhile, Beyond Meat’s stock has started to tick back up, gaining about 26% year to date. It is now down 38% from its IPO price. BYND ALL mountain Beyond Meat’s performance since is May 2019 IPO “This is a company that’s been a first mover of sorts in the space,” said Alec Lucas, research analyst at Global X. The firm’s AgTech & Food Innovation ETF (KROP) holds shares of Beyond Meat and invests in both agriculture technology and food innovation, the latter of which focuses on alternative proteins. “Scaling is one of the biggest issues that will face these companies, especially in the early innings,” he added. “Beyond Meat is ahead of a lot of publicly traded competition.” Recently, the company announced that it was expanding distribution to become available in about 14,000 stores across the U.S., including Whole Foods and Wegmans. Beyond Meat also continues to roll out new iterations of its products, such as a new version of its sausage that it claims has a “meatier” texture that it launched last month. Take a lesson from EVs For Laine Clark, innovation and entrepreneurship manager with nonprofit think tank Good Food Institute, it’s not completely surprising that there has been a cooling off after plant-based foods’ wild ride higher. “That’s probably very natural for an industry that was exuberant, excited and growing very quickly,” she said. Yet there is still an opportunity ahead, she said. She likened the plant-based phenomenon to the initial excitement around the mass production of electric vehicles. In 2009, CNET had a headline titled ” 2011: The year of the electric car ,” she pointed out. “What happened, of course, was that they were not practical for a lot of consumers, because the range wasn’t big enough, unless you went up to the very expensive Tesla S,” Clark said. “Then also charging stations weren’t prevalent.” Now, we’re at a tipping point, with Norway, for example, seeing 80% of its new car sales being electric vehicles, she added. “I think that we’re going to see the same thing where some of the products came to market a little too early, maybe some of the exuberance was a little too early,” she said of alternative meat products. “We’ll get past that just as we get past things all the time in new industries.” McKinsey’s Bar Am agrees. “If we look back at 2020, we would say we overestimated the ease at which consumer behavior changes,” he said. “This is not going to be a wholesale overnight shift. This is going to be more gradual, in line with frankly, most [consumer packaged goods] categories. Food is sticky and cultural and it takes time for things to change.” Still, the plant-based meat and seafood retail industry generated $6.1 billion in global sales last year, growing 8% by dollars and 5% by weight, according to Good Food Institute. Hundreds of new products also hit the shelves, and include plant-based steak, salmon and foie gras. There were also 25 new strategic partnerships in 2022, the organization said. Meanwhile, the interest in cultivated meat is also growing. There are 156 companies in the space as of 2022. Cultivated meat and seafood companies raised $896 million last year, bringing the total for the industry, since 2016, to $2.78 billion, per Good Food Institute data. $450 billion market opportunity Barclays believes cultivated meat is better positioned than plant-based products to disrupt the alternative protein landscape. “Cultured meat is more of a technology licensing story versus plant based, which is heavily reliant on consumer marketing,” said Hiral Patel, Barclays’ global head of sustainable and thematic research. The firm is forecasting a $450 billion market opportunity for cultivated meat by 2040, perhaps reaching 20% of the global meat market. However, manufacturing efficiency and consumer acceptance are key to reaching that market share, the firm said in a June note. Barclays’ 2021 survey of 5,000 adults across five countries — the U.S., UK, China, India and Brazil — found there is an appetite for cultured meat, with two out of three saying they would consider purchasing the product. Health concerns are the main drivers, although they also highlighted sustainability and animal welfare. However, there is still a ton of work to be done and a lot of uncertainty, McKinsey’s Bar Am said. As there is more confidence around the products, more talent and capital will flow into the space. That could help propel cultivated meat into a $25 billion industry by 2030, providing as much as 0.5% of the world’s meat supply, McKinsey said in a 2021 report . Good Food Institute’s Clark is also conservative about the sector’s shorter-term impact on the overall market. “We’re still being very realistic about what percentage of the overall meat market this could account for and I think it’s still small within 10 years,” she said. “But after that, it could be explosive.” It’s going to come down to infrastructure and how quickly the companies can scale, she noted. Getting the taste perfected and lowering prices is also a big factor in the products’ successes, she said. “Startups have to think about what they’re putting out there. It’s not a race just to get to the shelf, it’s a race to get the best product to the shelf,” she said. Investing in cultivated meat For investors interested in getting in on the cultivated meat “revolution,” it is still early stages, said Telsey’s Vora. One way to get exposure is by investing in public companies that are invested in private cultivated meat ventures. Good Meat and Upside Foods are both private, although Tyson has invested in Upside Foods. Archer-Daniels-Midland also recently announced it is collaborating with Believer Meats on new ways to develop and commercialize cultivated meat products. The company also has a partnership with Good Meat. Others are biding their time. Kellogg CEO Steve Cahillane recently told Reuters at a food conference that he wasn’t ruling out a possible investment, but noted the uncertainty in the sector. “Can it be scaled up in a really meaningful way? That needs to get solved,” he said. However, there is a small cultivated meat company already publicly listed in the U.S. Steakholder Foods , which has a $14 million market cap, develops technology to create cultivated meat and fish products using 3D printing. STKH YTD mountain Steakholder Foods year to date Alliance Global Partners, which has a buy rating on the stock, said the rising rate environment “hasn’t been kind to valuations in the space” and that is a blessing in disguise for Steakholder. “We think many of the cultured meat firms that have raised significant venture capital and may have attempted to develop their own 3D bio-printing capabilities are now unlikely to do so. It simply makes more sense, in our view, for such firms to partner/collaborate with Steakholder,” analyst Ben Haynor wrote in an April note. There could also be some initial public offerings in the future, and as the industry reaches scale and price parity, there could be acquisitions by public companies down the line. There will also be a next generation of plant-based meats, according to McKinsey’s Bar Am. “There will be plant 3.0 with much more sophisticated textures, processing, technology, all of that,” he said. “There’s some really exciting stuff out there that I think we’re going to continue to see growing.” In fact, experts see an eventual blurring of the lines between plant-based and cultivated meat products as more hybrid products are made. “You might have a plant-based product that incorporates cultivated fat, for instance, to get that plant-based taste parody closer, quicker,” Good Food Institute’s Clark said. “It’s not just a straight linear line to the different success stories,” she added. “We’re going to see a variety and I think these much larger meat companies are very much on board, understand the urgency and just want to make sure that whatever protein people want, they can supply.” It’s also not just publicly-traded meat companies that may hop on board, but consumer packaged goods companies as well, Bar Am said. “You think about the current animal protein industry, it’s what I call a disassembly industry — they take animals apart,” he said. “Cultivated meat is a formulation industry, which actually looks a lot more like CPG. You take a bunch of ingredients and you make things.” “The center of the plate is up for grabs in ways it hasn’t ever been before,” Bar Am said. — CNBC’s Michael Bloom contributed reporting.