Finance & Investment
Report:
Food Giants Capitalizing on Consumers’ ‘Appetite for Disruption’

A three-year shareholder engagement with 25 giant food retailers and manufacturers has found that some leaders are beginning to capitalize on the rising demand for alternative proteins, while others are falling behind the curve of a booming growth industry.

The alternative protein sector, which includes plant-based substitutes for traditional, animal‐based foods — such as Beyond Meat or Impossible burgers, and plant-based milks — is expected to capture roughly 10 percent of the meat market within 15 years and is now valued at $19.5 billion, according to research quoted in today’s Appetite for Disruption report by the FAIRR investor network. The report provides a briefing on long-term sustainability risks associated with livestock supply chains, which account for 14.5 percent of global greenhouse gases. According to the Food and Agricultural Organisation, the sector is the largest user of freshwater resources, and grazing and feed production account for 80 percent of all agricultural land. The sector is also highly exposed to physical risks from climate change.

For the first time since its launch in 2016, FAIRR’s collaborative engagement found 5 of 25 firms — Unilever, Tesco, Nestlé, Marks & Spencer and Conagra — have developed proactive strategies to build a sustainable protein portfolio; including recognizing that a high dependence on animal-based ingredients is a material risk to business, undertaking risk assessments on their protein supply chains and expanding their range of plant-based products over the previous year. 

Over 87 percent of retailers have ramped up their own-brand plant-based products, which means more supermarket products will come from low-carbon protein sources such as plant-based foods, rather than meat and dairy. A 2018 FAIRR report found Nestlé and Tesco best positioned to benefit from a transition to alternative plant-based proteins; Tesco is one of four retailers trailing alternative protein products, and Nestlé has said that it expects its plant-based sales to reach $1 billion in ten years.

In 2016, FAIRR’s shareholder engagement was supported by 36 investors managing $1.25 trillion in assets; the clear business case for protein diversification has now attracted 74 investors with combined assets of $5.3 trillion including Schroders (UK), NN Investment Partners (NL) and Boston Common Asset Management (US).

“From the factory floor to the supermarket shelf, the mounting environmental and social pressures to move away from a reliance on animal-derived proteins is reshaping the food industry,” said Jeremy Coller, founder of FAIRR and Chief Investment Officer at Coller Capital. “The growth of alternative proteins offers a promising opportunity for food companies to meet the lucrative demand for protein with fewer impacts on land, water and biodiversity.

“For too long, big food has been playing catch up to consumers and startups on alternative proteins, when they should be leading this transformation,” Coller added. “This report shows that some food multinationals are seizing the moment by setting clear strategic goals to increase their alternative protein exposure, supported by relevant metrics that are tracked and reported. That’s a good start, but as alternative proteins go mainstream, investors want more food retailers and manufacturers to capitalize on the opportunity including improving branding, merchandizing and tracking of alternative protein products to expand their appeal across a broad swathe of consumers.”

The 25 food-based multinationals were evaluated on areas such as business strategy, forward-looking analysis, R&D investment levels and consumer engagement to understand how companies are capitalizing on the rising demand for alternative proteins to transform their protein portfolios in line with the Paris Agreement.

Report findings include:

• 5 of 25 firms (Unilever, Tesco, Nestle, M&S, Conagra) achieved the top ‘proactive’ ranking; 16 were active, and 4 (Amazon, Hershey, Costco, Saputo) given the bottom, ‘reactive’ ranking. These categories indicate a company’s readiness to undertake a protein transformation.

• 23 of 25 companies have expanded (or announced plans to expand) their alternative protein product portfolios in the last 12 months.

• 64 percent of the companies included terms like “plant-based” and “vegan” in their annual reporting and/or quarterly earnings calls in 2018/2019.

• Seven of 25 (28 percent) companies (including Unilever and Tesco) were awarded higher scores based on official Scope 3 climate targets that explicitly referenced their efforts to reduce their supply chain emissions from agriculture (either by eliminating mass of emissions, absolute emissions or through science-based targets).

• 4 companies (M&S, Conagra Brands, General Mills and Groupe Casino) have undertaken some type of risk assessment specifically on their protein supply chains. Including climate risks.

• Some companies, including M&S and Carrefour, have set some type of target to increase their exposure to alternative protein products. Carrefour's target is to double the number of products in its vegetarian range in 2019.

• Four of 16 retailers are trialing alternative protein products adjacent to more traditional animal proteins (e.g. on the meat aisle). (Sainsbury's, Tesco, Kroger and Woolworth Group).

• However, zero companies have formal, publicly reported metrics in place to track and report on their protein exposure (e.g. percentage split between animal and plant-based sources)

“There is a clear shift underway among consumers who are increasingly aware of, and concerned by, the climate impacts of the food they eat and how sustainability it is produced,” said Elly Irving, Head of Engagement at Schroders. “Companies that don’t adapt risk falling behind and missing the growing market opportunity that is emerging. FAIRR’s research has been valuable in helping us to identify leaders and laggards.  We will continue to engage with companies across the food industry to push them to ensure their practices are sustainable.”