Opposites attract: manufacturers adapt to changing market dynamics

When meat processors see plant protein as the future

In October 2017 Tyson Foods – the world’s second largest processor and marketer of chicken, beef and pork –  took a 5% stake in plant-based protein producer Beyond Meat, maker of the vegan Beyond Burger, an investment that is going so well the company has, as of February 2018, increased its stake. In addition, it has also launched a venture capital fund worth $150m to invest in startups that develop meat substitutes.

Tyson Foods CEO Tom Hayes commented in a recent TV interview: “Plant-based protein is growing almost, at this point, a little faster than animal-based, so I think the migration may continue in that direction.” In other words Hayes can see a future when plant protein becomes more popular than meat protein.

The increasing popularity of plant protein is clear globally, a trend believed to be driven by health-conscious and environmentally-aware millennials. Recent news stories from the UK show over a quarter of evening meals do not contain meat or fish. During Veganuary, one in 10 shoppers bought a meat-free ready meal, leading sales to rocket by 15% compared with the same period last year.

A spirited response to soft drinks sales surge

According to government statistics, alcohol consumption is falling generally, especially in the more developed markets in Europe, with health-conscious millennials in particular drinking less than their parents. Even those who do drink are said to be actively looking to cut back on their consumption, keen to reduce the negative impact of long-term drinking.

Those aged under 25 are said to be key to the mindful drinking movement, whose followers aim to cut down their alcohol consumption. By drinking mindfully, drinkers become aware of how their body and mind are affected, allowing them to decide how comfortable they are with these effects. Meanwhile, in 2017, five million people signed up to Dry January. All of these consumers are looking to find a palatable – and sophisticated – alternative to their daily glass of wine.

Adult soft drinks – those which have a more sophisticated taste and appearance – have been leaping on to retailers’ shelves but while it is no surprise to find soft drink producers such as Britvic expanding their traditional offerings, it becomes slightly more surprising when one of the largest alcoholic beverage producers, Diageo, decides to join the (sober) party.

Seedlip is a non-alcoholic drink which is craft-distilled in copper stills using a similar process to that utilised in vodka or gin production. Priced at a comparable level to premium spirits, the brand nonetheless saw sales increase sharply and in 2016 attracted the interest of Diageo through its Distill Ventures investment arm. According to Diageo, the investment has been phenomenally successful and the company believes it is likely that it will invest into more non-alcoholic ventures.

A smoke-free world envisaged by the world’s largest tobacco manufacturer?

The world’s biggest tobacco company Philip Morris has somewhat surprisingly declared it can envisage a smoke-free future and has thus has established a Foundation for a Smoke-Free World, claiming that the future is in e-cigarettes and other smoke-free nicotine delivery systems.

PMI claims to have already invested the equivalent of $3bn in developing the products in Europe and has promised to back government quitting campaigns and to seek approval for quitting and ‘switching’ informational inserts to put in its cigarette packs. However, for those that will continue to smoke, PMI wants to “replace cigarettes with products, such as e-cigarettes and heated tobacco, which are a better choice”.

In its fourth quarter presentation, PMI reaffirms this commitment to a smoke-free future. This is the message from the very first slide and a closer look inside the presentation reinforces this commitment: the highlighted results heavily focus on the company’s smoke-free products, Heets and IQOS. It reports total volume down by 2.7% in 2017, principally due to lower cigarette industry volume, which has only been partly offset by strong growth in heated tobacco unit volume.

Nonetheless, PMI announced that heated tobacco unit volume reached 36.2 billion units in 2017 (vs. 7.4 billion in 2016) with IQOS performing exceptionally well. PMI estimates that over 4.7 million adult consumers around the world have already stopped smoking and made the change to IQOS.

When opposites attract

What these examples all show is that the when the future of a traditional market – whether it be tobacco, meat or alcohol – has come under threat from a generation of consumers who are conscious of their health and keen to protect the planet, one response has been to jump into bed with the upcoming alternatives.

While it may seem to be a logical response, it is not one without dangers – particularly, it must be said, for Philip Morris. The company’s stated commitment to a smoke-free world has been dismissed as a marketing stunt by many – anti-tobacco groups argue that if the company was serious about its plans it would stop selling tobacco products. Nonetheless it is a bold move and one which, for the time being at least, allows it to have a foot in both camps. For Tyson Foods and Diageo there is not the same level of antagonism and seemingly much to gain in juggling their investment in the dynamically opposing markets. It will be fascinating to see which are the next strange bedfellows to emerge hand in corporate hand.