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Post: : U.S. plant-based food market value reaches a high of $7.4 billion, but industry faces rough path to further growth

The U.S. market value for plant-based food has reached an all-time high of $7.4 billion, but major players and upstarts alike are facing a rough path on the way to further growth.

Data compiled by the Plant Based Foods Association, the Good Food Institute and Spins, a wellness focused data company, found that retail sales of plant-based food in the U.S. grew 6.2% in 2021, with plant-based milk the largest category. Plant-based milk now accounts for 16% of all retail milk money spent, and has reached $2.6 billion. Almond milk leads the pack with oat milk in second.

Plant-based meat sales totaled $1.4 billion, taking 1.4% of the total meat category dollar share. Plant-based burgers are the top seller, with plant-based meatballs and chicken products, including tenders and nuggets, all making gains.

Nearly two-thirds (62%) of U.S. households, or 79 million, are purchasing plant-based products, with high demand among millennials and Gen Z.

See: Beyond Meat and PepsiCo launch first product from Planet Partnership joint venture, Beyond Meat Jerky

Karen Formanski, Good Food Institute’s research and analysis manager, says innovation will be key to continued growth.

“Getting more consumers to eat plant-based foods more often requires improved taste and texture to compete with animal products, more product diversity, and greater affordability and accessibility,” she said in a statement.

While the data is moving in the right direction, well-developed names in the plant-based food category are facing their fair share of challenges.

Oatly Group AB

reported quarterly revenue that beat expectations earlier this month, but the company is still developing its manufacturing capabilities to meet demand.

“Over the next few years, we expect to drive profitable growth through increasing a self and hybrid manufacturing model as well as localizing our production footprint, which should improve our production and supply chain economics, economies of scale and our service levels,” said Toni Petersson, chief executive of Oatly, on the most recent earnings call, according to a FactSet transcript.

“Our gross margin was impacted in Q4 by the slower ramp up of our production and shift in mix of revenue by sales channel.”

Last year, Starbucks Corp.

ran low on oat milk after it launched beverages featuring the ingredient through a partnership with Oatly. A recent story in The Wall Street Journal detailed other challenges the company has faced.

“[W]e acknowledge Oatly shares likely won’t move until the company demonstrates it can progress against scaled global production, which may not be evident before 2H22,” wrote Cowen in a report published this week called “The Consumer After Covid: Transience vs. Permanence.”

Oatly stock has slumped 36% for the year to date.

Cowen analysts say plant-based food consumption has benefited from animal-product shortages and supply chain disruptions during Covid. And plant-based products, which have improved in taste and increasingly resembles traditional animal products in other ways, should continue to gain favor.

But plant-based meat will have a tougher time for a number of reasons, including the lack of a “built-in need,” like lactose intolerance, to drive consumption; and a lack of desire from many consumers to switch to plant-based meat alternatives.

Beyond Meat Inc.

has run into a long list of problems recently. Some of those problems, like severe weather, are not plant-based-food specific.

The company is also facing demand challenges across the foodservice space, executive departures, and a growing number of competitors, including Impossible Foods, which many anticipate will IPO.

BTIG analysts released a note this week after channel checks at McDonald’s Corp.

locations that are testing the McPlant sandwich, which was co-created with Beyond Meat, and found that sales were underperforming franchisee expectations.

Don’t miss: McDonald’s McPlant sandwich, created with Beyond Meat, is ‘underperforming’ franchisee sales expectations, analysts say

“To be sure, we do not believe plant-based meat is a fad, nor do we doubt it could eventually rival milk in relative size; however, we do think the adoption curve of meat will continue to be slower than for milk,” Cowen said.

Still, the Plant Based Foods Association and the other groups tracking the progress of animal product alternative categories tout reasons to be upbeat.

“Overall, plant-based food retail sales grew three times faster than total food retail sales, with most plant-based categories outpacing their conventional counterparts,” the release for the groups’ data said.

“Conventional meat dollar sales grew three times faster than its unit sales over the past three years, indicating that the apparent growth is driven solely by price hikes.”

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