After years of languishing at the bottom of the menu, plant-based veggie burgers are finally hitting the big time—and the protein industry is taking note. The traditional mushroom, bean veggie burger is being upended by newer, tastier pea-soy protein versions that more closely mimic the taste and sizzle of real meat. But the question remains: Will these meat alternatives disrupt the industry, or will plant-based protein stay a niche market?

High on the Shopping List

New entrants have grabbed the attention of consumers, fast-food restaurants, and venture capitalists. Headlines about the products’ taste and nutrition have been featured in the news. Advocates tout these meat substitutes as an answer to sustainability, while researchers push forward on cellular- and insect-based products.

With a portfolio of more than $2 billion in the protein and dairy sector, our Food & Agribusiness Group has participated in numerous discussions with clients about the future of the animal protein industry. There is no doubt that the key participants in the supply chain are paying attention. Several well-known, global players are actively investing in meat alternatives, while others are pondering a move. Early veggie burger market entrants are reformulating their traditional veggie burgers to improve taste and more closely emulate meat.

The Animal Protein Industry Takes Note

But some of them wonder if the current excitement is an overheated reaction to a dietary fad or the accurate recognition of a permanent shift.

Clearly, some of the hype is warranted. Given the alternative-protein industry’s starting point, its compound annual growth rate (CAGR) could outpace the animal-based market for the foreseeable future. In the 52-week period ended August, traditional meat sales grew only 1.9% to about $95 billion while meat alternatives grew 9.2% to $925 million.

But with less than 5 percent of Americans either vegan or vegetarian, the plant-based protein industry is counting on the meat-eating population to support its growth. Whether that can be achieved remains to be seen.

Meat Alternatives Will Continue to Grow

Yet, even with the market for meat showing no sign of slowing, the race for alternative sources of protein will likely continue at an accelerated pace.

There is increasing demand from consumers for alternatives to meat protein driven by environmental, health, nutritional, or other deeply held beliefs—even though recent reports raise doubts about whether these more processed meat substitutes are actually better for you. However, ongoing advances in protein research and processing technology promise to bring more plant-based products to hit the market.

The market for alternatives continues to receive outsized attention.

Shares in publicly traded Beyond Meat shot up after its initial public offering in May 2019, temporarily reaching an equity valuation topping $12 billion in July. While the stock has fallen since, the investment community continues to view the stock across a broad range, from speculation, to optimism, to people actively shorting the stock. Beyond Burgers are now sold in more than 20,000 U.S. stores, and the company reported its first quarterly profit after sales more than tripled in the quarter ended September.

Impossible Foods Inc., which makes the Impossible Burger, has already raised more than $750 million and made a big splash in the market by signing up the White Castle and Burger King chains.

More recently, McDonalds Corp. introduced its P.L.T. (plant, lettuce, and tomato) sandwich in Canada. Even Ikea and Subway are looking to improve meatless meatballs.

Dozens of other protein-rich replacements are also being pursued. These include cellular-based products, which are cultivated in the lab, and others that use insects as a base ingredient.

Keeping an Eye on the Market

As a banker working with the protein industry for more than 20 years, I appreciate the attractiveness for companies entering a market with this kind of growth. Certainly, more mergers and acquisitions can be expected in the industry, as larger players look to startups for a point of entry.

Not only might this new protein sector allow these companies to grow their top line, but it will also allow them to be more sustainable, which is increasingly important to both investors and consumers.

Several well-established, major players have considered or already begun co-manufacturing arrangements for faster growth, capacity-constrained alternative meat companies. It’s by no means replacing the majority of capacity dedicated for animal-based protein, but simply serving as an addition to existing product lines.

And even for those companies not ready to change course, recent developments in plant-based protein have them paying close attention.

“It’s sustainable and it’s going to be here,” explained an industry executive. “But is it going to impact us? No. Do we want to get into it entirely? No. But on the foodservice side, is it going to be there as an option? Yes. So, we have to be cognizant of how we position our products.”