This is a big week for plant-based meat alternatives. The news of the Impossible Whopper is exciting for those of us who still love the idea of fast-food burgers. There is also the news that Beyond Meat is going public, which means that people will be able to buy shares of stock in the company. This initial public offering should raise a large amount of money for the company, which will help it expand production and distribution.

The vision of companies like Beyond Meat, Impossible Foods, Hampton Creek, and the many other new firms in this area is straightforward: make the best meat-like substitute, and then sell it at or below the price of conventional meat products. When people see a healthier and cheaper alternative, devoted carnivores will start flirting with plant-based alternatives.

When people see a healthier and cheaper alternative, devoted carnivores will start flirting with plant-based alternatives.

This is the vision that Ethan Brown, founder of Beyond Meat, painted for me and some colleagues when I met him back in 2014. I have heard similar pitches from people envisioning fish and egg substitutes as well. Which raises an immediate question. If the goal is to undercut the price of conventional meat, why does the Beyond Burger cost so much? Where I live, restaurants will charge $2 extra to replace their normal beef patty with a beyond burger, and at Burger King, the Impossible Whopper costs $1 more than the regular whopper. At the grocery stores, these cutting-edge alternatives are almost always twice as expensive, per pound, as conventional meat.

I can see two reasons why prices are so high. I am not sure which is the most important.

Economies of Scale

First, these new companies are in the business of mass-produced heavily processed food. I know that doesn’t sound appetizing, but remember that most of our food fits that description. The cost of making one veggie burger depends a lot on how many veggie burgers you make. Once you invest in equipment, people, distribution, and transportation, everything gets cheaper (per burger) the more you produce and ship. This is why so much of our food is so cheap by historical standards.

As the Beyond Burger, the Impossible Burger, Just Egg, and other products take off, lowering the price depends on finding a large customer base. When burgers can be produced in the tens of millions or hundreds of millions, then these companies will be in a production position that is similar to their conventional meat competitors.

Strategic Pricing

The other reason these products are so expensive is that right now they are selling to the true believers. People who buy these foods are a small group of people who have demonstrated that they are willing to research, travel, and pay more for healthier, more humane, and more sustainable food. Restaurants, grocery stores, and producers can charge high prices and reasonably expect committed vegans to pay the extra money. What some of these companies are trying to do, as a result, is drive down the production cost so that they can pitch their product to a restaurant chain at a low price, while still charging vegans higher prices. Similarly, restaurants can hike up the price of their veggie burger and drive up their profit margins.

The problem is that these two goals work against each other. For beyond burger to replace ground beef in the average person’s shopping cart, they need to cut that price in half. They also probably can’t afford to cut the price until they have enough customers to produce at a lower cost. We are still early in the investment and product development stage for this companies. The next five years we should see at least one of these companies try to position their product at a substantially lower price, making a bid for a truly mass market.

Leave a Reply