The vegan food industry continues its march into mainstream consciousness. Indeed, one person every 2.4 seconds has signed up for Veganuary 2023. Major food brands from Greggs to Starbucks have significantly expanded their vegan ranges to tap into animal-free lifestyle demands. Even BMW and Mini are committed to making their cars entirely vegan-friendly by the end of 2023.
On the surface, it would appear producers of vegan foods and products are on the cusp of a prolonged golden age. But are there warning signs that the sector is perhaps becoming a victim of its own success? Is the independent zeitgeist over and corporate food consuming the space?
Take Oatly, the purveyor of plant-based alternatives to milk. The Swedish vegan brand saw its IPO share price hit US$29 in 2021 but has since plummeted to less than $2 per share. The company is now locked in a process of sharp job cuts as part of a $25m cost-cutting round. As Danone and Nestle enter various categories with their own offerings, how do independents maintain their USP and stay competitive in terms of profitability?
The recent performance of the vegan sector has reflected the swelling numbers signing up to the “Go-Vegan” movement globally. Plimsoll’s latest analysis shows a market as recently as 18 months ago delivering double-digit growth (10.3% in 2021) and the same for average profit margins. For context, the wider, non-vegan food manufacturing market produced sales growth of 2% and profit margins of 2% in the same period.
But, as the cost-of-living crisis squeezes spending and competition heats up, can the premium prices for independently manufactured, plant-based products continue and what will that mean for growth and profits?
Plimsoll has examined the latest trends across the vegan foods market and compared them to the traditional food manufacturing sector. The performance divergence on top-level KPIs shows a shift in power from the new back to the old. Traditional food manufacturing is powering back after several years of being outshone by the vegan startups:
Sales Growth
Vegan foods have enjoyed an explosion in demand over recent years while purveyors of “legacy foods” have seen less growth. In the latest year that is changing. As big multiples increasingly offer their own version of plant-based produce, specialist independents are starting to feel the squeeze. Can the smaller, niche players regain their mojo in 2023 or will they be swamped by the big food players?
Profitability
As a result of the encroachment of “Big Food” into the vegan space, the profit advantage early purveyors had has diminished. Latest year profit margins show legacy food manufacturers eclipsing the vegan specialists for the first time in almost a decade. With a supply cost crisis and a lack of economies of scale their larger rivals have, what can independents do to recover their margins?
Productivity
The one saving grace for independent vegan food producers is their small operation and nimbleness. Not lumbered with legacy, sometimes unionized workforces, they are able to extract more from their human resources. They extract £261,000 in sales per employee on average. The food industry averages £188,000 on the whole. Can they maintain this advantage amid a cost-of-living and supply chain squeeze?
Vegan food offers the world a healthy, more eco-responsible way of living and the numbers adopting the lifestyle suggest that this is much more than a fad. As a result, “big food” is moving into the space. The results over the next few years look set to change the landscape in the vegan category.
Plimsoll is offering a special “Category Crossover” deal on our twin studies of both the Vegan Producer market and the traditional Food Manufacturing market. You will be able to spot winners and losers from both categories, identify M&A opportunities, benchmark your own performance and assess the changes in both markets.
This package would usually cost £700 but order today and we can offer both industry studies for just £599 (+VAT).