On Dec. 8, the food company Tattooed Chef (TTCF 6.61%) announced two new products: plant-based pepperoni and plant-based sausage. The company's products were always vegetarian or vegan, but its new product announcements were its first for plant-based meat substitutes.
The plant-based meat space has well-known incumbents like Beyond Meat (BYND 1.75%) and privately held Impossible Foods all vying for consumers' dollars. But even though Tattooed Chef is entering the space, I don't believe investors should worry about competition heating up. These rivals are surprisingly more friendly and complementary than you might think.
The target audience
Tattooed Chef just went public in 2020 via a special purpose acquisition company (SPAC). In its registration documents, it clearly lays out its target customer as "flexitarian, vegetarian, vegan, organic, and gluten-free." (Flexitarian means people who aren't strict vegetarians; they sometimes eat meat.) These consumers usually have a health reason for their dietary choices and are often faced with limited, low-quality food items in grocery stores. Tattooed Chef is looking to meet their needs with a widening array of options made from high-quality ingredients.
These consumers are not the primary target for companies like Beyond Meat and Impossible Foods. In Beyond Meat's registration documents, it said its goal is "to appeal to a broad range of consumers, including those who typically eat animal-based meats, positioning us to compete directly in the $1.4 trillion global meat industry." Impossible Foods hasn't filed a document like this because it's a private company, but interviews with management suggest its target audience is very similar to Beyond Meat's. These two are clearly targeting carnivores, not vegetarians.
But there is a key difference between Beyond Meat and Impossible Foods. Impossible Foods uses genetically modified ingredients (GMOs) in its products, and CEO Pat Brown publicly defended the decision in 2019. To summarize his article, he said he believes science supports the safe use of GMOs (specifically with soy) and that they produce a better tasting product. As he wrote, "This is the right decision -- and an easy one."
Impossible Foods' decision to use GMOs may indeed be scientifically substantiated. But Beyond Meat decided to target a slightly different audience. The reality is, consumers do have reservations about GMOs. Therefore, Beyond Meat's products are GMO free. The company is targeting all meat eaters, like Impossible Foods. But it's trying to take away a possible friction point to have the broadest appeal.
Because they're targeting different audiences, I don't believe investors should view Beyond Meat and Tattooed Chef as competitors.
To further drive home this point, Tattooed Chef identified its competitors in its registration documents, and Beyond Meat and Impossible Foods aren't listed. The company stated, "We compete with conventional frozen food companies such as Nestle, Conagra Brands, B&G Foods and Amy's Kitchen" (my emphasis added). By contrast, Beyond Meat says, "We compete with conventional animal-protein companies," listing Hormel Foods and Tyson Foods among others. Impossible Foods is listed as a secondary competitor jockeying for shelf-space position.
Motivated by climate change, Beyond Meat and Impossible Foods are frenemies, jointly taking on the meat industry to save the planet. As Impossible Foods' Brown said in an interview with Yahoo! Finance, "Beyond Meat is not our competition, and I wish them nothing but success."
In my opinion, the reason Tattooed Chef's niche exists in the first place is because the market isn't very big. Not many companies are going to jump at the chance to target a limited demographic in a small food category. Beyond Meat's broad target audience in the trillion-dollar meat industry is much more enticing.
What it all means
That doesn't mean Tattooed Chef can't be successful or a good investment in the long run. I would simply argue, given what we've seen, that the company's new pepperoni and sausage products won't have any effect on Beyond Meat's business. In other words, Beyond Meat doesn't have a new competitor in Tattooed Chef. Don't be fooled by headlines.
Tattooed Chef could try to make the jump to compete directly with Beyond Meat and Impossible Foods. But it's a little easier said than done. For one, it would need to make the jump from the freezer section to the fresh meat case, implying different shipping and handling procedures. That jump is important because being placed in the meat section is a big hurdle to get consumers to view plant-based products as viable animal-protein substitutes.
And even if Tattooed Chef does eventually compete more directly with Beyond Meat, that doesn't mean both can't be successful. By striving to replace a large portion of animal proteins over the next decade and beyond, the makers of plant-based meat substitutes are doing something big enough to produce multiple winners.