WHEB Commentary

Ted Franks

Impossible whoppers and impossible valuations


Your correspondent isn’t a regular visitor to Burger King. I’m not sure I’ve been into one in this millennium. But there is one on London’s Tottenham Court Road, about 500 yards from our office. And I’m hoping to go soon.

The reason? Burger King has announced[1] the roll out of its new “Impossible Whopper”. The original Whopper is the fast food chain’s signature sandwich. A flame-grilled quarter-pounder beef burger, topped with tomatoes, lettuce, mayonnaise, pickles, and white onions on a sesame seed bun. The new “Impossible” variant has all the same ingredients, but with the beef burger taken out.

In its place is a purely plant-based alternative. Soy and potato provide the protein. Coconut and sunflower oil add the fat content. There’s an organic “binder”, called methylcellulose, to keep it all together. And then there’s the secret ingredient, heme[2].

Heme is an essential molecule found in every living plant and molecule, and it is what makes meat taste like meat. But in this case, it is created from a fermented yeast. So this burger is 100% plant-based. But it tastes much more like the “real” thing, than the drab veggie burgers of yesteryear.

That’s important to Burger King. They want to keep their brand intact whilst broadening appeal.  After successful trials they are confident of rolling it out across the USA.  Hopefully it will come to the UK soon after that.

Reducing red meat consumption is the key food trend in the developed world. In a 2015 poll in the USA, two thirds of consumers said they had reduced their intake[3]. A 2018 poll showed that as many as one in eight Britons are vegan or vegetarian[4].

That same survey showed the drivers behind the wave. 55% of respondents cited animal welfare reasons, 45% health reasons, and 38% environmental reasons.

These are all positive, but our key area of interest is the last one. Beef production in particular is a real environmental challenge. On a per calorie basis, beef needs 160 times more land[5], and produces 11 times more greenhouse gases than arable staples such as potatoes. So switching to a “planet-friendly” diet, and reducing meat consumption, is one of the ways that many people are reducing their environmental footprint.

Demand for meat alternatives is soaring. And when that happens, businesses react. Established food companies are fighting for market share with nimble start-ups. And investors are salivating.

Burger King’s supplier is Impossible Foods. It may soon be listed on the stock exchange.  Its latest private fundraising in May this year valued it at $2bn[6]. It already has a listed competitor, Beyond Meat.

Beyond Meat’s performance since its own IPO in May has been incredible.  Even more so, for a company which is still making heavy losses. It has also gone straight to the top the list of companies we are asked about when we meet investors.

We’re not investors in Beyond Meat. We think the stock is too speculative until we have some visibility on profitability. We also worry about competition. Even before the Impossible Burger has arrived, there are several competing products already widely available in London.

Most of all, we have a valuation discipline to our process which stops us from taking larger risks. So far, our prudence hasn’t been rewarded in this case.  But our experience suggests that it normally pays off.

In the meantime, we have some lower risk exposure to planet-friendly food chains. DSM, in our Environmental Services theme, earns the majority of its revenue from improving nutrition. For farm animals, this improves the yield from scarce resources.

This month DSM also announced a milestone for a great innovation it has been pursuing.  The company has filed for EU authorisation for its methane-reducing feed additive for dairy cows[7]. This magical ingredient will reduce methane production by around 30%. It suppresses an enzyme in the cow’s stomach that produces methane, and then breaks down harmlessly.

Methane is a more potent greenhouse gas than carbon dioxide.  So the global impact of this product could be huge. And it is just one of a slew of similar exciting technologies DSM is working on.

We’ll keep taking a relatively careful approach to investing in in riskier technology stocks. And in the meantime, I’m looking forward to that Whopper.

 

[1] https://www.cnet.com/news/burger-king-meat-free-impossible-whopper-goes-nationwide/

[2] https://www.bk.com/menu-item/impossible-whopper

[3] Sourced from 2H19 Edition of Bloomberg “Quicktake” – see saved .pdf file

[4] https://www.independent.co.uk/life-style/food-and-drink/world-vegan-day-vegetarian-diet-plant-based-meat-health-waitrose-survey-a8611981.html

[5] https://www.ncbi.nlm.nih.gov/pubmed/25049416

[6] https://www.reuters.com/article/us-impossible-foods-fundraising-exclusiv/exclusive-impossible-foods-raises-300-million-with-investors-eager-for-bite-of-meatless-burgers-idUSKCN1SJ0YK

[7] https://www.dsm.com/corporate/media/informationcenter-news/2019/07/2019-07-19-dsm-files-for-eu-authorization.html

Recent posts

  • Better out of it: the price of oil politics
  • Greta gets clean away
  • Impossible whoppers and impossible valuations
  • The social determinants of health
  • Bringing buildings out of the background
  • It may be a cliché but it is true; prevention is better than cure
  • Money at Work: Bringing Impact to Life
  • Why we do need experts
  • Prosperity with Purpose: positioning portfolios in a carbon-challenged world
  • Why we invest in – Varian; using innovation to fight cancer
  • Archive

  • October 2019 (1)
  • September 2019 (1)
  • August 2019 (2)
  • July 2019 (3)
  • June 2019 (2)
  • May 2019 (3)
  • April 2019 (1)
  • March 2019 (1)
  • February 2019 (2)
  • January 2019 (3)
  • December 2018 (1)
  • November 2018 (2)
  • October 2018 (4)
  • September 2018 (2)
  • August 2018 (4)
  • July 2018 (1)
  • June 2018 (1)
  • May 2018 (1)
  • April 2018 (2)
  • March 2018 (2)
  • February 2018 (1)
  • January 2018 (1)
  • December 2017 (3)
  • November 2017 (1)
  • July 2017 (3)
  • June 2017 (1)
  • May 2017 (1)
  • April 2017 (1)
  • February 2017 (2)
  • November 2016 (1)
  • August 2016 (1)
  • July 2016 (1)
  • June 2016 (1)
  • May 2016 (1)
  • April 2016 (2)
  • February 2016 (1)
  • December 2015 (1)
  • November 2015 (3)
  • October 2015 (1)
  • September 2015 (1)
  • July 2015 (2)
  • April 2015 (2)
  • February 2015 (2)
  • December 2014 (2)
  • November 2014 (3)
  • October 2014 (4)
  • August 2014 (1)
  • July 2014 (3)
  • June 2014 (1)
  • April 2014 (2)
  • March 2014 (2)
  • February 2014 (3)
  • January 2014 (4)
  • December 2013 (4)
  • October 2013 (5)
  • September 2013 (3)
  • July 2013 (4)
  • June 2013 (2)
  • May 2013 (4)
  • April 2013 (2)
  • March 2013 (4)
  • February 2013 (6)
  • January 2013 (2)
  • December 2012 (3)
  • November 2012 (1)
  • October 2012 (4)
  • September 2012 (2)
  • August 2012 (1)
  • July 2012 (3)
  • June 2012 (3)
  • May 2012 (6)
  • April 2012 (4)
  • March 2012 (5)