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Processed chicken will rule the roost in Asia
ISAAC Newton may be turning in his grave. The laws of gravity are being challenged. Beyond Meat, a producer of plant-based meat alternatives, has risen about 400 per cent since its initial public offering (IPO), despite no sign of profits. Beyond Meat is trading at a price to revenue multiple of 89x, which is over 100 times the average of the global meat processors. One Beyond Meat share is equal to that of 60 of the plant-based burger patties.
The Beyond Meat flagship is a plant-based patty that has the texture and taste of a meat burger. It is similar to the vegetarian mock meat dishes that are common in Singapore. But its business model has limitations. Plant-based meat alternatives represent less than one per cent of the US$945 billion meat market. Meat alternatives are a Western health fad.
Its gravity-defying valuation obscures a mouth-watering opportunity in Asia. A culinary novelty that was introduced in 1983 in America could transform Asia. The Chicken McNugget was launched by McDonalds in 1983. It changed chicken from a product sold in its raw form to a processed product.
The rise of chicken nuggets is due to the tenacity of Don Tyson, who was then CEO of Tyson Foods, one of the world's largest chicken producers. Tyson Foods was founded in Springdale, Arkansas, a rural backwater. Mr Tyson's mild manner belied a titanic drive. He had lobbied McDonalds for 14 years before the giant restaurant chain finally agreed to introduce chicken nuggets in 1983. Tyson Foods became the principal supplier.
Mr Tyson was one of the first to see the merits of processed chicken, especially the nugget. It would liberate chicken from volatility of raw material pricing. Consumers would be drawn to the compact nuggets.
The Chicken McNugget heralded a revolution in America's meat industry. Chicken began to be sold in a more ready-to-eat format. The sale of whole birds made way for more processed chicken. In 1983, only 14 per cent of America's chicken was sold in processed form. Today, it is almost 80 per cent.
Processed chicken products such as McNuggets were a killer app for chicken. In 1992, nine years after the launch of the McNugget, chicken overtook beef to become the most consumed meat. In 2018, per capita chicken consumption in the US stood at 108 pounds (49 kg), twice that of beef.
There is a strange symmetry between the US meat market in 1983 and Asean today. The ratio of processed chicken to overall chicken consumption (15 per cent) in Asean today is similar to the level in the US in 1983.
Asean is an emerging region, on the cusp of prosperity. Rising prosperity leads to higher meat consumption. It also accelerates once an economy reaches a certain threshold. Chicken is intensely relevant to emerging markets as it is the cheapest form of animal protein. The amount of feed required to produce one kg of chicken meat is just 2 kg. The corresponding figure for pork and beef is up to four times as high.
Chicken is not just the cheapest meat, its lead time (from farm to supermarket) is lower than that of pork and beef. This is a vital advantage in a volatile commodity market. Charoen Pokphand Foods is Asia's answer to Tyson Foods. It has a vice-like grip on Asia's meat market. It follows Tyson Food's methods by adopting modern operational techniques such as mechanised slaughter farms. Vertical integration is another Tyson feature that it has taken on.
Processed chicken, however, is at a nascent stage in Asean. The region is now facing a Chicken McNugget moment. Dishes such as Chicken Mee Goreng can be packaged in a ready-to-eat format. Processed chicken's share of the chicken market could rise sharply, along with profits.
Investors who chase alternatives like Beyond Meat are doing so at their peril. The laws of gravity will bring them down to earth. The real meat revolution is in Asia.
- The writer is head of Consumer Sector Equity Research at Tellimer