Where’s the Beef? A Primer on Investment Fad Avoidance

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With the exception of Stoned Wheat Thins, it typically isn’t big news when a packaged food product gets discontinued. Usually it is a slow fade into “hey whatever happened to …” a la Tato Skins, Mystic Mints and O’Boisies^[i]. But a family-owned British sausage maker called Heck made headlines Wednesday for announcing they will discontinue 13 of their 15 vegan offerings due to poor sales. Course corrections like this are the norm in business, and kudos to them for being decisive and on top of things. And for being quite frank about why they went down that road in the first place, for there is a lesson here for all investors regarding fear of missing out on fads and the alleged next big thing.

We don’t see much of this sentiment now, but when optimism rises and IPOs blossom, the story we are about to tell will be worth remembering. Vegan or “meatless” meat startups were all the rage a few Silicon Valley hype cycles ago. When they were private, valuations ballooned as countless op-eds promised every American would abandon meat in the name of sustainability, health and climate change. It was all rather circular, with ideology fueling both the discussion and the valuations. The eventual IPOs fueled the typical I can get in on the ground floor of the next big thing greed. In my real-life supermarket, refrigerators were so full of these products actual sausage could be hard to find.

But it all quickly imploded. The public didn’t bite. Many vegans and vegetarians weren’t attracted to processed foods designed to taste and feel like the products they take such great care to avoid. And meat-eaters wanted, well, meat—not processed, soy-based products loaded with seed oils and other unhealthy additives to vaguely resemble poor-quality burgers and sausages. A quick comparison of nutritional value, not to mention a look at the ingredient list, was enough to put people off. Those who think deeply and holistically about the environment could quickly see that cows, chickens, pigs and lambs were much more efficient at turning plantlife into meat—with greater downstream benefits, like replenishing soil nutrients—than the factories producing meatless meat. And so sales fizzled. Many pureplay meatless “meat” startups tanked, with the flagship offering now sporting an -80% cumulative return since its 2019 IPO.^[ii]

Heck’s founders were quick to spot the problems with fake meat and, by their telling, created vegan sausages with more whole foods and good-for-you ingredients. But in retrospect, they concede the market wasn’t there. The Telegraph quotes co-founder Andrew Keeble explaining it thusly: “We had a huge range of vegan products, because like everyone else, we believed what was being written in the press. If you look at the massive sort of Silicon Valley valuations out there, people were investing in vegan brands and they didn’t want to miss the next Google.” But it wasn’t. “The vegan market is really funny. We actually had some amazing products out there that were very functional, very good for your gut – [such as] one with quinoa and beetroot in it. But the public somehow wasn’t quite ready for it yet. They didn’t want all that veg in sausage.”^[iii]

On the one hand, this is capitalism! Have an idea, see market potential, take a risk, go for it. One of the great parts of capitalism is that you never know what may work until you try. And if there is a perception of profits, people probably will try. The market will then weigh in. Even now the Keebles may yet have the last laugh if, as the market evolves, their product ends up being the one consumers prefer in the long run. Maybe their vegan sausages turn out to be an early prototype of something entirely different. That is how it often goes as new markets grow and develop in the long run. The early also-rans turn out to have staying power while the Pets.coms and Webvans of the world fizzle. But the mentality they describe is the same mentality that caught out investors chasing the fake-meat stock hype. For many, the soaring valuations and glowing articles seemed like justification to chase heat. Taking the time to think critically could have meant missing out. 

But in reality, critical thinking was the way to avoid getting burned. As mentioned earlier, simply looking at ingredient lists and production processes could have prompted folks to slow down. But there are also more universal tricks that work for edible and non-edible products alike. Learning how to spot propaganda is a big one. So ditch dreams about the next big thing and ask questions like:

• Who is hyping this and what are their biases?
• Does this investment thesis rest on the vast majority of people changing their habits and worldview?
• Who is the actual market for this product/service, and why would they buy it?
• Are there existing competitors?
• Is there a big potential customer base, or do the pushers simply want there to be because it would match their own goals or ideological preferences?

Most importantly, recognize that Tech bubble-like hype isn’t confined to the Tech world. It can come in all sectors and industries. Consumer products aren’t immune. Any time you see a burgeoning bandwagon and start feeling that fear of missing out itch, in my view, that is a call to check yourself and slow down, not to buy.