By David Stevenson on Wednesday 1 September 2021
Leading food tech investment manager Yuko Takano discusses aggtech, food tech, potential IPOs in the sector and the contrasts between Asian and Western food markets.
Yuko Takano, co-lead manager of Newton's Future Food Fund discusses foot tech and aggtech from an investor standpoint in a wide-ranging interview with Future Food Finance founder David Stevenson. The pair touch on the potential of the alternative protein market, flavouring companies, the divide between the cellular and plant-based market, contrasts between the Asian and Western European and North American food markets, and the likelihood of an IPO boom across foodtech.
David Stevenson: Yuko, why don’t you just tell us who you are and what you do at Newton?
Yuko Takano: Yes, so I mean I've been at Newton for almost 10 years, so I joined on February the fourth, so that’s coming up. So, you know, really approaching my 10th anniversary, and I've been within Newton. I started out as an equity research analyst, mostly covering Asia and also doing consumer internet stuff. Always have been interested in consumer. In fact I went to a French culinary school so-
YK: I care very much about food. It is my biggest passion I would say apart from ballet, watching ballet not performing ballet. And so, you know, when we launched this fund. So we launched this fund in the UK last week but we actually had a segregated mandate that’s a non-UK client and that launched about a year ago. So, you know, we started conceptualising this fund from about two years ago and then launched that mandate and then now we’ve launched this mandate in the UK.
So it’s been, you know, almost two years I guess since the initial planning of the fund. You know, like I said I've always been interested in the consumer sector. I am a sustainable global equity portfolio manager. That is my main job but I also run some thematic funds for Newton. So I run this food innovation strategy and I also have a longevity and what we call future of earth strategy, so that’s more climate change orientated.
But, you know, Newton as a house, I’m sure you know very well it’s a very themes orientated house, and so a lot of these funds have been derived directly from our themes. And there’s a lot of overlap in terms of the stocks that we own and these theme funds with the global, sustainable equity fund that I also managed. So that’s why I've been, you know, assigned these funds. It all kind of generally falls under the same umbrella.
DS: So if we look at the kind of – there’s lots of terms used, things like food tech, aggtech, kind of alternative proteins, cellular meat. This is an industry full of jargon, yes?
From your viewpoint what are the most interesting kind of trends that you’re picking out? So obviously some of them you can’t really invest in because there’s not a lot of publicly listed business, but there are bits of it you probably can. What do you think from your kind of helicopter view are the most interesting things investors need to watch out for in the coming food revolution?
YS: So, you know, like you mentioned alternative proteins is definitely an area that we’re keenly interested in. Maybe it’s a bit easier if we break it down into the way we see the world, and we really. It’s a really simple way of thinking but we break it down between primary, secondary and tertiary industries. So, primary being the seed manufacturers, also the fertiliser companies but also including agg machinery, and we feel like in that space aggtech if you like is the most interesting.
So, you know, for example there’s a lot of companies and chip manufacturers and also more kind of, you know, the big integrated agg machinery producers or manufacturers that are all basically trying to make agriculture more efficiently run because it’s one of those, along with construction, it’s one of those sectors that are hugely behind in terms of technology.
So we like to look at companies, for example, that have sensors and they run drones, for example, across the field. So these are like big plantation type farms that are, you know, the majority in the US but what’s interesting is like, for example, one sensor company can actually scan the colour and the height of each plant.
And then, you know, assess the growth or the rate of what each plant is growing at and administer the right amount of fertiliser. So that cuts back fertiliser consumption by about 10 per cent on average, which is huge and it’s something that a farmer can never do manually, right, because he can’t- I mean he could but it would take forever and it wouldn’t be efficient and the crops would die out in the meantime, so it just doesn’t make a lot of sense.
So, you know, that is definitely an area that we’re really keenly interested in and there’s a lot of software technology, along with sensor technology in that space. So we have some exposure there.
Moving on to the secondary industries, so these are the companies that actually produce the food. So, you know, it can be your alternative protein producers but what we’re really.
An area that we also really like which we think is a key growth area are the ingredients companies and the flavour and fragrance companies, which have been, you know, I think it’s been in investor focus for a while now. I think, you know, many of us really like this sector.
But, you know, all of those companies are shifting more to more natural flavouring or more natural fragrances or they might be the producers- Sorry, they might be the suppliers to a lot of these alternative protein companies.
Another area that we’re really interested in, in a similar vein is probiotics. Yes, so there are companies out there that have a huge market share in producing yoghurt cultures for example and, you know, these companies can do these things on an industrial scale and basically provide to the likes of the Unilevers and the Nestlés of the world, and they provide a very sort of customised product.
DS: On that one, one of the – actually just touching on that issue. I’m interested in what your take on this is, is- I mean for instance on the alternative proteins have you tasted any of the alternative meats, the Impossible burgers, the Beyond Burgers?
YT: Yes, yes.
DS: What was your personal take on it, when you tasted them?
YT: So I have only tasted Beyond and maybe, yes, I think I've done meatless farms as well- And I haven’t had the chance to try Impossible, unfortunately, although everyone says- You know, the feedback is that Impossible has the highest quality and the highest repeat ratio of customers.
I would say that the way that they replicated the taste and the feel of meat is really impressive.
You know, like when you cook it on a frying pan it actually chars right and then, you know, it’s like the meat juice kind of flows out which is kind of weird.
DS: But on that, because what I was going to say, so you actually think it’s quite good but one of the things I was interested in, I was chatting to a few VCs in this space, and it struck me that you can kind of engineer the alternative plant-based proteins as much as you want to but quite often – and I’m still a meat-eater, I still eat meat.
YT: Yes, me too- I mean I eat everything, so-
DS: Yes, exactly, the same here. But actually I find it quite often, I thought one of the most interesting areas was fats, fats and oils actually and I was chatting away and I was saying, “Actually it strikes me that the most-” This is going to your point about flavourings actually. That one of the most interesting areas is actually mixing kind of oils and fats that may well have been for instance cellular-based, so it does actually originally come from an animal, yes?
DS: And then you put it in the plant proteins and you probably are getting damn close to the flavour of meat.
YT: Of actual meat.
DS: Yes, so I mean is that- Because I have heard a lot of people say actually the oils, the fats, is that an interesting area that you’ve picked up on as well?
YT: So, not specifically oils and fats, you know, in terms of companies that we invest in. I think we do those through the flavour companies to be honest, yes.
DS: So just going back – so these flavouring companies, does that extend all the way to, potentially these companies are fundamentally chemical companies really aren’t they I suppose?
YT: Originally, yes.
DS: Enzyme chemical companies?
DT: Yes, so-
YT: So it’s interesting because from a stock market perspective, you know, it generally falls into the materials sector. So we have a hard time explaining to our investors because they see it, a high exposure to materials and they think, “Oh, my God, what kind of chemicals are you invested in?” And actually in reality these are more, they’re on the edible side.
Enzymes as well, like you say, I was talking to a Japanese convenience store about a year ago and they were saying, “Well, you know what, actually some of these enzymes that they use can extend the life of their products.” Which basically means – and the enzymes actually disappear after a while so it doesn’t have any harm to the human body as far as they’re concerned.
So what this implies is, you know, typically at a Japanese convenience store they used to deliver to all the stores three times a day. So breakfast, lunch and dinner, because they wanted to keep everything fresh. But then if things didn’t sell by, you know, if you deliver at lunch and then things don’t sell by the time dinner comes around, you know, they would basically throw out all those products and put in the new dinner products.
So it lead to a lot of food waste, whereas now with this sort of more natural approach to food longevity, if you like, they are able to extend the life and hence reduce food waste which is ultimately good for the environment. So, yes, like really interesting innovation happening in that space.
DS: So what else in the secondary and the primary space are you interested in?
YT: So I guess I just mentioned most of the areas within primary and secondary. I’m just thinking there might have been one more thing. No, but, no, I did mention probiotics, so I think that’s it and then the final one is tertiary which is more on the retail and consumer side. So I mean the biggest growth area there is, as you know, online food delivery which is, you know?
It’s not just like bikes are running around, it’s about dark kitchens and assessing consumer’s needs through AI and so, you know, especially under COVID there’s loads of innovation going on there.
DS: So going back to the stuff that’s getting a lot of publicity, a lot of the alternative proteins- Sorry, the alternative meats. You’re obviously aware there’s plant-based and there’s cellular-based, there are- I think there’s one Beyond which is listed in the plant-based one, I think there’s virtually nothing in the cellular.
I mean what do you make of that divide between cellular and plant-based. Plant-based obviously is in the market, already there, cellular I think there’s just one chicken product in Singapore that’s been approved. So it’s a few years away. What’s your take on that kind of divide between cellular and plant-based?
YT: So even though we’re public equity investors we do have a fair amount of opportunity to talk to some of these private companies and a lot of brokers hold a lot of conferences in this space.
So, I mean I have spoken to a few. I will say that right now it’s really, really fragmented and it’s really difficult to say because many of these products, like you say, haven’t been commercialised yet. And the cost of that, you know, the cost of a cellular burger I think is, you know like- It’s like $100 (£73) or something like that.
DS: I think Mosa Meat apparently has now brought it down to about $9 (£6.60) but that’s still fairly expensive.
YT: Okay- So mine was from, you know, like six months ago so my data’s very delayed- But, you know, I think the key is and I do feel like the Beyonds of the world are right in the sense that consumers, right in order to- You have to mass produce these things and so like, you know, obviously a three-star Michelin chef can great a gourmet burger from cellular or whatever it is and sell it for £20 or something like that.
That’s all fine but in order for it to make sense from a returns perspective, you need to really go en masse, and so it doesn’t- You know, at this point in time what some of the alternative meat companies that are already out in the market are trying to do is to basically bring down the price of their products to either equivalent or below meat, which would really change the market radically.
Right now I think if you look at menus at KFC or Burger King or any of these fast-food chains for example, plant-based meat is priced at a slight premium and consumers don’t seem to mind if it’s like 10 per cent or 20 per cent, they’re totally fine with it.
Because I think they actually- I forget what the exact number was but I think it was in the mid-teens of, you know, like the amount of customers ordering these meat alternatives at a Burger King or any of those fast-food chains.
So it’s actually quite high and it’s been received very well by the customer but, you know, in order for it to really penetrate the market the price really has to come down a little bit further and then the ultimate aim of these meat companies is to have their products be placed in the supermarket aisle next to the meat and not be in a separate section with all the, you know, kind of the original tofu burgers.
So I do think that that’s a key milestone and with cellular, the price, you know, like you say the price has come down but I don’t think it’s quite there yet and I do feel like it’s a bit tougher to commercialise but it is coming.
So over the next 10 years you’re just going to see huge penetration of these products into the market.
I mean right now even with the introduction of Beyond and Impossible and this is like back in 2014, prior to that the plant-based meat market was basically stagnant. So these are your traditional bean and tofu burgers that were very obviously tofu-ish or very bean-ish.
And then since those two came out for that type of product has increased to 18 per cent year on year. So you can see that, you know, clearly consumers are starting to adapt to this and, you know, if you take the US for example, I mean I’m sure you’ve heard of this before but vegan and vegetarians constitute about six per cent of the market, and so those products were aimed at those people but with the introduction of these more meat-like products, it’s actually expanded the market to flexitarians, which are 25 per cent of the market.
So that’s like four times the market size and possibly growing even further and so I think there’s a lot of competitors and I think a lot of them will be either competed out or be acquired by the big food companies as well.
But right now we’re at a point in the market where there’s growth opportunities for everybody involved, and then once it reaches a certain market size and the market growth starts to slow down then, you know, the competition will become fierce and there will be consolidation.
DS: When do you think? And look, your guess is as good as mine, so none of us are experts. I've heard the term griddle point, somebody said, you know, that’s the price point at which you go below the conventional meat. When do you think that griddle point, so to speak, will be for plant-based meat and then secondly for cellular-based meat? I mean none of us know, it’s just a guess, when do you think either or both of them will be, next couple of years, where do you think for plant-based?
YT: I mean for cellular-based I can’t really say because, you know, there’s not that much data available in the market. But for plant-based meat like Beyond or Impossible I would say it’s very, very soon because already the premium is only 10 per cent to 20 per cent, it’s come down a lot.
DS: You mentioned there the big conventional food companies, which of the big conventional food companies do you think are positioning themselves well for this and which are the ones that you think are? Where would you be worried about? So who is- Because they’re positioning- Quite a lot of them are getting into this world so some of them, but who do you think’s doing a really good job of it and who do you think’s more vulnerable?
YT: So the only other formidable competitor to Beyond and Impossible that I have heard from various sources that has a comparable product is Nestlé and I've heard results of taste, like blind tasting tests and so on and so forth and even then apparently it doesn’t really come close.
So, I think there’s still you know, big food companies have a lot of cash and they have a lot of R&D spending power.
But at the same time, they have their incumbent businesses, and I’m not saying they have their incumbent meat businesses, what I’m saying is they’re a big conglomerate and so they have to allocate their cash and sometimes they can’t focus 100 per cent on a new product area even though it might have really rapid growth.
So in that sense are the big food companies going to eat up the smaller ones, you know, maybe in some cases but it’s not always the case. I think what would most important competitively is to, you know, is the ability to- Well first of all cap-, you know, have a product quality be good enough to capture the attention of a lot of the restaurant chains or the QSRs (quick-service restaurants) as we call it, so the fast-food chains.
Secondly, you know, and I think this is the most important, that the ability to have the production level in place to be able to continuously supply those goods to their customers. So supply chain is really important and the speed which it builds up factories and stuff, the execution is really key.
DS: We talk about the market for food as one global market but that’s probably not true really. There’s a kind of Western European, an American market and then there’s an Asian market, and I think it’s very interesting that the first cellular meat on the main consumer market was licenced in Singapore, a chicken-based product, then there’s the massive Chinese market and then there’s the different Japanese market which has got its own unique characteristics.
Whenever anybody talks about any disruptive sector inevitably people end up talking about Asia and China, and China has got a bigger focus on things like pork and fish. Are there any particularly dynamics we should watch out for in Asia which may be slightly differentiates itself compared to the Western European and North America markets?
YT: Well I tend to look at it in terms of developed versus emerging markets and, you know, as you know in China meat consumption is- This is just a natural part of an increase in GDP leading to people consuming more meat, and that’s a trend that we’ve seen for many, many years. So, you know, the consumption of pork belly in China just keeps on going up and I just don’t think that that trend is going to subside anytime soon or be replaced, per se, by alternative meats.
But having said that China is one of the biggest markets, growth markets in terms of alternative meat as well. So I think that there is definitely an appetite for consumers to go into that. Also if you look at alternative milks I mean, you know, China has always historically had plant-based milk, I mean they drink loads of soy milk, so I don’t think that that product category it’s not something that’s unapproachable to them at all, if anything maybe they were perhaps at the forefront of it from many thousands of years ago.
So, you know, definitely similar trends to what we see in the Western world also applies to Asia, you know, the pace might be slightly different or the stage that they’re in might be slightly different or, you know, there are some product preferences like Asians tend to prefer tea or green tea and there’s a big market for that. That’s a growth opportunity actually for some of the Japanese beverage companies for example, or some of the Chinese ones as well.
So I mean obviously every region is different, it’s kind of different and the same at the same time, so obviously there’s, you know, consumers have- Well I think one of the key trends that we do see across the globe is the ability for the consumer to have more access to information via the internet, right, and that’s true regardless of what country you're in.
So a lot of Chinese people for example care deeply about where their food is sourced, perhaps that’s because they have a history of like not really knowing what they’re eating and they really care about their health and they really care about where their products come from.
So brand for them, you know, is very, very important for example and, you know, with WeChat and all the information available online they have more access to that which allows them to make better decisions. Which is kind of similar to what you see in the US, like you see, the US or Western Europe, it’s kind of like right now you see if you go online tons of information on where the products are being sourced and whether they’re actually organic or not or, you know, what the carbon footprint of a product is.
I think consumers are becoming more and more aware and scrutinising where does this blueberry come from, like does it come from Peru, you know, like why are they shipping blueberries from Peru to London, like that’s a huge carbon footprint and it just doesn’t make a lot of sense anymore. So, you know, there definitely is kind of like an underlying global trend towards more transparency.
DS: What do you think – just finishing off, there’s been the beginnings of an IPO boom, Beyond’s on the market, we saw late last year a company called Novus Capital come on the market which are doing circular farms, so effectively greenhouses, a more modern form of greenhouses. Do you think we’re likely to see more IPOs, are you hearing on the grapevine any sense that we’re likely to see quite a lot more IPOs? There’s rumours about BlueNalu which is a big fish, alternative fish coming out possibly this year-
YT: And Oatly possibly.
YT: Oatly as well, possibly.
DS: Oatly, absolutely, yes. Do you sense that we’re likely to see many more this year or do you still think we’re a couple of years away from the real boom?
YT: That’s a really interesting question. I am not 100 per cent sure.
DS: Yes, no, I’m not myself-
YT: I’m not an expert in that space. I mean, you know, I think that IPOs are very market-driven, so if the stock market is doing well then that would obviously point towards more IPOs and consumer- You know, the VCs investing in the consumer space has been a big, big trend over the past few years, apart from all the software IPOs and stuff that we’ve seen.
So, yes, I mean definitely, I don’t know if it’ll surpass other areas in VC land per se but, yes, I mean I think there’s definitely some companies that some VCs hold that could list over the next year or two.
DS: And if somebody like Oatly came to the market, it’ll be very successful along with Alpro in the alternatives milk market. Is that the kind of business that you’d look to invest in?
YT: I think it’s really evaluation dependent. It’s really hard to find a comparable I think because WhiteWave was purchased by, I think it was purchased by Danone back in 2017 and we thought that it was a really expensive transaction back then but now I think all the multiples look quite cheap in comparison to other innovative food companies that we see, so-
DS: That’s true, yes-
YT: Yes, I mean if you have a good product and I think if you have a good roadmap for growth and you’ve already proven that you can build top-line then, yes, I think if the markets continue to do well in the way that they’ve done over the past year, you do have a very good story to sell to the market.
DS: Just going back to the beginning, as we finished, off the aggtech thing. I mean what names are there in that space because most people have heard of Beyond, yes, you know, they might have heard of Oatly but actually in the aggtech space most people haven’t heard of virtually anything in that space. What names are lurking around in that space?
YT: Well I can’t directly tell you individual stock names but what I can say is all the agg machinery names, so like any agg machinery name that you think of is very, very involved in this space. And then there’s sensor companies out there and chip companies which might not be very obvious but names that you would have heard off that are, you know, have a good proportion of revenue going into aggtech.
So, yes, we try to- I mean we need, you know, we can’t invest in a company that only has 5% exposure to aggtech but if it’s, you know, significant levels then we can go in and invest. So we kind of try to look for niche areas like that because a lot of the very obvious names like Beyond have just, you know, the valuations have blown out, so-
DS: One last thing, a lot of people talk to me and say plant biotech is an interesting area, they go, you know, next gen- Obviously biotech is a big industry, lots of listed names and people do mention plant biotech as the kind of next, new, new thing, yes? Does that ring a bell with you, have you been hearing any names in the plant biotech sector or is it still too early?
YT: I think it’s still, well too early for us definitely, you know, and I think in terms of interest- I mean- You know, maybe not necessarily directly about biotech but we’ve heard of, for example, really interesting companies that deal with algae both in terms of animal feed but also in terms of an alternative to vegetables basically, as well.
So, you know, there are new products that are constantly coming out and newer innovations constantly happening but I mean we’re keeping an eye on it but I don’t see any like listed companies or, you know, pre-IPO companies right now at the moment.
DS: Great, thank you very much Yuko, thank you.
YT: Thank you.
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