When this soy-free, non-GMO, beet-tinted, split pea-based Lightlife-branded burger debuts in grocery store fridges across the continent this barbeque season, McCain will have muscled his way into the food fight to crown a new wave of plant burger kings that look, cook and taste more like ground beef than ever before.

In the past two years, the meat maven has invested three-quarters of a billion dollars (about 40% of its new investments) to become top dog in the U.S. vegan protein scene. It’s a bit like an oil company betting big on green power. People get excited when an oil heavyweight like Shell announces that it’s putting up to 10% of its new investments in cleaner energy. Meanwhile, Maple Leaf just bet quadruple that on a sector with one of the cleanest revenue streams and leanest carbon footprints around.

Beyond pork

Like other meat majors, Maple Leaf had been keeping a watchful eye on the steady growth in plant-based foods. In 2016, American meat giant Tyson (with US$40 billion in annual revenue) coughed up US$13 million in venture capital for a 5% ownership stake in Beyond Meat, the much-hyped vegan startup. A few months later, Maple Leaf announced that it wasn’t just dipping a toe in the sector, it was going whole hog after the U.S. alternative protein market, dishing out US$140 million for a veteran of American veggie dogs, Massachusetts-based Lightlife Foods.

Buying Lightlife – a respected 40-year-old tempeh and tofu hotdog maker – was a solid play for Canada’s largest pork producer and chicken processor, which used some of the cash from selling off its bakery division at a time when North Americans have been shunning white bread and trying plant protein in record numbers. With four decades in the game, Lightlife had already cornered 38% of the refrigerated plant-protein market when Maple Leaf bought it out in early 2017.

Later that year, the Canadian meat maven behind the Schneiders, Shopsy’s and Prime brands forked over US$120 million for another leading heritage vegan brand, Field Roast Grain Meat, a 20-year-old Seattle-based company famous for its artisan vegan sausages and “celebration” roasts (you know, the kind you can serve up at family holidays). Within 12 months, Maple Leaf Foods had bought itself a 50% U.S. market share in the rapidly growing refrigerated plant-protein business.

And just like that, the king of Canadian pork and poultry became the new prince of plant protein in the U.S.

“It’s the only thing I’ve had in my entire life that is 50% of anything in the U.S.,” says McCain with a quiet chuckle. “So, I’m glad to have that position that’s in high growth.”

While pork prices have taken a beating in global trade wars, McCain assured analysts in a February conference call that the plant-protein sector is delivering the returns shareholders are looking for. The North American refrigerated plant protein market is currently small, pegged at US$240 million in annual sales, but it grew by a staggering 40% in 2018, with Maple Leaf maintaining at least its share of growth, according to the company.

With two leading veggie brands in his shopping cart, McCain and his team set up a wholly-owned independent subsidiary, Greenleaf Foods, to create, as its president Dan Curtin put it, a “halo” for Lightlife and Field Roast and grow their leadership. If that leadership was ever in question, by spring 2019 McCain and Curtin (a former partner at Boca Burger, another veggie burger pioneer) dropped the mic. They announced they would be spending US$310 million to build the single largest plant-protein manufacturing facility in all of North America (in Shelbyville, Indiana), doubling the company’s production capacity to meet “surging consumer demand.”

The quest for the meatiest plant burger

For now, McCain and Greenleaf own half of the American plant protein market. But competition is growing stiffer by the minute, as new-wave beef simulators sweep the nation. The celebrity-endorsed Beyond Burger is already in 10,000 grocery stores and is hitting 3,000 Canadian supermarkets by summer (see A&W/Beyond story on p. 52. Beyond’s main competitor to date, the Impossible Burger, will also be turning up in U.S. grocery stores later this year (backed by all the marketing heft that comes with being crowned Burger King’s new “Impossible Whopper”).

Maple Leaf won’t just be duking it out with Silicon Valley startups new to the food biz. Tyson actually sold its stake in Beyond this spring to focus on rolling out its own alternative protein product, due later this year. And by the fall, Nestlé, the world’s biggest food company, will be gunning for a piece of the action with its yet-to-be-released “Awesome Burger” (or “Incredible Burger,” as Europeans will be calling it).

If Maple Leaf’s newly acquired Lightlife wanted to maintain its No. 1 spot in the refrigerated plant-protein scene, the company had to up its game and shed its frumpy Smart Patty branding. Curtin says Lightlife collaborated with Maple Leaf’s team of meat scientists to develop its own beefy beet-dyed raw-until-you-cook-it pea burger, which took six months from concept to production. With the new recipe, Maple Leaf was putting a dog in the fight – one that happens to look a lot like the Beyond. And like its rival, the Lightlife-branded burger will be merchandised right alongside fresh burger patties in the meat aisle.

Except Lightlife and Field Roast already happen to be in over 20,000 grocery stores to begin with, giving them a leg up. And as their products fan out north of the border, they’ll have the distribution muscle and resources of one of Canada’s largest meat companies behind them. That helps explains why the new burger managed to secure fridge space in thousands of Loblaws, Sobeys, Metro and Longo’s locations as well as a spot on Kelseys’ menus before Canadians even sampled the burger.

That lengthy experience in the food industry, along with the company’s sustainability vision, is also what compelled Field Roast’s vegan founder and former president, David Lee, to sell to Maple Leaf in the first place. “Impossible and Beyond Meat are focused on the investor frenzy and there’s a lot of money swirling around them but it’s all based on a promise, a what-if scenario,” Lee tells CK.

“Versus Maple Leaf, which is run by a food guy that’s been running that company for 25 years. They know how to sell meat – and I think Field Roast is a meat company, we put meat in its name,” explains Lee. “Maple Leaf has the infrastructure, the connections, the process. They’re not losing money.” Adds Lee, “Selling to Maple Leaf just means the proliferation of more vegan food.”

The most sustainable protein company on earth

Casting the bun aside, McCain parcels into the freshly grilled burger patty with a fork and knife and explains that consumers have been telling Maple Leaf they “want more protein choice and they want more balance between plant and animal proteins.”

It certainly helps that high-profile actors, athletes and performers are thrusting the spotlight on the health benefits of plant-based diets (earlier this year, singer Beyonce and Jay-Z launched a contest that offered a free lifetime of concert tickets to a fan that pledged to take on a vegan diet). Anywhere from 7% to 10% of Americans now identify as either vegetarian or vegan. But the real growth, says McCain, is in the flexitarian market – the millions of North Americans that are consciously limiting the amount of meat they eat without ruling it out altogether. Polling from Mintel found that nearly 60% of Americans say they’re trying to eat less meat, while a Nielson survey found that almost 40% are trying to eat more plant protein.

Though it’s not just demand for protein alternatives that’s driving changes behind the scenes at Maple Leaf Foods.

“There’s a large voice of food change advocates, climate change advocates and animal welfare change advocates,” starts McCain. “They’re not wrong that the animal production system needs to change in order to be sustainable on planet earth. Recognizing that those voices are going to ultimately end up in the consumers’ psyche is something we needed to pay attention to.”

As headline after headline singled out eating less meat as one of the fastest ways for humans to slash our carbon footprint, McCain would get out in front of the coming storm. By summer of 2017, Maple Leaf Foods announced a lofty new mission: to become “the most sustainable protein company on earth.”

“Some consumers would say that term [sustainable meat] is an oxymoron,” concedes Maple Leaf’s VP of sustainability, Tim Faveri. He says that’s why Maple Leaf consulted with environmental groups such as WWF before issuing a sweeping sustainability agenda that promised to clean up its ingredient lists, reduce antibiotics use, trim its environmental impact by 50% and improve animal welfare.

Growing the plant division is a central plank of boosting the sustainability of Maple Leaf’s protein profile, but McCain argues that greening the existing production of meat is the most important move the company can make.

Ahead of the last climate talks in Poland, Maple Leaf was the only meat company among 50 global businesses that penned an open letter to the world’s governments urging “greater collaboration in the fight against climate change.” Since 2014, Maple Leaf claims it has reduced its total energy intensity by 19% and greenhouse gas emissions intensity by 18% and that the company is on track to halve its environmental footprint by 2025.

“Our food system has drifted from its roots,” McCain muses. “The role of climate change and animal proteins was going to evolve in a very negative way without change.”

Notably, Maple Leaf’s marketing division has dabbled in pushing a Patagonia-style approach to meat consumption. Its message: Consume us in moderation. Maple Leaf’s “most sustainable protein” launch press release in 2017 also boldly called out North America’s consumption of four times more meat than non-industrial countries as “unsustainable” –particularly since “global meat consumption is forecast to rise 80% by 2050.” Maple Leaf’s Manitoba-based Greenfield Natural Meat brand (which is also experiencing double-digit growth) even tried a Meatless Mondays campaign in 2017.

Just don’t let those Meatless Mondays or investments in the plant-based sector give you the impression that the company is going soft on its meat business. When I suggest that Maple Leaf is pivoting away from meat, McCain gets visibly tense. “I’m a little sensitive to that point,” he says. “I do not support the demonization of a meat company simply because they’re meat any more than I would demonize an automobile company, or an airline company or an office building that wasn’t LEEDs [green-certified].”

Though it’s not greeted with the same kind of media frenzy, Maple Leaf is plowing major investments into meat, too. Some capital investments are intended to boost the company’s animal welfare standards, like the $55 million going towards converting 31 pig barns to open housing systems for its 70,000 sows (a move renowned animal welfare consultant Temple Grandin recently praised). Or the $28 million it plucked from its cash pile to transition its Edmonton chicken plant to more humane CO2 stunning.

Other moves make it clear Maple Leaf is still betting the farm on traditional meat. The Mississauga-headquartered company is building a $660 million chicken processing facility (with another $140 million in related costs) in London, Ontario, as we speak, which the company says represents the “largest single-site investment ever in the Canadian food industry history.” Maple Leaf also spent $215 million on a Montreal pepperoni company in October.

During the 2019 Super Bowl, Maple Leaf didn’t run a spot pumping its new plant protein, which to be fair, it’s just ramping up. Instead, its #RealMapleLeaf ad encouraged parents to feed their fussy toddlers Maple Leaf’s revamped bacon, ham and hotdogs, now purged of ingredients like corn syrup solids and sodium diacetate. Yes, the ingredient decks have gotten cleaner, but not everyone was thrilled that Maple Leaf was marketing red and processed meat for two-year-olds.

The future of food

With the meat industry responsible for 14.5% of global GHGs, many are reconsidering the make-up of their diets. A January 2019 EAT-Lancet study garnered world-wide attention for proposing a massive reduction in the amount of meat we consume to help prevent “irreversible and potentially catastrophic shifts in the Earth system.” Unlike past reports targeting beef and lamb, the EAT-Lancet brief for healthcare professions lumped pork, beef and lamb together, advising that on a weekly basis we eat “no more than 98 grams of red meat (pork, beef or lamb) [and] 203 grams of poultry” per week.

That’s basically a deck of card’s worth of red meat and roughly one large boneless chicken breast a week. If North Americans ever get serious about following a climate diet and keep upping their plant protein, many barns and processing plants could potentially become stranded assets, along the lines of today’s oil sands and coal mines.

Canadians have witnessed McCain deftly turn crisis into opportunity before, dating back to the 2008 listeria outbreak that killed 23 Canadians. As president and CEO, McCain opted to take full responsibility for the disaster, which helped the company bounce back relatively quickly from a consumer confidence perspective. Now the crisis is existential. McCain knows that unless he makes protein more sustainable, Maple Leaf Foods won’t be viable in the long run. Greening protein is also critical to keeping a generation of millennial consumers who are cynical about Big Food on side.

Natural Resource Defence Council’s Sujatha Bergen is skeptical McCain will be able to square being the most sustainable protein company on the planet without substantially changing its business mix: “A pork-producing company will never be able to match the low emissions of a company that sells primarily plant-based proteins like lentils.” But she adds that if they are able to, for instance, eliminate the use of antibiotics in their meat and reduce the GHG-intensive chemical fertilizers and pesticides used on animal feed they could get a few steps closer.

In the meantime, McCain is hedging his bets. He’s positioning Maple Leaf Foods to feed our growing appetite for plants, all while supplying the market with, hopefully, a greener cut of the meat the world’s growing middle classes and Keto-dieters crave.

McCain is frank, “We are making progress but the reality is we’re not perfect. Our commitment is to make progress towards a sustainable world for our category.”

Owning up to shortcomings and rebelling against what’s expected of him seems to be working for the exiled son of the McCain French fry empire.

Either way, McCain signals he’s geared up for the challenge: “We’re at an age and stage and sense of maturity where we’re recognizing that we can change the world in a positive way.” With a beaded leather bracelet peering out of the cuff of his pink dress shirt, he adds, “We’re small enough to be really rebellious about these things but large enough to actually move the needle.”

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Restaurant Brands International (QSR:TSX) is a Toronto Stock Exchange-listed quick-serve company that owns Burger King and Tim Hortons, as well as Popeyes Chicken. They sell a lot of burgers and a lot of coffee, two items with a global supply chain and a heavy impact on the environment.

Burger King seems to be trying to revive its sputtering sales by getting in on the plant-based burger craze. By year’s end, its American locations will be serving up the Impossible Whopper, a plant-based alternative that seems to taste just like a regular whopper. Unfortunately, there’s some concern that it uses genetically modified yeast to produce the key ingredient that makes the burgers taste so meat-like. Health Canada has yet to approve the ingredient, so don’t expect to see the Impossible Whopper on Canadian Burger King menus anytime soon.

According to RBI’s short sustainability report, the only measure BK has taken towards sustainable beef production is non-specified ‘support’ for farmers to join the Global Roundtable for Sustainable Beef, and a loose commitment to develop specific criteria by 2020. On the bright side, RBI has said its eggs will be cage-free by 2025 and its pork will be crate-free by 2022.

On the coffee side of things, it’s pretty clear that Restaurant Brands is prioritizing lower costs over sustainable agriculture and fair wages. Instead of using third-party certifications like Fairtrade or organic, it uses an in-house vender code that sets the bar ridiculously low at legal minimum standards, with vague statements about reducing environmental impacts.

Looking for a sustainable alternative in fast food was challenging, but I found a tasty option in A&W Revenue Royalties Income Fund (AW.UN:TSX). You’re forgiven if you haven’t been to an A&W restaurant in a while, but it’s going through a resurgence and is now Canada fastest-growing burger chain, with over 950 locations. It’s now Canada’s second largest burger chain, behind McDonald’s (BK is in fourth place, behind Wendy’s).

A big part of its economic renewal has come from its commitment to bringing in more natural, ethically-sourced ingredients. All of its meat is now antibiotic-free, A&W started selling certified organic, fair trade coffee in 2015 and then started making its famous root beer from natural cane sugar and all-natural flavours in 2017.

While RBI reports that same-store sales are falling at Tims,  A&W’s same-store sales are up 10%. Much of that growth is attributed to A&W’s ongoing sales of the much-hyped Beyond Meat burger (introduced last summer) and the Beyond Meat breakfast patty (introduced close to the end of its first quarter). Plant-based Beyond Meat products are assertively non-GMO certified, so they escape much of the criticism from ardent environmentalists. And Beyond Meat’s soaring IPO debut last week only drew more media attention to the burger.

Besides its recent ingredient innovations, A&W is positioning itself as a sustainability leader by being on top of hot trends like banning plastic straws. Considering Tim Hortons was cited as the second largest plastic polluter in Canada, according to a Greenpeace beach litter audit, A&W’s move to eliminate 90% of in-store disposables gives it a major reputational boost. Being first to market with these small solutions is a great way to differentiate against global fast food chains and lets them reap significant reputational benefits with each incremental change.

A&W still has a long way to go. While it’s made some solid moves towards improving animal welfare, its eggs aren’t yet cage-free and its pork producers are still transitioning to gestation crate-free systems.  I’d like to see a more detailed annual sustainability report and more transparency around carbon emissions and executive pay. That said, A&W is definitely moving quickly towards greater sustainability and CEO Susan Senecal recognizes that these issues are important to consumers.

A&W Food Services of Canada (which has no corporate connections to A&W’s American locations) is obviously a much smaller company than Restaurant Brands, but perhaps that allows it to be nimbler in the quickly-evolving quick-service sector. With a higher dividend and a lower beta, A&W provides a nice mix of income and growth potential. The chain is the clear winner in this week’s Sustainable Stock Showdown.

*A note regarding total Returns: Since RBI first started trading December 15, 2014,  we used that start date to assess both companies.

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Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing. Tweet him at @timenash.

The post Tim Nash’s sustainable stock showdown: battle of the burger chains appeared first on Corporate Knights.