Why Is The Very Good Food Company (VGFC) Stock Down 10% Today?
Though plant-based food producers such as The Very Good Food Company (NASDAQ:VGFC) offer a compelling narrative, the industry suffers from economic viability concerns. This dynamic was clearly evident when VGFC stock initially popped up 14% during the midweek session. News that the fake meat and cheese specialist partnered with Albertsons (NYSE:ACI) generated much excitement. However, reality has since set in, sinking VGFC shares by around 10%.
On the positive front, Very Good announced the launch of its products at over 900 Albertsons grocery stores across the nation:
“Beginning in January 2023, customers across the United States will find VERY GOOD’s The Very Good Butchers Smokey and Maple Bourbon Ribz along with the Very Good Steak in the freezer sections of 7 Albertsons Divisions totaling 900 stores and 2,700 new distribution points.”
On paper, the introduction of products on a national platform should boost the total addressable market. “We are excited to work with Albertsons, who recognized our innovative products with great taste, texture, and outstanding nutritional profiles that will excite customers,” said chief commercial officer Jordan Rogers.
Although VGFC stock enjoys positive implications on the news, investors quickly soured on the underlying enterprise. Since the start of the year, shares plunged more than 84% in equity value. As well, it’s worth noting that VGFC represents a literal penny stock, with shares trading around 12 cents a pop.
VGFC Stock Faces Stiff Pricing Pressures
Theoretically, plant-based food investments such as VGFC stock should perform well due to aligning with social sensibilities. In particular, younger generations focus on matters such as social equity and environmental responsibility. Not surprisingly, then, both millennials and Generation Z have pushed plant-based foods to the forefront.
According to the Food Institute, “both dairy and meat plant-based alternatives are forecast to grow through 2024, driven almost entirely by Millennials and Gen Zers.” Again, in theory, this dynamic should bolster VGFC stock.
However, the often-vast discrepancy in pricing between processed plant-based food products and their animal-protein counterparts helps prevent wider adoption. To be fair, socially aware consumers are willing to accept a premium for responsibly sourced products — but to a point. According to an analysis by McKinsey & Company, very few consumers will choose green products if the premium rose to 25%.
Unfortunately, this reality puts VGFC stock and its ilk in a bind. According to Very Good’s website, its plant-based bratwurst sausages (14 ounces) cost $10.19. However, at a big-box retailer in San Diego, California, customers can purchase Johnsonville sausages (also 14 ounces) for only $3.99.
In other words, if most customers refuse to pay a 25% premium for responsibly sourced products, a 155% premium is almost surely too steep a wall to climb. Therefore, it’s not terribly surprising that investors sold VGFC stock into strength.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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