Pass the Tofurky, Please

Vegetarian alternatives to traditional holiday favorites are becoming increasingly popular and profitable

by Rebecca Reisner

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With Thanksgiving upon us, the folks who make the vegetarian poultry alternative known as "Tofurky" have good reason to flap their wings. Having survived sitcom jokes and glacially slow initial sales, Turtle Island Foods is celebrating the sale of its 1 millionth Tofurky roast since the product was hatched in 1995.

"At first, retailers didn't believe anyone was crazy enough to make a whole Tofurky roast for Thanksgiving," recalls Seth Tibbott, founder of Turtle Island Foods, located in Hood River, Ore. "The first one served eight and cost $32. Stores would sell one per season at first, then five the next year."

Today, the company, which also makes Tofurky versions of such meat staples as sausages and cold cuts, is turning a robust profit and expects $10 million in sales in 2006, despite dramatically lowering the cost of Tofurkys over the years (see BusinessWeek.com, 11/21/06, "My First Tofurky").

Analog Meat Market

And Turtle Island Foods isn't the only happy player at the table. For businesses manufacturing vegan and vegetarian versions of dairy- and meat-based products, the outlook is pretty much all good. "Traditional supermarkets like Safeway (SWY) are stocking more of these foods," says Joe Agnese, a supermarket analyst with Standard & Poors Equity Research. "Whole Foods (WFMI) will open more stores. They give a shot to local providers as well as big producers."

In the U.S., sales of products "positioned as analogs to meat and dairy products" grew 63.5% between 2000 and 2005, according to British market researcher Mintel International. The firm estimates U.S. consumers will buy $1.38 billion of these products in 2006. According to Schaumburg (Ill.)-based natural products market researcher SPINS, in the 12-month period ended in January, 2006, sales of frozen and refrigerated meat substitutes alone increased 35.9%.

To look at the evidence, one might think the percentage of U.S. vegetarians is climbing steeply. Not true, say industry watchers. "There are more vegetarians simply because there are more people coming to the U.S.," says Harry Balzer, vice-president of the NPD Group, a consumer marketing research firm in Port Washington, N.Y., that studies U.S. eating habits. "But the percentage of strict vegetarians hasn't changed much in the last 15 years." He estimates it's 3% of the population. "The phenomenon lies in the number of meat eaters who are choosing to eat vegetarian foods more often—but not exclusively," according to Balzer.

The Armchair Vegetarian

Many consumers who like the taste of meat or dairy also feel they need a break from it. "When you spend the day eating vegan items, you don't feel weighted down. People are more willing to experiment, to substitute meatless meals two or three times a week," says Eugene Matalene, chairman of health-food producer Blue Green Enterprises in Brooklyn. "The average housewife will try them."

And Tibbott reports that many consumers who buy Tofurky roasts at Thanksgiving-time are also serving real turkeys, but need something to feed vegetarian guests.

Matalene believes that while health and animal welfare concerns help sales, it's first and foremost the improved taste of vegetarian foods that has excited consumers' appetites in recent years.

Matters of Taste

Indeed, in a 2006 summary of his positive outlook for Hain (HAIN), maker of such health food store regulars as Yves Veggie Pizza Pepperoni and Rice Dream beverages, Citigroup analyst Gregory Badishkanian cited "a narrowing…taste differential between conventional food and natural foods."