I orginally made this research report on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. I encourage you to read the post on my blog as it provides more graphs and pictures so you can get a better idea of this company.
Beyond Meat is one of the fastest growing food companies in the United States and offers consumers a range of various plant-based meats. This company’s mission is to build meat directly from plants and have their final product consist of the same attributes as actual meat products. Beyond Meat’s products are designed to be more nutritional than that of regular meat, although the nutritional aspects of plant-based meats have been questioned. While plant-based meats may or may not be more nutritional than regular meat, by shifting to plant-based meats people can positively affect growing global issues. The issues which this company is trying to address include human health, climate change, constraints on natural resources, and animal welfare. Their products consist of the Beyond Burger, meatballs, sausage, beef, and more. Besides certain Beyond Crumbles, all of their products are certified Kosher and Halal. As of December 2021, you can find Beyond Products available at approximately 122,000 retailer and foodservice outlets in more than 80 countries. In addition, Beyond Meat has an e-commerce site which offers consumers bulk packs, mixed product bundles, and trial packs. This company is constantly innovating and their R&D as a percentage of revenue is higher than some of the biggest food companies (Nestle, Kroger, etc.) at 7.8%. Their state-of-the-art innovation center is a 30,000 sq. foot building located in El Segundo California. This company’s mission is simple to understand, through a unique and innovative approach make the best product that gets as close as possible to real meat all while benefiting the planet.
Total Addressable Market (TAM)
In 2020 the plant-based meat market was estimated to be valued at $4.3 billion and is projected to reach $8.3 billion by 2025. All that growth registers a compounded annual growth rate (CAGR) of 14%. Much of the growth that we are witnessing is due to the growing vegan, vegetarian, and health conscious trends people are adopting. Also, many people are becoming more aware of the additives that are in the foods that they eat and the environmental problems that come with meat products. All of these factors make Beyond Meat products appealing as not only do people enjoy knowing they are eating healthy, but they can do their part toward slowing down environmental problems. While the plant-based market may not be the largest, Beyond Meat said they are going after the global meat industry. The global meat industry is valued at $1.2 trillion and had a CAGR of 2.4% between 2015 and 2019. Perhaps the biggest discrepancy between these two industries besides how the various products are made and consist of is price. Beyond Meat’s Beyond Sausage sells for $10.30 a pound, that is about 70% more than regular pork sausage. One pound of factory-farmed beef burgers at Walmart run somewhere around $3/pound, while one pound of Beyond Meat’s Beef Burger will run you around $6.25/pound. While the difference in pricing is certainly a lot, that doesn’t mean that people don’t buy Beyond Meat products. Going forward we’ll have to see how much of a disrupter this company is to the global meat market.
First Quarter 2021 Financial Highlights
“We were pleased to see sequential improvement in our revenue growth and gross margin performance despite continued COVID-19 pressure on our foodservice business. Throughout the first quarter, we remained highly focused on investing in and building out production infrastructure in the U.S., the EU, and China; new product development and commercialization for our strategic QSR customers and retail markets; and research and development in service to our core growth levers of taste, nutrition, and cost.” – CEO Ethan Brown
Update on COVID-19 and 2021 Outlook
“Due to the COVID-19 pandemic, the Company continues to experience significantly reduced demand in its foodservice channel as decreased foot traffic, streamlined menu offerings and restrictions on foodservice locations’ operating capacity have resulted in closures or meaningfully curtailed operations of many of the Company’s foodservice customers. At the same time, the surge in demand from retail customers that characterized the early stages of the pandemic as consumers abruptly shifted towards more at-home consumption has moderated. Given that the ongoing evolution of consumer demand patterns across retail and foodservice channels has significantly increased the difficulty of forecasting the Company’s customer demand levels, management believes it cannot provide full-year guidance for 2021 with reasonable certainty. However, in order to furnish some degree of visibility into the Company’s near-term expectations, management will provide, on an interim basis, limited quarterly guidance for net revenues for the closest upcoming reporting period.”
“To this end, the Company is providing the following guidance for the second quarter of 2021: Net revenues in the range of $135 million to $150 million, an increase of 19% to 32% compared to the second quarter of 2020.”
Important points on the financial results
The new Beyond Burger launches at grocery stores nationwide (April 27, 2021) – Beyond Meat recently introduced their new Beyond Burger which has 35% less fat and saturated fat, and fewer calories than 80/20 beef. This new iteration will hit grocery store shelves beginning the week of May 3rd. It will be available in a 2-pack, the brand’s first ever value 4-pack, and a 1lb Beyond Beef pack. Dariush Ajami, the Chief Innovation Officer at Beyond Meat, said ” We are continuously working on understanding beef flavor at a deeper level to ensure our plant-based beef platform delivers a delicious and satisfying sensory experience. The new Beyond Burger’s rich flavor profile resembles that of ground beef, and extensive testing with our consumers validated this new flavor direction with likeability scoring on-par with 80/20 ground beef burgers.” According to the University of Michigan’s 2018 LCA, when compared to traditional 80/20 beef burgers, the Beyond Burger has 99% less impact on water scarcity, 93% less impact on land use, requires 46% less energy, and generates 90% fewer greenhouse gas emissions.
Beyond Meat announces major retail expansions throughout Europe (April 12, 2021) – Beyond Meat announced that they will be significantly increasing product distribution within thousands of European locations. The plant-based foods market in Europe has seen sales grow by 49% over the last two years. In the U.K, Sainsbury’s said they would double their distribution of the Beyond Burger nationwide. Also, Waitrose launched the Beyond Burger and Beyond Sausage. The retailers together increased Beyond Meat’s presence in 445 stores. In Germany, Beyond Meat will be expanding their product offering in over 1,000 German retail stores through Kaufland, Tegut, Famila, and Real. In Austria, the Beyond Meat product selection will be expanded at SPAR and BILLA locations to a total of 1,500 retail stores. Migros stores in Switzerland will expand Beyond Mince distribution to 155 stores. Nearly 1,000 Albert Heijn and Jumbo stores in the Netherlands will now offer Beyond Mince. Chuck Muth, the Chief Growth Officer at the company, said “These new and expanded retail partnerships throughout the continent serve as strong proof points that Europe’s appetite for plant-based meat and Beyond Meat products in particular is on the rise.” Moreso, in June 2020 Beyond Meat announced its first co-manufacturing facility in Europe in partnership with Zandbergen World’s Finest Meats in Zoeterwoude Netherland.
Beyond Meat opens manufacturing facility in China to accelerate localized production and innovation (April 7, 2021) – Earlier last month Beyond Meat opened a new advanced manufacturing facility in the Jiaxing Economic and Technological Development Zone located near Shanghai. Ethan Brown, CEO, said “The opening of our dedicated plant-based meat facility in China marks a significant milestone in Beyond Meat’s ability to effectively compete in one of the world’s largest meat markets. We are committed to investing in China as a region for long-term growth, and we believe this new manufacturing facility will be instrumental in advancing our pricing and sustainability metrics as we seek to provide Chinese consumers with delicious plant-based proteins that are good for both people and planet.” Just a little over a year ago, Beyond Meat entered mainland China through a nationwide partnership with Starbucks. In addition to Starbucks, Beyond Meat has partnered with multiple other food services such as KFC, Pizza Hut, Jindingxuan, GangLi Beijing, Slow Boat Brewery, Hema, METRO China and more. Beyond Meat has been expanding so heavily in China that they’ve even made a product specifically for the Chinese Market, Beyond Pork.
President and CEO – Ethan Brown
Ethan Brown is the President and CEO of Beyond Meat and has served as a member of their board of directors since inception in 2009. He also serves as a director of The PLANeT Partnership, the joint venture Beyond Meat has with PepsiCo, Inc. Prior to his founding of Beyond Meat, Ethan served as an energy analyst for the National Governors’ Center for Best Practices and an entry-level manager for Ballard Power Systems, a hydrogen fuel-cell company. Brown also created and opened a center for fuel reformation and has held a number of industry positions which includes Vice Chairman of the Board at The National Hydrogen Association and Secretary of the United States Fuel Cell Council. Perhaps what is most noteworthy is that Ethan is the recipient of the United Nation’s highest environmental accolade, Champion of the Earth (2018). As we can see from all that Ethan has done, he is focused on sustainable energy. From the interviews that I’ve seen with Ethan, he has a vision that is unmatched in terms of plant-based protein. While his company may not be doing the best financially due to Covid and a variety of other factors, Ethan has built Beyond Meat into a global brand that is trusted and recognized by millions.
Chief Operating Officer – Sanjay Shah
Sanjay C. Shah joined Beyond Meat as Chief Operating Officer in September 2019. Prior to his role at Beyond Meat, he served as Senior Vice President of Energy Operations at Tesla, Inc. from 2018 to 2019 where he was responsible for the international energy business and led the North American Sales/Services/Delivery for Automotive. From January 2011 to May 2018, Sanjay held a number of leadership roles at Amazon which includes regional director for various regions and Vice President of North American Fulfillment Centers. At Amazon he was able to launch numerous fulfillment centers that implemented robotics technology and achieved structural cost improvements. Mr. Shah received his BS degree in Mechanical Engineering from the University of Tennessee.
Chief Growth Officer – Charles Muth
Charles Muth joined Beyond Meat as Chief Growth Officer in May 2017 and also serves as a director of The PLANeT Partnership. Charles is on the board of directors of Vive Organic and ZICO Rising and is a board advisor to Partake Foods. From 2014 to 2017, Muth led the creation of a new entrepreneurial sales and commercial organization within The Coca-Cola Company called Venturing & Emerging Brands as Senior Vice-President. Also, Charles was Vice President of Sales at Honest Tea Inc. after its acquisition by The Coca-Cola Company. Charles has a BS degree in Marketing and Management from Montclair State University and an MBA degree in Finance from Fairleigh Dickinson University.
Management not mentioned – Mark Nelson (CFO), Dariush Ajami (Chief Innovation Officer), Beth Moskowitz (Chief Creative Officer), Margret Trask (Chief People Officer)
What could go wrong
Foodservice doesn’t pick up – Beyond Meat has a number of strategic partnerships with restaurant chains in various countries. In the past we’ve seen that whenever they announce a new partnership with a food chain their stock jumps dramatically, only to fall back to where it was before a few days after. Beyond Meat has partnered with the likes of Pizza Hut, Taco Bell, McDonald’s, KFC, and a number of other restaurants. Looking at the foodservice side of their business, they’ve seen tremendous YoY growth. While Covid has impacted their business significantly in terms of foodservice sales, many investors still remain optimistic that this side of their business will bounce back. While they will likely continue seeing growth going forward, I remain skeptical as to how all these strategic partnerships will play out. Impossible foods is their main competitor and they’ve partnered with the likes of Burger King, White Castle, Red Robin, and others. These partnerships with respect to both companies have played out well as shown by the YoY growth in foodservice revenue. The questions that remain to be asked are, in the long-run, how many of these restaurants will create their own meat alternative products or stop doing business with Impossible foods or Beyond Meat? Taco Bell has already begun testing their own plant-based protein products and how many others will follow? Furthermore, Beyond Meat has been relying on new partnerships to boost foodservice sales. There might be a point to where the growth in foodservice revenue stops as a result of their not being worthy partnerships with restaurant chains and what happens then? Nonetheless, I remain optimistic for the time being that Beyond Meat will see their foodservice revenue increase rapidly for the next couple years.
Consumer perceptions change – Plant-based meat has potential to change the world for the better. Looking at the graphic below, some of the main selling points for Beyond Meat products are that they improve human health, have a positive impact on the environment, address resource constraints, and improve animal welfare. Could it be that in the long-term this company is betting that we will have no choice but to turn to meat-alternative products as a result of the negative impacts of traditional meat? Part of me thinks the answer to that question is yes and I believe in perhaps 10-20 years we will have to make the switch. Although, this scenario is far out and investors want to know what might happen in the next couple years as this company scales. The main criticisms with Beyond Meat products are that they are highly processed, contain GMOs, and are not as healthy as they’re made out to be. The Whole Foods CEO in the past has said, “they are super, highly processed foods.” The CEO of Chipotle has also criticized the products and said, “We have spoken to those folks and unfortunately it wouldn’t fit in our ‘food with integrity’ principles because of the processing.” It remains to be seen as to how many people agree with the CEO’s of Whole Foods and Chipotle. As of right now, I don’t know anyone that really raves about their products. I have tried Beyond’s burger and Italian sausage and found them to be enjoyable, but the price for them is simply not worth it in my opinion. Chipotle has recently come out with their own meat-alternative product made from tofu and maybe other restaurants will follow in their footsteps. As for the time being, I think Beyond Meat will continue to sell well throughout retail stores especially as their product distribution points increase.
What we want to see in the future
Snacks and drinks – In early 2021, Beyond Meat announced that they were joining forces with PepsiCo to develop snacks and drinks made from plant based proteins. As I stated previously, any partnership that Beyond Meat announces almost automatically draws attention to the stock and the price shoots up. This time it was no different as shares jumped by more than $50 to $209.17 and then proceeded to come back to reality and hit $186. Nonetheless, this is a huge partnership for Beyond Meat as now they have their feet in a new product category. Luckily for Beyond Meat this deal also gives them access to Pepsi’s huge distribution system and product line. While this news is great, investors still want to see how this plays out and that’s shown from BYND’s share price which is currently trading under $120. I suspect that when they introduce the lineup of snacks and drinks this stock will fly high once again. I’m especially curious how this deal will contribute to Beyond’s net gross margins which are currently 30.2%.
Beyond Meat is no doubt one of the companies trying to change the world for the better. While this company hasn’t been around for too long, their products have sold well in the past and their brand is internationally recognized. The vision that Ethan Brown has for his company is huge and his commitment to positively impacting major global issues (human health, climate change, constraints on natural resources, and animal welfare) is unmatched. This company may be doing well when looking at the surface level, but Beyond Meat’s financials and stock have been hard hit largely due to the global health crisis. We’ve seen foodservice and retail channels take substantial hits over the past year. I believe this company will recover, but the question is when? I’ve recently sold out of my position in Beyond meat for a 10% profit and I plan on waiting for this company’s fundamentals to improve before I consider starting a position again.
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