10 Mar Multiple Headwinds Make Beyond Meat a Risky Investment
Beyond Meat, Inc. (NASDAQ: BYND) aims to drive a shift from animal to plant-based meat in order to promote healthier choices, combat climate change and conserve natural resources. The Company is using leading-edge innovation with high-quality non-GMO ingredients to deliver high protein meat substitutes that are cholesterol free and contain no antibiotics or hormones.
Beyond Meat, Inc. (NASDAQ: BYND)
Market Cap: $2.82B; Current Share Price: 44.51 USD
Data by YCharts
However, the Company is facing multiple headwinds and grappling with declining revenues, market share and increasing costs.
We take a holistic look at the Company through a SWOT analysis below:
Strength
The Company uses ingredients like mung beans, fava beans, peas to act as substitutes for protein, cocoa butter and coconut oil as fats, and a combination of Potato starch and methylcellulose as carbohydrates, along with minerals and natural flavours to deliver a meaty experience. BYND uses proprietary technology and processes that replicate the most important components of animal meat through plant-based proteins.
Beyond Meat’s product offerings include Beyond Burger, Beyond Sausage and Beyond Meat Sausage, besides meatballs, chicken and ground meat. The Company’s products improve health, have a positive impact on climate change, address global resource constraints and improve animal welfare.
The Company has built a team of scientists, engineers, researchers and chefs who work in its state-of-the-art innovation center to bring the best quality product to the market. BYND invests nearly 14.4% of its Net Revenue into research and development efforts, which is much higher than companies like Nestle (OTCPINK: NSRGY), Kellogg (Morningstar Farms), Kraft (Boca Burger) and WH Group (Smithfield Foods).
Beyond Meat is targeting the $1.4 trillion Global Meat Category (Fitch Solutions Macro Research) and the more immediate $270 billion Size of the U.S Meat Category. As of December 2021, the Company has managed retail rollouts in 34000 U.S stores and over 58,000 international outlets. In total the Company has more than 130000 outlets worldwide. Its products are carried in major retail stores such as Walmart, Kroger, Target, Costco and Whole Foods among others.
The Company is focused on expanding its relationships with existing food service clients such as MacDonald’s, KFC, Pizza Hut, The Coffee Bean and A&W Canada. BYND is constantly working on improving its product lines and has introduced multiple products and enhancements during the past 2 years.
BYND has established its first extrusion facility outside of the U.S in Enschede, Netherlands, which commenced operations in Q4,2021. In addition, the Company has also established a state-of-the-art manufacturing facility in Jiaxing, China, which commenced operations in Q4,2021.
As per its FY2021 results, the Company scored double-digit growth in net revenues, with U.S. foodservice channel net revenues contributing a record $76 million. The international channel revenues are also growing at a steady rate, clocking double-digit growth as well. The Company intends to maintain the momentum by continuing to invest in distribution growth, international penetration and product innovations.
Weakness
As per its Q4,2021 financial results, the net revenue of the Company decreased by 1.2% to $100.7 million. However, these were offset by an increase in U.S. foodservice and international channel net revenues. The Company attributed the losses to multiple factors such as loss of market share, softer demand, an increase in trade discounts and fewer shipping days as compared to Q4,2020.
The Company also reported a reduction in its adjusted gross margin to 14.1% from 28.5% due to change in product mix and increasing trade discounts. The per unit manufacturing cost also witnessed an increase due to rising costs such as depreciation, logistics costs, inventory write-offs and reserves.
BYND reported $77.7 million in losses from operations due to decline in gross profit, higher operating costs and increased investment in marketing and administrative expenses. The Company’s YoY revenues have declined for the first time since the pandemic.
The Company’s shares are down over 70% from all-time highs of $160 and down 30% for this year. The growth of the Company is stagnating, signaling consumer fatigue with the brand.
Opportunity
Meat substitutes, also called as meat analogues, aim to replicate the appearance, flavor and texture of meat products. They are generally made of soybeans, gluten and vegetables like peas. The category of meat substitutes was once considered niche, but the growing rise of veganism has brought a lot of attention to them. The adoption of meat substitutes by popular restaurants and food chains such as Burger King, Qdoba, KFC and Subway has lent credibility to these products and led to an increase in acceptance and popularity.
The COVID-19 pandemic served as a huge impetus to the meat substitute industry as customers stocked up on products in anticipation of lockdowns. While the animal meat industry grappled with issues such as maintenance, upkeep and outbreaks in slaughterhouses, the demand for meat substitutes witnessed a steady rise. While vegetarian options have always been around, they have never tried to replicate the exact taste, texture or appearance of meat products, which is exactly what meat substitutes aim to do.
A new category of meat substitutes namely cell-based meat, which is either lab-grown or cultured, uses animal cells to grow meat in a production plant and is emerging as ethical alternatives to rearing animals in captivity for slaughtering. They are still at their nascent stage and available in Singapore and have a long way to go before they become mainstream.
The real challenge is for the industry to successfully convince meat eaters into buying and consuming these substitutes as a regular alternative to meat. Vegans and vegetarians constitute approximately 3 percent of the U.S population at present.
According to a report by the Fortune Business Insights, the global meat substitute market is likely to reach $10.80 billion by 2028, growing at a CAGR of 10.48%, from USD $5.37 billion in 2021. The growth is driven by demand for healthier alternatives to meet owing to rising coronary and cardiovascular diseases, fear of animal-borne diseases and availability of easy, inexpensive and tasty alternatives to meat products.
Threats
The Company is facing stiff competition from the likes of Impossible Foods, a company that develops plant-based meat substitutes. Kroger has tied up with Impossible Foods, through its Home Chef Brands, although the details of the collaboration are yet to be announced. The Companies are likely to test a range of co-branded products that will include Kroger’s private label brands. The move is seen as a threat to BYND as analyst Robert Moskow from Credit Suisse states in a note that the tie up could be a threat to Beyond Foods.
The note says
“We view this test as a threat to Beyond Meat because it demonstrates the willingness of a big competitor to ‘margin down’ into co-branded private label products in order to maximize the reach of its products.”
The Company’s margins are under pressure from increasing freight costs and declining gross margins and widening losses, which it cannot pass on to customers as it will have a further impact on its market share. The pandemic fuelled stocking up of plant-based meat substitutes is no longer valid, as evidenced by the decrease in growth from 45% in 2020 to negative 0.4% in 2021.
The Company may not be able to preserve or capture market share and may fail to release its expansion plans going by the current challenges it faces such as increasing costs, decreasing market share and negative shift in consumer preferences.
Key Takeaways
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://www.vox.com/2019/5/28/18626859/meatless-meat-explained-vegan-impossible-burger
https://www.fortunebusinessinsights.com/industry-reports/meat-substitutes-market-100239
https://www.beyondmeat.com/en-US/
https://investors.beyondmeat.com/static-files/bf7492c3-fdcd-4334-a50a-aeb36a763474
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