Beyond Meat Stock: Where is the Growth?

Nearly five years ago, we speculated about the burger joint of the future. It would be a 3D-printed “brick-and-mortar” establishment with robots doing all the cooking, using lab-grown meat and synthetic biology as the secret sauce. It hasn’t happened yet. Instead, the biggest revolution in food has been in plant-based meats, which try to mimic the real thing using various proteins and proprietary hocus pocus to convince carnivores to cull animals out of their diets. Beyond Meat (BYND) emerged as an early green tech favorite and jumped into the public markets in 2019 after 10 years in business. At the time, Beyond Meat stock was one of the hottest IPOs in history and quickly became a $12 billion company after premiering at a valuation of about $1.5 billion. Today, its market cap sits around $3 billion.

While we avoided the initial hype around the company, after taking a second look, we bought into the bull thesis that alt protein was ready for prime time and added Beyond Meat to the Nanalyze Disruptive Tech portfolio. (It’s currently one of our smallest positions with a weighting of just 0.47%.) While we don’t react to short-term volatility, we regularly revisit our investments to make sure our thesis is still sound. It’s been almost a year since we last checked in with our Beyond Meat stock forecast. Our premise then and now is that the company needs to competitively price its faux meat products against the real deal if it’s to sustain long-term growth. But based on the company’s 2021 performance, we also need to dive into other fundamentals to determine if there’s more to take beef with than just price parity.

What Happened to Beyond Meat in 2021?

Beyond Meat lost its sizzle in 2021. The company posted revenues of nearly $465 million last year, up from about $407 million the previous year. That’s about a 14% increase. In 2019, when the company went public, revenues jumped about 240% compared to the previous year, from about $88 million to almost $298 million. Management seems to blame the Rona for the current slump. The word “Covid-19” appears 166 times in the company’s year-end 10-K filing. Fair enough: We’re certainly not going to discount the ongoing supply chain issues being experienced by nearly every industry on the planet.

But a deeper dive into the numbers show that growth did more than slow down. It stalled and sputtered. Retail revenues in the United States, which represent more than half of the company’s revenue stream, dropped almost 8% between 2020 and 2021. While we don’t have total market numbers for 2021, U.S. retail sales of plant-based meat reached $1.4 billion in 2020, according to the Good Food Institute (GFI). That’s only about 2.7% of all U.S. retail packaged meats, GFI reported. In comparison, plant-based milk currently accounts for 15.2% of retail milk sales. If we believe that twisting plants into a serviceable imitation of a hamburger patty or chicken breast will be at least as trendy as getting an espresso with a shot of oat milk, then there’s plenty of room to grow. So where’s the growth?

Based on the above chart, it looked like most of it happened overseas, where retail sales jumped more than 123%, from about $36 million to $81 million – though revenue only increased about 10% in Q4. U.S. food service revenues also showed some life after taking a dive in 2020 when many restaurants shuttered or otherwise limited their business during the first year of the pandemic. The surge in food service sales domestically and internationally is a big part of the company’s plan to return to growth.

The Bull Market Thesis for Beyond Meat

To quote Beyond Meat founder and CEO Ethan Brown: “The key question is whether this reduced growth rate is an aberration or a harbinger of things to come.” Of course, Brown thinks it’s the former. During the Q4-2021 earnings call, he outlined four reasons why 2021 was an anomaly and how the company’s strategy would turn things around. We paraphrase each point and provide some colorful commentary:

• Brown: People abandoned hope during COVID-19 and ate crappy food instead of his highly processed healthy plant protein. Also, the lack of in-store samples hurt marketing efforts. Nanalyze: The first point seems pretty anecdotal … and a bit antiquated, considering he was talking about Year 2 of the Rona. And, sure, tasting is believing, but by 2021, Beyond Meat had become a well-known brand.
• Brown: The company has introduced a bunch of new products, particularly in food service markets, including the Beyond The Original Orange Chicken at Panda Express. Nanalyze: Yeah, we’re never eating that.
• Brown: Nearly 80% of Beyond Meat’s food service business is concentrated in minor entities, like small hotel chains and universities. The plan is to push into the big quick-service restaurants, which the company is doing with the McPlant at McDonald’s, among others. There’s also a new product line with a joint venture called PLANeT with PepsiCo. Nanalyze: Finally, some useful information. And, yes, probably not going to eat the McPlant unless it tastes like the McRib, because that’s not real meat either.
• Brown: The company will continue to expand internationally, particularly in Europe and China. In 2021, Beyond Meat experienced a 77% year-over-year growth in its overseas business. Nanalyze: We like to see geographic diversification. Plus, the Chinese will eat everything, especially if you tell them it’s endangered and will increase their libido.

To sum up: Beyond Meat stock is betting that by getting more samples into mouths, new products into restaurants and stores, and expanding into more markets outside the United States, it can return to its 2019 high-growth ways.

The Bear Market Thesis for Beyond Meat

But, however you spin it, there are headwinds. During the call, Brown said the plant-based meat category “decelerated meaningfully in U.S. retail,” citing the GFI number of 45% growth in 2020 to slightly negative 0.4% in 2021 (the latter is unattributed, but presumably also comes from the alt food think tank). Apparently, people are still working through all of the freezer-burnt vegan burgers they hoarded in 2020. Seriously, though, Brown and company don’t give us any good answers as to why the hottest food trend of the decade suddenly dried up. The Rona blame game is getting older than our jokes about vegetarians. Archrival Impossible Foods managed to raise another $500 million to bring total funding to about $2 billion, with a reported valuation of between $7 billion and $10 billion, despite this reported decline in overall retail sales. 

There are some other red flags from Beyond Meat that we should note:

• Speaking of Impossible Foods: The competition in the alt food space is intense. GFI reported that private alt protein companies (plant, fermentation, and cell-cultured) raised about $5 billion in 2021, a 60% increase from the year before. But it’s not just upstart startups that are potentially squeezing Beyond Meat’s bottom line. Grocery stores from Trader Joe’s to Kroger to Aldi are launching their own lines of plant-based foods. And doing it cheaper: Aldi’s Ultimate No Beef Burger is reportedly 60% cheaper than Beyond Meat’s product.
• The main ingredient in Beyond Meat products is pea-based, which accounts for about 16% of the total plant-based meat industry and is also used in many plant-based milks. As far as we can tell, Beyond Meat has just two pea protein suppliers, Roquette and PURIS, and both contracts extend only through the end of this year. We’re not privy to the terms of the contracts, but this seems like a supply risk, especially with companies like TJs also formulating with pea protein. In addition, a drought in Canada last summer cut pea production by one of the company’s suppliers by 45%, at least temporarily sending raw ingredient prices higher. Maybe that had something to do with a report from Bloomberg about delays in Beyond Meat’s fake chicken rollout. Others like Kellogg and Conagra beat the company to the cluck.
• Customer concentration is always a concern. In the case of Beyond Meat, two customers, DOT Foods and Zandbergen WFM, accounted for 23% of gross revenues. The former is a distributor who sells to many customers, so the type of customer concentration risk matters as well. Distributors would be a less risky concentration to have as their customers will help drive demand for the product.

To sum up: Beyond Meat stock is up against a ton of competition, some with very deep pockets, and others who stock their own private label alt protein products. While management didn’t talk about supply as a risk, maybe it should be part of the conversation. 

Price Parity for Alt Protein

The Holy Grail for Beyond Meat remains price parity, something we investigated in depth last year. It’s not as straightforward as you would imagine. 

For instance, the company’s average net revenue per pound in Q4-2021 was $5.19, which was down from $5.59 per pound in Q4-2020. However, those numbers are only indirectly related to what customers pay at the checkout or drive-thru. Perhaps the simplest way to determine how much a pound of non-flesh costs is to check the price at any grocery chain. Safeway in Denver lists a pound of Beyond Meat ground beef for $9.99. Meanwhile, a 3.5-pound value pack of 80/20 ground beef retails for $3.49 – nearly a third of the Beyond Meat retail price. Statistics from the U.S. Bureau of Labor Statistics say that’s a pretty good deal, as the average price in January 2022 for the same ground beef was about $4.55 per pound. Even the latest figures from GFI show a significant price disparity still exists:

A more optimistic assessment comes unsurprisingly from a study by Boston Consulting Group and Blue Horizon, a venture firm that invests in alt protein companies. The report claims that plant-based proteins will reach price parity by next year, and alt proteins will account for 11% to 22% of the food market by 2035.

Beyond Meat itself says it brought material costs down $0.26 per pound in 2021. The goal is to achieve price parity with animal protein within at least one category within the next two and a half years, according to Brown. We’ll eat it when we see it.

Conclusion

We’re not the kind of investors who bolt and sell at the first sign of trouble, but there’s a lot to digest here. This could be a make-or-break year for Beyond Meat. Many investors are betting on the latter: At the start of the year, Beyond Meat was the most shorted stock inside the Russell 1000. While we believe shorting is a fool’s errand, we may start to trim our position or exit altogether if the company can’t get its act together. Expansion in Europe and China, along with new product innovation, won’t be enough to reignite growth if the company can’t control costs, secure its supply, and meet demand. We’ll continue to monitor Beyond Meat stock this year.

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