Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. Several of Beyond Meats competitors, including Hormel, Nestle, Kellogg, Tyson, Kroger, ConAgra, and Kraft Heinz, enjoy key competitive advantages: These advantages are very important and very difficult, if not impossible, for new entrants like Beyond Meat to match or overcome in the near term, if ever. Asit Sharma has no position in any of the stocks mentioned. To illustrate, the company repackaged a portion of its slow-moving food service inventory for retail consumption. About 70% of the global population is cutting down its meat consumption. For non-personal use or to order multiple copies, please contact Option grants and RSUs directly align executives interests with the price of the companys shares and not necessarily with creating shareholder value. Then, followed by J.J. Redick, Maya Moore, April Ross, Eric Bledsoe, Maggie Vessey, and Tia Blanco. This has come from the increased consumer-knowledge on healthy products, plant-based diets, and understanding what goes into the food we as consumers eat. Considering our revenue projections of roughly $1.1 billion and 6% margins, almost $66 million in net income is possible by 2023. Beyond Meat was one of the most successful IPOs (Initial Public Offerings) of 2019. Success of any of Beyond Meats competitors could also further threaten future profit growth for Beyond Meat. One of Beyond Meat's biggest and earliest investors was Tyson Foods, which had a 5 percent stake in 2016, later raised to 6.52 percent. Though BYNDs margins remained negative at close to -13% in 2020 (due to the impact of the pandemic), the companys operations are expected to improve and turn profitable in 2022, with projected margins of 3%. Per Figure 6, Beyond Meats TTM adjusted EBITDA of $45 million is well above core earnings of $4 million. Low margins in an increasingly competitive industry leave Beyond Meat with less flexibility to compete on price or invest in marketing and R&D. BYND revenues saw a rise of 36.6% y-o-y in 2020, which was sharply lower than historical growth rates. However, by now its clear that plant-based meat alternatives are here to stay and theyre gaining traction every year. Showing that meat is not necessary to enjoy the same flavors while reaping more plant-based benefits. It may even get heavier as more people understand healthy food from non-healthy food. Beyond Meat will face difficulty maintaining an innovative edge over its peers, who already spend much more on research and development (R&D). Beyond Meat stated that its mission is to push boundaries and disrupt. And if this happens, you need to have others you can roll out. For reference, Beyond Meats TTM NOPAT margin is 2% and the TTM NOPAT margin of one of the largest food producers in the world, Tyson Foods, is 5%. Going forward, Beyond Meat will find it even more difficult to grow revenue and profits as competitors flood the market. Plant-based eaters now account for 8% of the global population. Are they only for vegans? Gross profit was $122.3 million, or gross margin of 30.1% of net revenues; Adjusted gross profit was $133.7 million, or Adjusted gross margin of 32.9% of net revenues, reflecting exclusion of expenses attributable to COVID-19. Net revenues decreased 1.2% to $100.7 million in the fourth quarter of 2021, compared to $101.9 million in the year-ago period. This is one of the biggest first-day pop-ups in recent history. Furthermore, Beyond Meats current valuation implies it will generate sales equal to 29% of Tysons 2019 revenue a level that places it as thesixth largestmeat and poultry processor in the world in 2019. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Not knowing what is in the hot dog, not knowing where the hot dog came from, the conditions of the animals at the house in which the meat was slaughtered. Its an era of growth for the still young start-up. Find out how 3 brands use customer data to find success! Extensive background in CPG . Even though the number of vegans and vegetarians was increasing in 2013 when the company launched its first products, the market for plant-based burgers was small: only 0.5% growth in this category. The first campaign, The Future of Protein, was launched in 2015. Lets have a look at their most serious competitor: Impossible Foods. The Motley Fool owns shares of and recommends Beyond Meat, Inc. While Beyond Meats stock performance is attractive to many momentum traders, investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak prospects to compete at the scale of its competition, and the unrealistic increase in profits implied by the current valuation. Jurgens brings over 20 years of experience with a proven record of growing sales and profit through strategy, branding, marketing, operational excellence and innovative approaches. Should Kellogg continue to push the marketing of Incogmeato and swiftly gain customers, investors may kiss the ultra-high expectations baked into BYND goodbye. Research on Beyond Meat's Profitability Problems and Strategies. When vegan meat alternatives first started to appear on the market, many people saw them as a fad. Various trademarks held by their owners. Though their first product received positive reviews from some celebrities and PETA named Beyond Meat their 2013 Company of the Year, journalists who actually tasted the chicken reported that the "likeness to real chicken was tolerable, at best". Success of any of Beyond Meats competitors could also further threaten future profit growth for Beyond Meat. Still, disputes aside, Beyond Meat has been doing very well these past few years. Nonetheless, Beyond Meat's earnings press release observed that the value packs, which hit grocery stores only in the last two weeks of the quarter, were responsible for 16 percentage points of volume growth for the entire period. At its TTM FCF burn rate, the firm has enough cash to operate for just over 16 months before needing additional capital. By shifting from animal-based meat to plant-based meat, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare. Even in the most optimistic of scenarios, Beyond Meat is worth less than its current share price. Plant based burgers are not new but Beyond Meat has been able to capture more of the . Whos to say that its red meat? Buy These 2 Stocks in 2023 and Hold for the Next Decade, 2 Growth Stocks to Buy Before the Big Bull Rally, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Copyright, Trademark and Patent Information. Figure 4: Expenses as % of Revenue: Beyond Meat 2Q19 vs. 2Q20, BYND Operating Expense As Of Revenue 2Q19 Vs. 2Q20. Beyond Meat Inc stock (NASDAQ: BYND), a leading-edge food company that produces meat directly from plants - an innovation that provides taste and texture of animal-based meat products along. There was also a long standing view which only recently has begun to change that veganism or vegetarianism will only be embraced by a narrow part of society. Along with continued marketing investment, the plant-based company strikes partnerships with McDonald's and Yum! Marketing News & Strategy Here's how KFC is marketing its updated Beyond Meat faux chicken in two markets Beyond Fried Chicken could go national if strong results are seen in Charlotte and. 4. Tackle stereotypes about who your customers should be. Lets take a look at data from Germany. Among the items Beyond Meat excludes when calculating its adjusted EBITDA are equity-based compensation, restructuring expenses, and a vague line item labeled other. However, Kelloggs appears it is ready to launch Incogmeato and recently partnered with Postmates to deliver free Incogmeato samples to residents of Denver and Dallas. To fight this incorrect belief, Ethan Brown launched a campaign featuring famous athletes. In this scenario, Beyond Meat grows revenue by 37% compounded annually (which results in NOPAT growing 42% compounded annually) for the next 12 years. The first six months of 2020 have visibly transformed Beyond Meat 's ( BYND -0.58%) approach to marketing its plant-based, meat substitute products. These sales represent 5% of shares outstanding. One of the most notable adjustments was $11 million inoperating leases. Things Are Only Getting Worse for Beyond Meat Stock. . 2 Reasons to Avoid a Roth 401(k) for Your Retirement Savings, Warren Buffett's Latest $2.9 Billion Buy Brings His Total Investment in This Stock to $66 Billion in 4 Years, Want $1 Million in Retirement? Beyond Meat uses a robot to imitate the process of chewing. For instance, over the TTM, ConAgra spent 15 times more on SG&A than Beyond Meat. Highlighted by Beyond Meat 's stunning public debutwhich recorded a jaw-dropping 163% gain in its first daythe vegetarian alternatives category of foodtech is blowing up. See allTrefis Featured AnalysesandDownloadTrefis Datahere. A lot of people are trading so I know a lot of people are interested in the future of this company. Sign up for our Newsletter to receive free, insightful tips on all things brand! Do you like this content? Beyond Meats R&D in 2019 was just $21 million compared to $56 million for ConAgra and $97 million for Tyson over the same time. The larger the firm gets, the more difficult it becomes to achieve large year-over-year (YoY) growth rates. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. As in all markets, there are leaders. Production Supervisor - 2nd Shift. If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox. However, its reasonable to assume that as Beyond Meats business gains scale and the company expands aggressively, it can boost margins to the levels of Tyson Foods in the next few years, so we estimate roughly 6% margins by 2023. illustration, packages of Beyond Meat "The Beyond Burger" sit in a refrigerator, June 13, 2019 in the Brooklyn borough of New York City. The alternative meat producer is reportedly focusing its retail . Knowing that the meat is expired and poses a hazard to eat it. Additionally, when their Chicken-Free Strips were finally taken off the market in 2019, they did so quietly. As the industry becomes more commoditized, economies of scale will be even more important for firms seeking profitability, which doesnt bode well for smaller firms such as Beyond Meat. Made from "soy powder, gluten-free flour, carrot fiber and other ingredients", they used a food extrusion machine to create a chicken-like texture. Valuation: I made $757 million of adjustments with a net effect of decreasing shareholder value by $513 million. Beyond Meat Inc. is revamping its retail sales strategy to center on five major grocers and hiring a new marketing executive as part of an effort to reinvigorate the plant-based food. I believe this drive will continue and not stop. Instead, due to theproliferation of noise traders, the focus tends toward technical trading tends while high-quality fundamental research is overlooked. In 2021 Beyond Meats revenue increased by14.2%to reach $464.7 million. The Motley Fool has a disclosure policy. We can spot changes in the design since their arrival. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently. It doesnt matter what industry your brand is in theres always a chance consumers wont take to your product or service. Having the largest natural and organic food retailer in the United States take a chance on this relatively unknown brand gave other grocery retailers an incentive to try the same product placement in their stores. What can you learn from this? They did not service the vegan and vegetarian markets as traditional players did. Many people can not even tell the difference between real meat and Beyond Meat. The main difference is that Impossible Foods takes its proteins from soy whereas Beyond Meat extracts it from peas. 2023 Latana GmbH. This competitive disadvantage only makes Beyond Meats path to sustainable profitability that much more difficult. When it comes to social causes brands still need to remember if the product isnt good no social cause, no matter how important can save it. Beyond Meat, the company that is making eating plant-based protein mainstream continues to grow at a fast pace. With low margins and little control over the majority of distribution, I think shares can fall sharply from current levels. Net revenues were $406.8 million, an increase of 36.6% year-over-year. We are providing energy for the body and we can pull it from a lot of different places. It represents what we feel is the first product that mainstream omnivores are willing to seek out and put at the center of their plate.. Consensus estimates expect revenue will grow 61% YoY in 2020, and just 17% YoY by 2025, per Figure 1. Part of this shift happened without much intervention by management, as consumption in restaurants and other institutional foodservice outlets has plummeted since the spring, while at-home consumption has soared. This has come from the increased consumer-knowledge on healthy products, plant-based diets,. Therefore, restaurant owners tend to put the Beyond Meat logo on the menu when featuring their products. Beyond Meat has earned a premium name thanks to its marketing strategies, but this premium is too much. BEYOND MEAT ANNOUNCES NEW . It looks like meat, tastes like meat, and even feels like meatbut its made entirely of plants. This is a major strength: a high speed-to-market. We're here to help brands make better marketing decisions by delivering world-class, scalable insights. The organizational goals have to be settled and explained. If you are wondering how Beyond Meat has been able to make strides where others havent consider these four elements of its marketing strategy. In 2014 they developed their first simulated beef product and expanded their presence from 1,500 to 6,000 stores in the US. However, the improvement in Beyond Meat's margins has been eye-popping. In this scenario, Beyond Meat would earn ~$12.5 billion (slightly more thanMarketsandMarkets2019 estimated global plant-based meat market size of $12.1 billion) in revenue in 2031, compared to $401 million TTM. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Beyond Meat founder, Ethan Brown, understood the place of meat in the collective perception very early on. Plus, they created a new category by being one of the first to do it and do it right. Many people do not know that eating meat is not only eating meat, but eating the history in which the meat came from. To show that Beyond Meats protein is just good as alternative protein on the market the brand has partnered with NBA players like Kyrie Irving and Chris Paul who are not only brand ambassadors but are also investors in the company. In 2019, they partnered up with Dunkin Donuts to supply their Meatless Sausage for the breakfast chains sandwiches nationwide. Beyond Meat was originally founded in 2009 by Ethan Brown, who worked with two University of Missouri professors, Fu-hung Hsieh and Harold Huff, to develop meatless, plant-based protein. However, some investors have growing concerns about the companys ability to maintain these results. This all ended with Beyond Meats new look. In the second scenario, I use 61% growth (2020 consensus estimate) for all years to illustrate a best-case scenario where I assume Beyond Meat could grow revenue faster within the larger distribution network, resources, and customer base of Kraft Heinz. Additionally, Beyond Meat is introducing its plant-based meatballs in Coles, the second largest supermarket chain in Australia with over 2,500 stores. Despite less transparency, I know that Beyond Meats executive compensation plan consists of a cash bonus, option grants, and restricted share units (RSUs). Its worth noting that any deal that only achieves a 4.4% ROIC would not be accretive to shareholder value, as the return on the deal would equal Kraft Heinzs WACC. It began trading at $25/share on the Nasdaq stock exchange and ended the day at $65.75. Per Figure 5, Beyond Meat saw significant improvement in profitability in 2018, but the improvement was short lived. This is, in fact, after BYND partnered with Starbucks, Yum Brands, and Sinodis. In total, the global market for meat substitutes is set to grow to $23.4 billion by 2024, according to market research company Euromonitor. 2019: A Change In the Branding Strategy With the Arrival of Stun. Time to Buy? We believe Beyond Meat Revenues have the potential to rise close to 2.7x from the level of $407 million in 2020 to $1.1 billion by 2023, representing a growth rate of roughly 40% per year (for context, the compounded annual growth rate was a very healthy at 164% between 2016 and 2019). It's unfortunately difficult for investors to gauge the impact of this promotion on profits, since Beyond Meat books the discount as a reduction in sales to arrive at net revenue, rather than a reduction in gross profit margin. Economic earnings, which account for the unusual items on the income statement and . Problem Recognition- Consumers did not know about the conditions of the animals that are actively being slaughtered to create meat. Instead of drawing attention to a product that consumers didnt love, they simply discontinued it and slowly fazed it out of supermarkets. However, the lack of fervor for their first product did nothing to stop Beyond Meat from trudging forward. How did Beyond Meat become the leader it is today? For example, evaluating the conditions of the animals before death, the process in which the meat is processed, the drugs and antibiotics that the animals were treated with before getting slaughtered. Nestl, JBS, and Tyson have all recently launched plant-based burgers. If, however, McDonalds chooses to not continue on with the PLT or finds another supplier for its plant-based protein items, BYND could fall even further. Heres a quick summary for noise traders when analyzing BYND: Executive Compensation Adds Additional Risk. If Beyond Meat can improve its NOPAT margin to 5% (equal to Tysons TTM margin) and grow revenue at 61% in 2020, 55% in 2021, and 47% in 2022 (consensus estimates) and by 20% compounded annually thereafter, the stock has significant downside risk. Their main rival is the company Impossible Foods. Beyond Meat stock has staged a dramatic recovery in January, rising by more than 50% since the end of last year. People are able to do extensive research on problems after recognizing that there is an issue. Furthermore, Beyond Meat has a history of significant free cash flow (FCF) burn that is unlikely to change anytime soon. Competitors, Serious Uphill Battle for Beyond Meat to Improve Profitability. The superior scale of Beyond Meats peers will also challenge what the firm believes to be a critical competitive advantage its innovation. As an emerging growth company, Beyond Meat has opted to comply with the executive compensation disclosure rules applicable to smaller reporting companies, which require less stringent disclosures regarding compensation. For reference, Beyond Meats invested capital has increased by an average of $84 million (28% of 2019 revenue) over the past two years. 2 1 Comment. Shares have fallen 10% since news onJune 25, 2020that McDonalds was discontinuing testing of a plant-based burger it dubbed the PLT made with a Beyond Meat patty in several Canadian markets. While Tyson Foods posted almost 5% margin in FY2020 (ending 3rd Oct, 2020), the company is a dominant force in the market with its size being significantly larger in comparison, which makes it probably unreasonable to expect similar margins for Beyond Meat, which has still not made any profits. The company has a culture of accountability among its employees: they are all responsible for driving up performances by making suggestions, pointing out what is not working. Figure 7: Current Valuation Implies Drastic Profit Growth. Now, if Beyond Meats revenues grow 2.7x, the P/S multiple will shrink by more than 60% from its current level, assuming the stock price stays the same, correct? The redistribution of cash flow to its investors is a challenge. We believe there's a better way to feed our future. More and more meat-eaters and flexitarians are looking to plant-based products to offset their carbon footprints and help them live a more sustainable lifestyle. Could they suit flexitarians, meat-eaters? This wasn't a cheap decision -- Beyond Meat incurred a charge of nearly $6 million to repack and reroute this inventory in response to consumer demand. You can see all the adjustments made to Beyond Meats balance sheethere. After all, nothing could replace a real burger, could it? Beyond Meat is Wasting Its Advertising The company's strategy promotes plant-based meat as a category, not as a brand, which is ideal for its competitors Hermes Rivera via Unsplash From one perspective, Beyond Meat could hardly be in a better position. Their products are now sold in 17,000 grocery stores and 12,000 eateries. Concentrating on the health market, they were able to target a broad range of people seeking a better meat option than real meat. word of mouth. The design softened. Even though the firm doesnt necessarily hold logistical or technological advantages over its competitors, I think it helps to quantify what, if any, acquisition hopes are priced into the stock. They entered the restaurant market, and are currently sold to plant-based and mainstream restaurants. For example, Tyson Food, one of the biggest and earliest investors in Beyond Meat, which had a 5% stake in 2016 exited in 2019. Back in 1988 when John Mackey, co-founder of Whole Foodstried to get funding to expand his companyhe was rejected by many venture capitalists. Beyond Meat (NASDAQ: BYND) was founded in 2009 by Ethan Brown, a Californian entrepreneur with an interest in environmental topics, who is also a vegan. The future is one where the meat case is going to be called the protein case and consumers will be able to buy plant-based and animal-based protein side by side,saidEthan Brown, founder and CEO of Beyond Meat. Although its products are plant based Beyond Meats marketing does not explicitly call that out. There have been many stories of grocery story employees getting told by their bosses to take the expired meat and mix it with regular meat and put it back out there on the shelf. There are several lessons to be learned from Beyond Meats story. Figure 1: Consensus Revenue Growth Estimates: 2020-2025, 2020-2025 revenue growth rates based on consensus estimates, Competition is Plentiful and Has Competitive Advantages. When Beyond Meat was met with the failure of their Chicken-Free Strips their first real product they didnt fold. What kind of external factors/changes do you think may have inspired the birth of Beyond Meat? The coronavirus pandemic put a halt to the companys fast-growing revenues as shutting down of restaurants due to the lockdown significantly affected the companys restaurant and foodservice business, which was the fastest growing segment for BYND until 2019. Distribution and use of this material are governed by Over the TTM period, FCF is -$164 million. If revenues expand 2.7x over the next few years, instead of the P/S shrinking from around 17x presently to less than 10x, a scenario where the P/S metric falls more modestly, perhaps to about 13x looks more likely, considering the fact that profitability is also projected to see sharp improvement. This makes a lot of sense since only2.7%of packaged meat sales in the United States are plant based. By Tricia McKinnon. In the first scenario, the estimated revenue growth rate is 61% in year one, 55% in year two, and 47% in year three, or equal to consensus. The Impossible Foods start-up was founded in 2011 in California by Patrick O. Dollar figures in millions. Such high spending is not only unsustainable, but it also means Beyond Meats product must be more expensive than competitors products for the firm to turn a profit. I would prefer Beyond Meat align executives interests with shareholders interests and link executive compensation with improving ROIC, which isdirectly correlated with creating shareholder value. And now the ravenous race for market share begins, with Beyond Meat and Impossible Foods (which has raised nearly $500 million in debt and equity) in prime position to . Prior to that Mr. Oghoghomeh served as Head of Recruitment Marketing - West Zone for Amazon, an eCommerce company from 2019 to 2021. revenue grows 24% a year from 2023-2027 (continuation of 2023 consensus), then. The mission of the company is focused on plant-based meat alternatives, using pea and other plant protein isolates. By focusing on their fresh foods, like their Beyond Burger patties which many agreed pulled off the meatless meat trick more convincingly they were able to put their time and effort into a product that was going to make them more successful in the long run. Now, information and videos are easily assessable to people of all ages to make a truly informed decision on healthy options such as plan-based meat. Since its high-flying IPO at $46, this stock has soared to $135. Our marketing speaks very much to the ability for the highest-performing people in our society to perform not just as good, but better as result of the consumption of plant-based meat, particularly, our plant-based meat.. However, given the low margins and overvalued stock price, I think it would be unwise for a larger firm to acquire Beyond Meat at current levels. delaware state basketball record, why did mr goldberg leave are you being served,