Plant-based meat alternatives are on the rise and not just with vegans. The founder, Ethan Brown, said in June that the companys objective is to make plant-based meat cheaper than animal protein. Brands. In total, the global market for meat substitutes is set to grow to $23.4 billion by 2024, according to market research company Euromonitor. By Tricia McKinnon. We can spot changes in the design since their arrival. 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. While there are numerous brands that have popped up over the years whove thrown their metaphorical hats into the meat alternatives ring such as Impossible Foods and Quorn Beyond Meat is still one of the most successful and well-known. Beyond Meat has been working with them since February 2019. Competitive Advantage- Because Beyond Meat was one of the first to actually create a meat patty from plant proteins, they were able to turn it into the now known Beyond Burger. A year later, Beyond Meat developed its first beef product made from plant proteins, which later morphed into its now-famous Beyond Burger in 2016. This is introducing the category and it was picked up by Burger King. Another key marketing vehicle for the company is its partnerships with big brands likeMcDonalds, KFCand Pizza Hut. In 2021 Beyond Meats revenue increased by14.2%to reach $464.7 million. The California-based company is orienting its retail business around Kroger Co., Walmart Inc., Publix Super Markets Inc., Costco Wholesale Corp. and Whole Foods Market, according to internal company presentations and documents. First, consumers expectations for new products and innovation will rise over time. However, the poultry producer exited earlier this year . Apart fromtotal debtwhich includes the operating leases noted above, the most notable adjustment to shareholder value was $572 million inoutstanding employee stock options. First of all, think of the big picture when it comes to segmentation: who will really buy your products? Time to Buy? The number of shares sold short has increased by 10% since last month. Back in 1988 when John Mackey, co-founder of Whole Foodstried to get funding to expand his companyhe was rejected by many venture capitalists. However, the lack of fervor for their first product did nothing to stop Beyond Meat from trudging forward. And while their Chicken-Free Strips were sold at big-name stores like Whole Foods all across the US, they were later discontinued in 2019. Figure 2: Beyond Meats Profitability vs. If you want to stay up-to-date on the latest news in the plant-based market, to learn about the most recent innovations as they come out, do not hesitate tofollow us. Instead, due to theproliferation of noise traders, the focus tends toward technical trading tends while high-quality fundamental research is overlooked. Impossible Foods sells slightly different products: Impossible Burger, Impossible Pork, Impossible Sausage. Often the largest risk to any bear thesis is what I call stupid money risk, which means an acquirer comes in and buys Beyond Meat at the current, or higher, share price despite the stock being overvalued. Figure 10: Implied Acquisition Prices for Value-Neutral Deal. Firstly, the gradual lifting of lockdowns in recent months will help the restaurant segment register strong growth along with sales from retail chains. Concentrating on the health market, they were able to target a broad range of people seeking a better meat option than real meat. Dont be afraid to really study the competition and pay attention to all the little details that have made them successful. Beyond Meat Narrows Its Losses. 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. Finally, in 2021, Beyond Meat began supplying Taco Bell with plant-based meat products and partnered with PepsiCo to develop and market plant-based drinks and snacks. 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. Figure 8: Current Valuation Implies Massive Revenue Growth, Significant Downside in a More Realistic Scenario. Even more impressive is that Beyond Meat is, well, a food company (it develops plant-based meat products) and the sales for 2018 were only $87.9 million (and yes, the company has yet to post a . Information Search- Consumers using this new information to do their own research on the history of slaughter houses and the conditions in which animals are being tortured and killed to create meat. There are countless advertisements with men barbequing burgers or hanging out with their friends as they bond over their favourite protein, read meat. Additionally, the companys new partnerships will also drive impressive top line growth. Beyond is working to streamline its operations and reverse declining sales. This created a need for plant-based foods to replace the broken system of meats. Theres no actual blood,instead beet juice isused but it does the trick. 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. Figure 10 shows the implied values for BYND assuming Kraft Heinz wants to achieve an ROIC on the acquisition that equals its WACC of 4.4%. BYND revenues saw a rise of 36.6% y-o-y in 2020, which was sharply lower than historical growth rates. January 2021. In this scenario, Beyond Meat grows NOPAT by 36% compounded annually over the next decade and the stock is worth just $44/share a 67% downside to the current price. Considering these competitors are already supplying plant-based protein products, Beyond Meat faces an increasingly uphill battle to reach the size it needs to match the cost efficiencies of larger competitors like these two established firms. 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 . Landing in Whole Foods which takes the brands it allows in its doors seriously was a signal to both consumers and retail customers that Beyond Meat was a brand worth giving a chance. The professors had been working on perfecting their formula for years, and the first Beyond Meat product launched in 2012 was their Chicken-Free Strips. The company's vision is for consumers to enjoy a meat-like taste and texture in their favourite dishes while avoiding the many chemicals used in processed meat and reducing the number of animals killed every year. Eat What You Love 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. The Motley Fool owns shares of and recommends Beyond Meat, Inc. Instead, they persevered. In2016 Whole Foods decided to give the company a chance by placing Beyond Meat in its meat section. Insider Trading and Short Interest Indicate Market Skepticism. But at this stage of Beyond Meat's growth, converting new customers remains the utmost priority. 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%. Prior to that Mr. Oghoghomeh served as Head of Recruitment Marketing - West Zone for Amazon, an eCommerce company from 2019 to 2021. Purchase Decision- When consumers are informed of the evaluation of options, information is readily available, and they have recognized a problem, it is so easy for consumers to make a newly informed decision. Stage of Market Lifestyle- The stage of the market lifestyle will influence the company on a few different categories. revenue grows 24% a year from 2023-2027 (continuation of 2023 consensus), then. Along with continued marketing investment, the plant-based company strikes partnerships with McDonald's and Yum! Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. The emphasis on the grocery channel will now almost certainly evolve into a long-term focal point for Beyond Meat. No more comparison with animal meat products: Beyond Meat has nothing more to prove, its products are famous, recognized as good for the palate and for our health. Figure 3: Operating Expense as % of Revenue: Beyond Meat vs. She has also held senior leadership roles across PepsiCo's North America business during her more than 15-year career at the food . 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. Figure 9 compares the firms implied future NOPAT in this scenario to its historical NOPAT. Resourceful, strategic, and self-directed leader with a proven record of achievement in global account management, business development and sales strategy leadership. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Clearly, vegan meat alternatives were no longer a fad. For non-personal use or to order multiple copies, please contact Figure 6: Beyond Meats Adjusted EBITDA Misleads on Profitability, BYND Adjusted EBITDA Misleads On Profitability, Doing the Math: Valuation Implies Significant Disruption of the Entire Meat Industry. Is It Time to Buy? This would be unreadable! Are they only for vegans? Their main rival is the company Impossible Foods. 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. Figures 10 and 11 show what I think Kraft Heinz should pay for Beyond Meat to ensure it does not destroy shareholder value. First, investors need to know that Beyond Meat has a large liability that makes it more expensive than the accounting numbers would initially suggest. A lot of people are trading so I know a lot of people are interested in the future of this company. So, when leaders take time and money to connect their employees sense of purpose to the firms organizational goals, it is the beginning of a virtuous circle, where employees tend to be happier and more productive, enabling better results for the company. See the math behind this reverse DCF scenario. Extensive background in CPG . It is better to create a plant-based meat product, not only because of meat expiration issues, but bacterial issues with animals, mad cow disease, and so many other factors that clearly make eating plants natural to humans and such a better option. Also, these meat products are offered by themselves at the grocery stores. For example. If yes (which is the most common case), you can sell them to way more people and have an even greater impact. Beyond Meat entered into a partnership with PepsiCo. our Subscriber Agreement and by copyright law. 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. They only get anxious when they realize that they havent eaten something theyve come to believe they need., Beyond Meat believes that protein is protein and consumers shouldnt care if it comes from a plant or an animal. Cost basis and return based on previous market day close. Sounds too good to be true, right? Dont become so attached to a product that you arent willing to see when it no longer serves you. Figure 4: Expenses as % of Revenue: Beyond Meat 2Q19 vs. 2Q20, BYND Operating Expense As Of Revenue 2Q19 Vs. 2Q20. 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. Per Figure 6, Beyond Meats TTM adjusted EBITDA of $45 million is well above core earnings of $4 million. As investorsfocus moreon fundamental research, research automation technology is needed to analyze all the critical financialdetails in financial filingsas shown in the Harvard Business School and MIT Sloan paper,Core Earnings: New Data and Evidence. The mission of the company is focused on plant-based meat alternatives, using pea and other plant protein isolates. Beyond Meat constantly reinvests their earnings in further research and development, as well as in marketing, and in scaling up production and distribution. Even with that success, Brown continues to think big . Furthermore, Don Lee alleged significant concerns about food safety protocols concerning the raw materials that Beyond Meat sent. Eating plants is the best thing you can do for your diet. If youre always innovating and looking towards the future, youll rarely be caught off guard. + Follow. This would, in turn, take BYNDs market cap to about $14 billion by 2023, from $9.6 billion currently. See all adjustments to Beyond Meats valuationhere. But how they handled it is what makes them a successful brand. However, we can define the general key aspects: Targeting meat-eaters as well, not only vegans/vegetarians, Identifying the collective reputation of plant-based products, and changing it, Relying on its reputation to appear on restaurant menus and get cheap advertising. Its stock value gained 163% on the day of its stock introduction. Strategic Windows- Beyond Meat knew that because of the health craze in the world and the expansion of knowledge surrounding healthy food has widened, that they have a short window to get in and get it done right when it comes to plant-based foods. Weve previously shown how linking executive compensation to faulty metrics such asadjusted EBITDAcan lead to the destruction of shareholder value. After adjusting for this liability, I can model multiple purchase price scenarios. Over the past two years, the firm has burned a cumulative $179 million (2% of market cap) in FCF. Expired Meat: https://youtu.be/ZxCT_D6HBd8, https://www.forbes.com/sites/greatspeculations/2020/09/14/competition-will-eat-beyond-meat-alive/#9d646992946b, https://www.cnbc.com/2019/08/21/whole-foods-ceo-john-mackey-plant-based-meat-not-good-for-your-health.html, https://www.cnbc.com/2020/09/14/beyond-meat-is-launching-meat-free-meatballs-in-grocery-stores.html, Female Entrepreneur. The following fund receives an unattractive rating and allocates significantly to BYND. Many people do not know that eating meat is not only eating meat, but eating the history in which the meat came from. 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. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. And the organization continues to spill a slight amount of red ink, generating a loss of $10.2 million over the last three months versus a loss of $9.4 million in the second quarter of 2019. In 2019, they partnered up with Dunkin Donuts to supply their Meatless Sausage for the breakfast chains sandwiches nationwide. Previously, people were limited to information they see on television which is in the best interests of companies that can afford those ad campaigns. For example, Tyson Food, one of the biggest and earliest investors in Beyond Meat, which had a 5% stake in 2016 exited in 2019. Lets take a look at data from Germany. strategy uncovers and shares the "bold vision, . Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as the restaurant segments of Beyond Meat, potentially taking the companys revenues to almost $1.1 billion by 2023. 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. Also, seeing that a lot of slaughter houses will absolutely not let anyone come see the inside conditions that animals are facing. There are limits on how much Kraft Heinz should pay for Beyond Meat to earn a proper return, given the NOPAT or free cash flows being acquired. Changes that have inspired the birth of Beyond Meat is the increased demand on plant-based products. Beyond Meat Announces New Executive Leadership Appointments to Accelerate and Support the Company's Vision for Strategic Growth. 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. 4. Eating meat has long been associated with masculinity. Measuring Brand Awareness As Told By Marketing Experts, journalists who actually tasted the chicken reported. Additionally, when their Chicken-Free Strips were finally taken off the market in 2019, they did so quietly. Low margins in an increasingly competitive industry leave Beyond Meat with less flexibility to compete on price or invest in marketing and R&D. 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 main difference is that Impossible Foods takes its proteins from soy whereas Beyond Meat extracts it from peas. Whos to say that its red meat? See Figure 8 for details. It may even get heavier as more people understand healthy food from non-healthy food. Heres a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. . When Beyond Meat was met with the failure of their Chicken-Free Strips their first real product they didnt fold. Marketing for meat is just showing the happy times with your family eating meat. This makes a lot of sense since only2.7%of packaged meat sales in the United States are plant based. Continue reading your article witha WSJ subscription, Already a member? Changes that have inspired the birth of Beyond Meat is the increased demand on plant-based products. The difference with other plant-based patties is that their name is a synonym of quality for their clients. These launches create a lot of buzz and put Beyond the Meat on the map. CEO and founder Ethan Brown understood that the target audience was not only vegetarians and vegans, but also flexitarians, or meat-eaters who occasionally want a healthier, high-quality option. If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox. 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. But consumers shop there because the low price points allow them to have a constant rotation of outfits. Case in point, revenue grew 239% YoY in 2019, 141% YoY in 1Q20, and 69% YoY in 2Q20. BYND entered into a partnership with Alibaba Group, whereby its products will be available in Freshippo stores (Alibabas supermarkets) in Shanghai. People tend to associate meat with strength, with muscles. According to the Partners In Leadership Happiness at Work survey, when employees are happier at work, 85% take more initiative. This copy is for your personal, non-commercial use only. In 2020, they even signed a deal to open another production facility in Shanghai! Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Since going public, four of its six quarters have shown improvement from. word of mouth. Each of the above scenarios also assumes Beyond Meat is able to grow revenue, NOPAT, and FCF without increasing working capital or fixed assets. For example, without any existing shelf space, and only recently announcing an e-commerce platform, Beyond Meat must spend more on not only convincing consumers to try their products, but also on retailers to display their products. However, by now its clear that plant-based meat alternatives are here to stay and theyre gaining traction every year. This new knowledge of healthy vs. unhealthy created a new market drive for healthy products. But for a young organization that wants to leapfrog rivals in gaining plant-based mindshare, the shift isn't illogical, and it may result in a durable competitive advantage. Though the firms revenue has improved from $298 million in 2019 to $401 million over the trailing-twelve-months, Beyond Meatscore earnings[1]have fallen from $6 million to $4 million over the same time. Below is a short list of some of Beyond Meats alternative meat competitors: This list is not exhaustive and doesnt include any of the traditional meat products that continue to garner a large share of consumer dollars. To make the world smarter, happier, and richer. last yearwhere it will: develop, produce and market snacks and beverages made from plant-based protein bringing together Beyond Meats innovation expertise with PepsiCos marketing and commercial capabilities. PepsiCo is known for its marketing prowess and just working with PepsiCo will expand Beyond Meats reach. Valuation: I made $757 million of adjustments with a net effect of decreasing shareholder value by $513 million. Furthermore, Beyond Meat has a history of significant free cash flow (FCF) burn that is unlikely to change anytime soon. Engineered plant-based burger patties from food, company Beyond Meat are visible on shelves among other meat alternatives at a grocery store in San Ramon, California, August 28, 2019. Weve tried to run straight at the question: is a plant-based meat sufficient for humans to be vital and robust,saysBrown. Stun is a creative branding agency. From the beginning Beyond Meat has viewed itself as a company that could take a typical meat eater and get them to consider a tasty alternative. Baseball player David Wright was the first celebrity to sign a contract with the brand. But thats what BYNDs investors are betting will not happen! Beyond Meat is a Los Angeles-based producer of plant-based meat substitutes, including vegan versions of burgers and sausages. Therefore, they have a lot of time and competitive advantage before others to create the most well-known category before all other competitors. the stock is worth just $30/share today - a 57% . The design softened. As in all markets, there are leaders. 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? They both rearrange proteins to create their plant-based products. This has come from the increased consumer-knowledge on healthy products, plant-based diets,. I also assume Beyond Meat achieves an 8% NOPAT margin, which equals the average of Beyond Meats and Kraft Heinzs TTM NOPAT margins. When the Chicken-Free Strips failed, it wasnt only about the taste something was just off. I believe this drive will continue and not stop. Each implied price is based on a goal ROIC assuming different levels of revenue growth. Beyond Meat also has big contracts with fast-food chains, as mentioned before, which is a distribution canal bringing lots of cash flow. We can perceive more confidence from the company, in line with its media and advertising strategy. Beyond Meat, which went public in the spring of 2019 and whose shares have fallen 16 percent this year, said it had completed a comprehensive greenhouse gas analysis that would be released in. You can see all the adjustments made to Beyond Meats income statementhere. Therefore, the future will be bright, but they need to continuously gain market share by introducing new products and innovation within the plant-based space. Making the world smarter, happier, and richer. 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. This article will take a deep dive into Beyond Meats journey to success and provide some tips other brands can use to fuel their own growth stories. 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. Sustainable Competitive Advantage- Beyond Meats formula for the perfect flavoring to taste just like a real burger. on July 4th, eating a hot dog with your family. But beneath these numbers, the dynamics of Beyond Meat's business model have been radically altered by its response to the COVID-19 pandemic. Investors are beginning to worry whether or not Beyond Meat will be able to sustain the $4 billion valuation in stock it currently has. Focus Strategy- Beyond Meats strategy was to focus on creating meat that isnt actually meat, but tastes just like the real thing to replace meat in peoples diets. Showing that meat is not necessary to enjoy the same flavors while reaping more plant-based benefits. With a sound marketing strategy, Beyond Meat may be able to make its product cool again. Beyond Meat stated that its mission is to push boundaries and disrupt. 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. Market Drivers- Market drives come from the availability of knowledge on healthy products vs. mass marketing for bad products. After all, the positive choices we make every day - no matter how small - can have a great impact on our world. However, the improvement in Beyond Meat's margins has been eye-popping. What can you learn from this? Evaluation of Options- Evaluating the options of Beyond Meat vs. regular meat. Expand the definition of your target market. Looking ahead to 2021, consensus earnings estimates are a much higher $0.47/share. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more.