This article was originally published on 5/3/2021 here: https://www.kennedypinecapital.com/post/how-beyond-meat-sets-itself-apart
Plant-based proteins have come a long way in terms of quality, texture, and flavor, to establish themselves as legitimate alternatives to traditional meat protein. Beyond Meat is uniquely positioned to push the alternative meat industry forward and benefit from its subsequent growth through advantages in brand recognition, research and operations, and scale relative to other plant-based businesses. Capturing the immense growth opportunity facing Beyond Meat won’t be easy; they face competition from not only other plant-based companies like Impossible Foods, but also meat industry players like Tyson.
Two names stand out above the rest when it comes to realistic alternative meat offerings: Beyond Meat and Impossible Foods. Both companies share the similar goal of creating products that have positive impacts on health and the environment. Although they both make alternative meat products, the ingredients and processes they use to develop their plant-based offerings are very different. Impossible Foods’ key ingredient, as well as its most controversial, is heme. Heme, which is what makes Impossible Foods’ burger patties bleed like a real beef patty, comes from genetically modified yeast in combination with DNA extract from soy plants. While many credit the protein with giving Impossible Foods’ burger it’s signature ‘umami’ flavor, it has also faced backlash due to its use of Genetically Modified Organisms (GMOs), reliance on soy (4), and testing concerns. This could prove to be unpopular as consumers have become more health conscious as a result of the COVID-19 pandemic, giving Beyond Meat the advantage in that their products are non-GMO and based on pea and mung bean.
Beyond Meat also has an advantage over Impossible Foods when it comes to retail penetration and partnerships. Some of the strongest names in retail and foodservice carry Beyond Meat’s products, including Walmart, Target, Whole Foods, McDonald’s, Starbucks, and Yum! Brands among others. In their most recent investor presentation, the company paraded that 28,000 US retail distributors, 42,000 US foodservice outlets, and 52,000 international retail and foodservice providers carry Beyond Meat products. On the other hand, Impossible Foods has solid partnerships with brands like Burger King, Qdoba, and Kroger’s, but their products are sold mostly in major cities since their expansion plans have not been executed or funded as comprehensively as Beyond Meat’s.
The biggest names in the $1.4T global meat industry have had to accelerate the production and rollout of their own alternative meat offerings since these plant-based disruptors have effectively shifted the industry landscape. Traditional companies in the meat industry, like Tyson, see “…this move as more of a growth opportunity than a pivot away from its traditional meat offerings.” (1). They have the operational scale and distribution channels to compete with Beyond Meat but lack the focus and progress on research and production that Beyond Meat enjoys. This is supplemented by the success and quality of Beyond Meat’s latest iteration of their burger patty, the Beyond Burger 3.0, and their expansion into Europe and Asia through new production facilities in the Netherlands and China.
Fortunately for Beyond Meat, they have the financials to take full advantage of the market opportunity in front of them. The company is projected to generate $583M and $892M in revenues for the next two years, reflective of the high growth expectations for the alternative meat industry. The company ended their most recent quarter with a $159M cash balance, allowing Beyond Meat to continue their capital expenditure strategy by investing in new production facilities to enhance their operational scale and break into new regional markets. While interest rates remain low, the company should take advantage of low borrowing costs to finance their growth strategy. Debt financing is especially important given the persistent dialogue surrounding inflation recently. This is because when inflation rises, borrowers gain an advantage to lenders since future obligations would be paid with a less valuable currency in real terms.
Beyond Meat will likely focus on investments in Asia, who CFO Mark Nelson has previously said “…has a desperate need for this [Beyond Meat’s products]” (2). Their investments in China coincide with the country’s rising middle class, within which beef is becoming a staple. Another interesting region the company is exploring possible opportunities is in India. Not only is India the second most populous nation (China being first), but it is also recognized as one of the largest vegetarian populations in the world. This represents a huge opportunity for Beyond Meat, who is capitalizing on it by launching their Beyond Burgers and Beyond Sausages in the country on April 13 (3). This aggressive expansion strategy will pay off as the Beyond brand establishes itself as the biggest and most widely recognized name in the global alternative meat industry.
The long-term bull case for Beyond Meat is clear. The company is taking all the right steps to maintain and grow the lead they have built within what was once considered a ‘niche’ market in alternative meats. We can expect to see short term price fluctuations in the company’s stock as they continue to make necessary investments in growth. In the long term however, the company’s increasing scale will allow it to benefit from wider profit margins, potentially leading to rapid capital appreciation in BYND stock.
References
(4) https://www.health.harvard.edu/staying-healthy/confused-about-eating-soy
ASVP Capital Insights 