Beyond Meat's IPO in May 2019 was one of the few that year that was so well received by investors. Share's in the plant-based meat alternative shot up more than than 800% in as little as 3 months following the listing as investors tagged it the next big thing.
Despite being one of the most successful public offerings of 2019, investors are placing increasingly bearish bets on the company which short sellers now accounting for more than a third of the total shares in circulation with analysts cautioning that the stocks share price is overheated.
Bulls argue that Beyond Meat is riding a wave of consumer enthusiasm over plant-based protein alternatives and is enjoying a first-mover advantage, a strong line-up of brand advocates, and a plethora of distribution deals that has seen it working with some of the biggest retailers and restaurants with it's burgers now available in Walmart, Wholefoods, Target, DelTaco, TGI Fridays and Lidl. More good news has come down the pipes of late with McDonald's saying it is testing a plant based burger and that Dunkin Donuts is rolling out the Beyond Sausage sandwich nationwide.
Bears argue that Beyond Meat's sky high valuation has shareholders betting on sentiment rather than cold hard fundamentals. Beyond Meat may have introduced plant-based meat alternatives to the masses but at the end of the day it's selling a commodity. And it's a commodity that can easily be copied. And economics 101 tells us that commodities that can be easily replicated compete on price. Therein lies the rub for Beyond Meat as it's trendy brand image and high price points will likely be eroded over time as new entrants and incumbent food producers with deep pockets and massive R&D teams enter the fray. The cost of Beyond meat's burger patty is anywhere between 2x to 4x the cost of real hamburgers and maybe 1.5 to 2x as expensive as other plant-based alternatives. That suggests there's lots of room for that gross margin to shrink!
Competition is also heating up in the sector and already you've got a whole host of new startups and global giants that want a piece of the action. Tyson foods - the largest meat producer in the US - is already developing it's own line of alternative meat products. In fact it was one of the earliest investors in Beyond Meat before it sold it's stake - (or should that be steak!). Given where the share price is today you can probably tell it made a lot of beef from that investment (pun very much intended!). Nestle - the largest food company in the world - is also entering the plant-based market as is JBS - the world's largest meat producer. There's even Impossible Burger that is selling plant-based burgers in more than 10,000 sites int he US including Burger King. Competition alone isn't necessarily the death knell for Beyond Meat but the fact they have bigger budgets, better distribution, deeper pockets, and more advanced R&D teams means there's most definitely cause for concern!
While Beyond Meat has the first-mover advantage, barriers to entry are very low and that applies both to food producers as well as the restaurant and food retailers themselves. A growing trend at the moment across fresh, grocery, ambient, and frozen food is for supermarket chains to release their own branded private label brands in an effort to improve margins at a time when consumer staples companies are struggling to make ends meet (or meat ;)). The truth of the matter is that I cannot actually remember any time in my life that I have gone to a supermarket and bought a name-brand sirloin steak! So why should it be any different for plant-based alternatives? When it comes down to brass taxes, it's inevitable that supermarkets and restaurants will roll out their own white label or self-branded alternatives as consumer demand ramps up and more suppliers step in to take some of those sales.
At Woozle Research, we don't rely on third-party news sources, management guidance, or sell side broker research. They tend to parrot the same party line and each relies on the other as a source of hard fact and evidence as to how the market is doing and how companies are performing. We instead prefer to get our insights directly from subject-matter experts who know best and first about the prospects for any product, sector, industry, or company. Today, Beyond Meat sells its products to around 28,000 retailers and 23,000 restaurants globally including some well known brand names.
Key to the companies future success is to understand a) how are end-user sales for plant-based alternatives trending? b) what is the pricing and discounting environment looking like for these products? and c) how is Beyond Meat's market share looking like? These are the questions that will decide whether or not investors can have the strength of conviction to hold BYND shares long or short in the face of media and investor scrutiny without doubting themselves. Woozle's channel check equity research coverage of Beyond Meat includes speaking to up to 50 food buyers and procurement managers at the largest US and European restaurant chains and food retailers to understand buying habits, pricing dynamics, promotional intensity, and market share trends to get an early read into how Beyond Meat is performing before the rest of the market does.
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