What happened to Beyond Meat?

Many things about 2019 were stupid, but in ways that seemed obvious to us at the time. WeWork’s IPO. BaFin’s short-selling ban. Facebook’s digital money. Green Book wins Oscar for best film. Abiy Ahmed wins the Nobel Peace Prize. Boris Johnson. Lex Greensill Baby Yoda Etc.

Beyond Meat is a standout in this field of stupidity. The shamburger company’s shares rose eight-fold in the first few weeks following its public listing in May 2019. Its market cap reached nearly $14bn. By the end that year, the stock was down by two thirds. And by 2022, it had fallen another four fifths. The stock last traded above its IPO price in august.

The simple answer to what went wrong was that people did not buy enough. In the floatation, it was expected that Beyond Meat would be free-cashflow negative by 2022 based on a compound annual growth rate of around 40%. The company instead reported a 10% drop in sales for the past year. This was after a growth of just 14 percent in 2021. inventory control had helped to make this possible.

It gets worse. In the fourth quarter 2022, sales were down 21 percent on a year-over-year basis. Cash burn is a major issue as growth has slowed. Jerky has flopped, frozen steak and poultry are still in the works. The management is targeting a breakeven quarter in this year, but will not discuss liquidity needs beyond 2023. It also wants to reduce retail prices and operating costs. According to the Bank of America forecasts, a cash injection will be needed either sooner or a little later.

It’s why short sellers, including Jim Chanos  have been spitballing about possible bankruptcy. This is why Jimchanos and are spouting about a possible bankruptcy. It is no surprise that the sellside has been averse to the stock, with only eight analysts recommending it in the last year. The Street’s prognosis is worse for only Upstart Holdings a smallcap alternative lending company.

What in the world did people see on the stock market in 2019? It was mostly a category mistake. This is what JPMorgan (one of three 24% in dollar terms during 2018, while displacing less than 1% of a theoretically much larger TAM. These charts come from a Berenberg note of 2019 vintage:

And. . . nope. It turns out that doesn’t want cows milk. The mass market demand to feed the body and mind by impersonating animals didn’t come.

The late pandemic inflation brought the issue to light, as Beyond Meat, in theory is a luxury product. This brand is over-indexed in households with high incomes, which should care less about the price premium of Beyond Meat compared to real meat when budgeting. Numerator’s Insights data shows that it is this high-income group who has been abandoning Beyond Burgers. The demand amongst less wealthy households is stable, but at a low level. This could be because their spending decisions are more flexible due to ethical or health concerns. This means that the market is much smaller than previously thought.

The other major problem with fake meat compared to milk is its accessibility. Shortly, consumers will be more willing to try a replacement if it is presented as an upgrade to their Big Mac rather than a cost-effective downgrade. Barclays recently sent out a note:

In the US, the average price difference between plant-based and animal meats is 67 percent, while the plant-based milk sold at 87 percent more than normal milk. The price difference between plant-based meat and animal meat is 67 per cent, while the price of plant-based milk is 87 per cent higher than normal milk.

The food service channel offers more opportunities for consumers to purchase and experiment with plant-based products. They can also do so at a cheaper price. This is the “coffee-hamburger” model, in which the average price of coffee is lower than the cost of a hamburger in the out of home channel. The relative cost to consumers of switching to plant-based milk is higher.

Thanks to clever marketing, non-dairy milk substitutes now account for 15 percent of the US retail market. Non-meat meat, on the other hand, is still searching for a way to appeal omnivores. . .

Even if you go by surveys, the disintermediation of a cow isn’t important. . .

While approximately one-quarter of consumers claim that they wish to reduce their meat consumption (“flexitarians”, as industry lingo goes), the great faux-flesh substitute is not yet being used at scale.

The only companies that can make money from the non-dairy category are those who sell it.

While meatless meat specialists like Ontario’s Maple Leaf Foods are too small to be included in the charts above, they have written down their plant protein business in November by $191mn.

What does this mean for Beyond Meat? According to its results for 2022, it has $1.1bn of debt and slightly over $300mn cash. Long-term, lab grown flesh could threaten the little market share that it currently has. JPMorgan says that in the short term, its survival depends on its ability to stop its sales declines through grocery store promotions and discounts. However, this strategy may backfire due to its core customers’ zealous nature.

It’s not because CSD (carbonated soft drinks) and tobacco companies are trying to save money, but rather because they know that their loyal customers will pay. [Beyond Meat] claims that lower prices can increase volumes and improve operating leverage. However, it is better to save one dollar on price rather than gain one dollar in volume because price goes 100 percent to gross profit, while volume has variable costs.

Wouldn’t this be as obvious as it is now in 2023? The problem was misdiagnosed, but it’s possible. The initial coverage of Beyond Meat focused on the low entry barriers, and not chimeric demand. A spike in the share price forced out short sellers. Lockups on nearly 80 percent of the stock held by early investors and management expired.