To make the world smarter, happier, and richer. The superior scale of Beyond Meats peers will also challenge what the firm believes to be a critical competitive advantage its innovation. In 2020, they even signed a deal to open another production facility in Shanghai! Beyond Meat, the company that is making eating plant-based protein mainstream continues to grow at a fast pace. Now, lets proudly assume what they are: a plant-based burger, extracting plant proteins to make a tasty and healthy burger. 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. The original packaging did not display vegetables, and the words meat and best in the products names were not chosen randomly. Various trademarks held by their owners. Beyond Meat might be the pioneer in this segment, but now it faces fierce competition. Things Are Only Getting Worse for Beyond Meat Stock. Beyond Meat is seeking a marketing, advertising, regulatory, and trademark attorney with 10-12 years of experience. The paper empirically shows that my firms data is superior to Operating Income After Depreciation and Income Before Special Items from Compustat, owned by S&P Global (SPGI). 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%. The company's second-quarter 2020 earnings report, released Tuesday after the markets closed, revealed that it's still experiencing rampant growth. A year ago, the consumer discretionary upstart's top line reflected the depth of its marketing and supply chain investment in the restaurant business: These sales were nearly identical to their retail counterpart: Source: Beyond Meat. People are able to do extensive research on problems after recognizing that there is an issue. The difference with other plant-based patties is that their name is a synonym of quality for their clients. 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. 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. Despite less transparency, I know that Beyond Meats executive compensation plan consists of a cash bonus, option grants, and restricted share units (RSUs). Links: https://zaap.bio/lillytalavera. 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. KFC and Beyond Meat are partnering with YouTube star and influencer Liza Koshy to help reveal the debut. Its difficult to imagine the product or service that got your brand on the map might not be the one that helps you achieve further growth. Without having that partnership in the beginning Beyond Meat may have floundered for many years trying to build a customer base on its own. Problem Recognition- Consumers did not know about the conditions of the animals that are actively being slaughtered to create meat. Acquisitions completed at these prices would be truly accretive to Kraft Heinzs shareholders. Eat What You Love When I use myreverse discounted cash flow (DCF) modelto analyze the expectations implied by the stock price, BYND appears significantly overvalued. Instead, it avoids labelling its products as vegan even though they are. 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. Theres no actual blood,instead beet juice isused but it does the trick. However, by now its clear that plant-based meat alternatives are here to stay and theyre gaining traction every year. How did Beyond Meat become the leader it is today? Ads like this are created to convert the masses instead of targeting a niche market. The founder, Ethan Brown, said in June that the companys objective is to make plant-based meat cheaper than animal protein. Management's flexibility and willingness to alter the company's go-to-market strategy during the era of COVID-19 has the potential to pay off handsomely over a multiyear horizon. But beneath these numbers, the dynamics of Beyond Meat's business model have been radically altered by its response to the COVID-19 pandemic. Beyond Meats success comes partially from the fact that it has been able to evolve alongside or prior to consumer demand. This would, in turn, take BYNDs market cap to about $14 billion by 2023, from $9.6 billion currently. Clearly, vegan meat alternatives were no longer a fad. For this analysis, I choseKraft Heinz as a potential acquirer of Beyond Meat since it doesnt have a pea-protein based product like Beyond Meats and has a history of acquisitions. In 2019, they partnered up with Dunkin Donuts to supply their Meatless Sausage for the breakfast chains sandwiches nationwide. Beyond Meat was one of the most successful IPOs (Initial Public Offerings) of 2019. What is Beyond Meats marketing strategy? Heres a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Plant based options are the obvious choice. Beyond Meats case also shows that a marketing strategy is not fixed: it has to evolve along with the companys positioning. 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. Beyond Meats real breakthrough is not landing in the meat aisle or having celebrity endorsements but creating a plant based product people actually want to eat. 8 Facts About Pelotons Marketing Strategy You Need to Know, Dirty Lemons Marketing & Growth Strategy, How it Became a Success, Crocs Marketing Strategy. Beyond Meats massive revenue growth cannot last forever. What can you learn from this? Inside Beyond Meat's lab, where the company transforms plants into faux meat with microscopic analysis and robot mouths. It may even get heavier as more people understand healthy food from non-healthy food. What can you learn from this? However, one of the biggest deal breakers for potential. They both rearrange proteins to create their plant-based products. The redistribution of cash flow to its investors is a challenge. Should Kellogg continue to push the marketing of Incogmeato and swiftly gain customers, investors may kiss the ultra-high expectations baked into BYND goodbye. Beyond Meat just IPOd last year, it is very interesting to me to see that it is a 9.30B company as of today. Dont be afraid to really study the competition and pay attention to all the little details that have made them successful. For example, Kelloggs delayed the launch of itsfirst roundof Incogmeato products due to the COVID-19 pandemic. In any case, I view recent moves as encouraging as Beyond makes moves to improve its footing to grow as a . Beyond Meat Is Down 93% From Its High. 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. The companys marketing strategy is multiple layers one and has evolved over time, to keep up with the market trend. While consumer interest in protecting the environment or having a healthier lifestyle continues to grow it doesnt always mean consumption follows. This year also saw Beyond Meat join forces with Mcdonalds to develop their McPlant option. These expenses, and the need to maintain them to support Beyond Meats already declining growth, illustrate that the firm is not approaching economies of scale anytime soon. With a sound marketing strategy, Beyond Meat may be able to make its product cool again. 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. The Motley Fool owns shares of and recommends Beyond Meat, Inc. Brands. Plant-based foods are more than a fad, they are a huge economic trend. This all ended with Beyond Meats new look. Your brand, too, needs the liberty to change. 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. Beyond Meat's marketing strategy is to convert carnivores into occasional vegans. 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. Resourceful, strategic, and self-directed leader with a proven record of achievement in global account management, business development and sales strategy leadership. Over the past two years, the firm has burned a cumulative $179 million (2% of market cap) in FCF. One of the ways it did this was by creating burgers that look like meat burgers down to the meat actually bleeding. From the Beyond Burger to Beyond Sausage, and their latest Beyond Meatballs this brand is really on a roll. This created a need for plant-based foods to replace the broken system of meats. 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. Nope, its just Beyond Meat. Some of the largest consumer food brands have followed suit. 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. One of the most important pieces of furniture we own. Plant-based meat alternatives are on the rise and not just with vegans. For comparison, this scenario implies Beyond Meat would generate more sales than incumbent competitors such as Pilgrims Pride (PPC), ConAgra Foods (CAG), and Hormel Foods (HRL) in their last fiscal years. 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. Instead, due to theproliferation of noise traders, the focus tends toward technical trading tends while high-quality fundamental research is overlooked. Previously, people were limited to information they see on television which is in the best interests of companies that can afford those ad campaigns. .css-16c7pto-SnippetSignInLink{-webkit-text-decoration:underline;text-decoration:underline;cursor:pointer;}Sign In, Copyright 2023 Dow Jones & Company, Inc. All Rights Reserved, adidas Promo Code - $30 Off 1000s of Best-Sellers + Free Shipping, 60% off running shoes and apparel at Nike without a promo code, Michael Kors promo code First Order: sign up for KORSVIP + Get 10% off. 2023 Latana GmbH. Our goal is to give you the key to understanding Beyond Meats rapid success, to show you the hidden reasons for their success. Research on Beyond Meat's Profitability Problems and Strategies. Success of any of Beyond Meats competitors could also further threaten future profit growth for Beyond Meat. 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 . 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. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Among the items Beyond Meat excludes when calculating its adjusted EBITDA are equity-based compensation, restructuring expenses, and a vague line item labeled other. This is very rare: imagine if menus displayed all the product brands they use to cook the dishes you eat. The emphasis on the grocery channel will now almost certainly evolve into a long-term focal point for Beyond Meat. 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. Since going public in early May, Beyond Meat's stock has soared more than 450 percent and its market value is over $8 billion. revenue grows at consensus rates in 2021, 2022, and 2023, and. Nowadays, certain celebrities do more than advertise for the brand, some have become ambassadors for Beyond Meat, such as Byrie Irving, from the Boston Celtics. . For non-personal use or to order multiple copies, please contact 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. The implied stock values in this scenario are significantly below Beyond Meats current price. Instead Beyond Meat fought for placement within the meat section of grocery stores. This scenario represents the minimum level of performance required not to destroy value. Fourth Quarter 2021. This new knowledge of healthy vs. unhealthy created a new market drive for healthy products. For reference, Beyond Meats invested capital has increased by an average of $84 million (28% of 2019 revenue) over the past two years. First of all, think of the big picture when it comes to segmentation: who will really buy your products? Furthermore, Don Lee alleged significant concerns about food safety protocols concerning the raw materials that Beyond Meat sent. Founder and Tech Inventor at Princess Technologies. Also, these meat products are offered by themselves at the grocery stores. The plant-based food market will grow bigger and bigger every year. This is not by accident but instead by design. What are your predictions for the future of this company? 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. Plant based meats are not filled with dead animals which include bacteria growth and can contain other substances such as feces. 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. At the end of 2Q20, Beyond Meat had $222 million of cash and cash equivalents on its balance sheet. Cost basis and return based on previous market day close. 2019: A Change In the Branding Strategy With the Arrival of Stun. Could they suit flexitarians, meat-eaters? The key variables are the weighted average cost of capital (WACC) and ROIC for assessing different hurdle rates for a deal to create value. Heres a post fromBeyond Meats Facebook page: There is no mention at all that the Even-Better Beyond Burger is plant based. Asit Sharma has no position in any of the stocks mentioned. Each of the above scenarios also assumes Beyond Meat is able to grow revenue, NOPAT, and FCF without increasing working capital or fixed assets. After all, the positive choices we make every day - no matter how small - can have a great impact on our world. By paying attention to all the details of a real burger the taste, texture, smell, feel, and consistency Beyond Meat has been able to break into a target audience that had yet to be cracked: mainstream consumers interested in healthier forms of meat. Creating effective ad campaigns is every marketers struggle but thats where customer data comes in. From the beginning Beyond Meat had a vision for its business that was much broader than any of its predecessors. Learn More. In this scenario, Beyond Meat grows revenue by 37% compounded annually (which results in NOPAT growing 42% compounded annually) for the next 12 years. Opinions expressed by Forbes Contributors are their own. Beyond Meat has been working with them since February 2019. A lot of people are trading so I know a lot of people are interested in the future of this company. Probably not, considering that revenues are likely to grow almost 2.7x by 2023, with net income turning positive in 2022 and growing steadily thereafter, generating continued returns for shareholders. The first six months of 2020 have visibly transformed Beyond Meat's(BYND 5.83%) approach to marketing its plant-based, meat substitute products. Create a great product. These launches create a lot of buzz and put Beyond the Meat on the map. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Why? But keep in mind to do this, youll need data on how consumers are responding to your competitors. Case in point, revenue grew 239% YoY in 2019, 141% YoY in 1Q20, and 69% YoY in 2Q20. Moreover, the existing plant-based burgers had a disastrous reputation, they were ironically said to have as much flavor as the box they were in. Beyond Meat had to position itself as different from them as possible. Many people do not know that eating meat is not only eating meat, but eating the history in which the meat came from. Beyond Meat was the first company to sell plant-based burgers in grocery stores meat sections. 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. Also, because of technology, people are becoming more and more informed about problems with big brands and the cancerous chemicals used in products for decades. 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. Per Figure 4, Beyond Meats operating expenses as a percent of revenue have actually increased over the past twelve months from 97% in 2Q19 to 107% in 2Q20. Impossible Foods sells slightly different products: Impossible Burger, Impossible Pork, Impossible Sausage. Looking ahead to 2021, consensus earnings estimates are a much higher $0.47/share. Beyond Meat stock has staged a dramatic recovery in January, rising by more than 50% since the end of last year. What can you learn from this? Figure 8: Current Valuation Implies Massive Revenue Growth, Significant Downside in a More Realistic Scenario. Over the TTM period, FCF is -$164 million. For example, Kelloggs delayed the launch of its first round of Incogmeato products due to the COVID-19 pandemic. Their main rival is the company Impossible Foods. Even with that success, Brown continues to think big . Plant based burgers are not new but Beyond Meat has been able to capture more of the . However, the improvement in Beyond Meat's margins has been eye-popping. 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. 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. 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. 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. Full Year 2020 Financial Highlights1. In 2014 they developed their first simulated beef product and expanded their presence from 1,500 to 6,000 stores in the US. According to the company, this package of 10 plant-based patties reduces the price of its burgers from nearly twice that of conventional burgers to a 20% premium. Data by YCharts Kellogg ( K ) and Conagra ( CAG ) are already big established brands, that . Baseball player David Wright was the first celebrity to sign a contract with the brand. Rising beef prices, coupled with the overwhelming at-home food consumption trend, present an unforeseen opportunity for the company to entice new customers by doubling down on grocery sales. As in all markets, there are leaders. This indicates an extremely successful uptake by consumers. Plus, they created a new category by being one of the first to do it and do it right. Figure 9: BYND Has Large Downside Risk: DCF Valuation Scenario. The ideal candidate must have substantial knowledge and experience in counseling on marketing and advertising matters for food and/or beverage companies, including review of packaging, labeling, and promotional . See the math behind this reverse DCF scenario. You can find Beyond Meat in many places from small restaurants to national chains but what really accelerated its growth in the beginning was its partnership with Whole Foods. I conservatively assume that Kraft Heinz can grow Beyond Meats revenue and NOPAT without spending any working capital or fixed assets beyond the original purchase price. I assume revenue grows 47% in years four and five, the same as year three. Why did it work for them? 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. Over 2Q20, Beyond Meat removed $1.5 million (1% of revenue) in other expenses when calculating adjusted EBITDA. With the high expectations of consumers and the competition they were about to create, knowing that they got in during the right time when consumers would take it as a positive and embrace this new way to eating meat, or meat substitute.. However, the poultry producer exited earlier this year . Many undercover operations are conducted to get footage and investigate what is really going on inside the slaughter houses. 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 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". Furthermore, Beyond Meat has a history of significant free cash flow (FCF) burn that is unlikely to change anytime soon. A staff member at Business Insider that cooked and reviewed a Beyond Meat burger at homesaidthis about it: overall, it was tasty and juicy, unlike most veggie burgers which can often taste closer to cardboard than beef. Marketing is always easier when you have a great product because you dont have to try quite as hard to get people to try it as consumption spreads more organically over time via. Additionally, the companys new partnerships will also drive impressive top line growth. the stock is worth just $30/share today - a 57% . Are they only for vegans? Its an era of growth for the still young start-up. 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. [1]My firms core earnings are a superior measure of profits, as demonstrated inCore Earnings: New Data & Evidencea paper by professors at Harvard Business School (HBS) & MIT Sloan. They did not service the vegan and vegetarian markets as traditional players did. Learn how you can use Latana to improve your brand marketing and grow faster. A lot of that clothing ends up in landfills which proves that the product often matters more than the social cause a customer is interested in. Fiduciaries should avoid Beyond Meat Inc. (BYND). 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. Additionally, when their Chicken-Free Strips were finally taken off the market in 2019, they did so quietly. 2 1 Comment. 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. These sales represent 5% of shares outstanding. 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. The mission of the company is focused on plant-based meat alternatives, using pea and other plant protein isolates. Below are specifics on the adjustments I make based on Robo-Analyst findings in Beyond Meats 10-Q and 10-K: Income Statement: I made $33 million of adjustments, with a net effect of removing $21 million innon-operating income(5% of revenue). Measuring Brand Awareness As Told By Marketing Experts, journalists who actually tasted the chicken reported.