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But what if youre looking for a more balanced portfolio instead? So, what can you learn from Beyond Meat's marketing strategy? There are several lessons to be learned from Beyond Meats story. Beyond Meat will face difficulty maintaining an innovative edge over its peers, who already spend much more on research and development (R&D). This is, in fact, after BYND partnered with Starbucks, Yum Brands, and Sinodis. In order to increase its manufacturing capacity, in June 2018, Beyond Meat opened a second production facility in Columbia, Missouri and a third in El Segundo, California. Instead, they persevered. If Beyond Meat can improve its NOPAT margin to 5% (equal to Tysons TTM margin) and grow revenue at 61% in 2020, 55% in 2021, and 47% in 2022 (consensus estimates) and by 20% compounded annually thereafter, the stock has significant downside risk. Investors should note that maximizing customer acquisition through the retail channel will probably crimp the company's admirable growth rate, as future promotions and new iterations of discounted value packs will reduce the amount of recorded sales (net revenue), as we've discussed above. Without having that partnership in the beginning Beyond Meat may have floundered for many years trying to build a customer base on its own. Despite less transparency, I know that Beyond Meats executive compensation plan consists of a cash bonus, option grants, and restricted share units (RSUs). 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? See Figure 8 for details. 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. This does not boil down to just knowledge on slaughter houses, animal conditions, bacteria etc. The key variables are the weighted average cost of capital (WACC) and ROIC for assessing different hurdle rates for a deal to create value. And if youre looking to follow in this impressive brands footsteps, keep our above tips in mind and consider adding brand tracking software to your lineup because, without insight into how consumers feel about your brand, you wont know where to grow next. 2 1 Comment. But instead of doubling down and spending millions of dollars more to try and fix a product receiving a lukewarm response at best Beyond Meat chose to pivot. But consumers shop there because the low price points allow them to have a constant rotation of outfits. Especially when competitors will try to introduce products that may be better than the original. Beyond Meat is seeking a marketing, advertising, regulatory, and trademark attorney with 10-12 years of experience. 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. The redistribution of cash flow to its investors is a challenge. We are providing energy for the body and we can pull it from a lot of different places. It represents what we feel is the first product that mainstream omnivores are willing to seek out and put at the center of their plate.. Entrepreneur, retail expert, strategy consultant and author. The implied stock values in this scenario are significantly below Beyond Meats current price. 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. Time to Buy? 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. Beyond Meat was the first company to sell plant-based burgers in grocery stores meat sections. This would make growth in Beyond Meats stock price a real possibility in the next two years, taking its stock price to $200. This year also saw Beyond Meat break into the international market partnering with the likes of Tesco in the UK to A&W in Canada). According to the Partners In Leadership Happiness at Work survey, when employees are happier at work, 85% take more initiative. However, the fundamentals reveal this stock is more style than substance. Back in 1988 when John Mackey, co-founder of Whole Foodstried to get funding to expand his companyhe was rejected by many venture capitalists. This pivot on management's part is undergirded by a continuing commitment to building out manufacturing and distribution capacity -- even in the middle of a pandemic, Beyond Meat more than tripled its capital expenditures in the second quarter against the prior year, to $26 million. I also assume Beyond Meat achieves an 8% NOPAT margin, which equals the average of Beyond Meats and Kraft Heinzs TTM NOPAT margins. Even in the most optimistic of scenarios, Beyond Meat is worth less than its current share price. Over the past twelve months, insiders have purchased 700 thousand shares and sold 4 million shares for a net effect of 3.3 million shares sold. Beyond Meat has been working with them since February 2019. This has come from the increased consumer-knowledge on healthy products, plant-based diets,. The original packaging did not display vegetables, and the words meat and best in the products names were not chosen randomly. Considering our revenue projections of roughly $1.1 billion and 6% margins, almost $66 million in net income is possible by 2023. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. If Beyond Meat created the healthiest plant based products that dont taste very good then it wouldnt be in business very long. Baseball player David Wright was the first celebrity to sign a contract with the brand. 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.. Of course, this is wrong, and our body adapts to whatever we give it. 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. Even though the number of vegans and vegetarians was increasing in 2013 when the company launched its first products, the market for plant-based burgers was small: only 0.5% growth in this category. However, the poultry producer exited earlier this year . The difference with other plant-based patties is that their name is a synonym of quality for their clients. Figure 5: Beyond Meats Revenue & Core Earnings Since 2017. Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. The organizational goals have to be settled and explained. This would be unreadable! Critical Details Found in Financial Filings by My Firms Robo-Analyst Technology. Problem Recognition- Consumers did not know about the conditions of the animals that are actively being slaughtered to create meat. 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. After all, nothing could replace a real burger, could it? After much anticipation, Beyond Meat announced a three-year partnership with McDonalds in February 2021, under which BYND will be McDonalds preferred supplier for the patty in the McPlant, a new plant-based burger being tested in select McDonalds markets globally. Plus, they created a new category by being one of the first to do it and do it right. 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. 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. Figure 7: Current Valuation Implies Drastic Profit Growth. Figure 4: Expenses as % of Revenue: Beyond Meat 2Q19 vs. 2Q20, BYND Operating Expense As Of Revenue 2Q19 Vs. 2Q20. Whos to say that its red meat? 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. Production Supervisor - 2nd Shift. While vegans and vegetarians are less picky when it comes to whether or not meat substitutes really taste and feel like meat, regular meat-eaters are much more tricky to convince. Instead Beyond Meat fought for placement within the meat section of grocery stores. But at this stage of Beyond Meat's growth, converting new customers remains the utmost priority. However, this trend is expected to reverse in the short term and the company will once again get on its fast growth track and there are multiple trends that support this growth outlook. A new marketing strategy will play up the health and sustainability benefits of Beyond Meat, Brown said. illustration, packages of Beyond Meat "The Beyond Burger" sit in a refrigerator, June 13, 2019 in the Brooklyn borough of New York City. With a market cap of over $9.6 billion, the stock now trades a little over 17x projected 2021 revenues, despite the fact that 2020 was the toughest year for the company due to the pandemic and it also missed analysts expectations for Q1 2021. Lets have a look at their most serious competitor: Impossible Foods. They clearly prioritize innovation. 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. While the market hasnt liked this news, both the CEOs of Beyond Meat and McDonalds have stated that there isno changein the relationship between the two companies. As of December 31, 2020, Beyond Meat had products available at approximately 122,000 retail and foodservice outlets in over 80 countries worldwide. Beyond Meat ( NASDAQ: BYND) is streamlining its sales strategy, according to internal documents reviewed by the Wall Street Journal. Per Figure 6, Beyond Meats TTM adjusted EBITDA of $45 million is well above core earnings of $4 million. + Follow. They have sharply improved from -93.3% in 2016 to -4.2% in 2019. Well, when Beyond Meat chose to switch suppliers, they allegedly shared details of Don Lees manufacturing process which Don Lee saw as a breach of contract. However, the improvement in Beyond Meat's margins has been eye-popping. Various trademarks held by their owners. 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. Tackle stereotypes about who your customers should be. Our marketing speaks very much to the ability for the highest-performing people in our society to perform not just as good, but better as result of the consumption of plant-based meat, particularly, our plant-based meat.. Figure 11: Implied Acquisition Prices to Create Value. In 2020, they even signed a deal to open another production facility in Shanghai! Balance Sheet: I made $290 million of adjustments to calculate invested capital with a net decrease of $228 million. Why did it work for them? In this scenario, Beyond Meat grows revenue by 37% compounded annually (which results in NOPAT growing 42% compounded annually) for the next 12 years. For instance, over the TTM, ConAgra spent 15 times more on SG&A than Beyond Meat. Changes that have inspired the birth of Beyond Meat is the increased demand on plant-based products. Since its high-flying IPO at $46, this stock has soared to $135. Furthermore, Beyond Meat has a history of significant free cash flow (FCF) burn that is unlikely to change anytime soon. First, investors need to know that Beyond Meat has a large liability that makes it more expensive than the accounting numbers would initially suggest. This makes a lot of sense since only2.7%of packaged meat sales in the United States are plant based. 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 . 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. And while there are a few ways to do this, brand monitoring software is your best bet, as it allows you to track your chosen brand KPIs for the target audiences that matter. Per Figure 5, Beyond Meat saw significant improvement in profitability in 2018, but the improvement was short lived. 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. This Beyond Meat Burger in particular cooks like a burger and looks like one,saidJoe Wood, who was the mid-Atlantic meat coordinator for Whole Foods Market at the time. Opinions expressed by Forbes Contributors are their own. One of the ways it did this was by creating burgers that look like meat burgers down to the meat actually bleeding. With low margins and little control over the majority of distribution, I think shares can fall sharply from current levels. Beyond Meat and Impossible Foods have many common points. 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. 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). Beyond Meat had originally been sold in retail shops across the USA, then worldwide. With a sound marketing strategy, Beyond Meat may be able to make its product cool again. Research on Beyond Meat's Profitability Problems and Strategies. After tying up with Dunkin soon after its IPO, Beyond Meat entered China in 2020. How did Beyond Meat become the leader it is today? 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. Get the latest information and insights into the world of brand. If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox. Beyond Meat went from very dark and meat-like packagings to a fresher and smoother look. As of 2020, the Beyond Meat company sells: Cookout Classic (10 plant-based burgers). Do you like this content? Making the world smarter, happier, and richer. Beyond Meat's marketing strategy is to convert carnivores into occasional vegans. Beyond Meat was one of the most successful IPOs (Initial Public Offerings) of 2019. Placing its hamburgers and breakfast proteins in major quick-service restaurant chains was a logical approach to igniting brand awareness. 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. Gross profit was $122.3 million, or gross margin of 30.1% of net revenues; Adjusted gross profit was $133.7 million, or Adjusted gross margin of 32.9% of net revenues, reflecting exclusion of expenses attributable to COVID-19. When I use myreverse discounted cash flow (DCF) modelto analyze the expectations implied by the stock price, BYND appears significantly overvalued. The promises of Beyond Meats burgers: they produce 90% less greenhouse gas emissions and require 93% less land, 99% less water, and 46% less energy than a traditional beef patty. Beyond Meat, the company that is making eating plant-based protein mainstream continues to grow at a fast pace. Beyond Meats profitability ranks at the bottom of this peer group. Eating meat is associated with strength and power while a plant based diet is not, at least not for now. These sales represent 5% of shares outstanding. With a sound marketing strategy, Beyond Meat may be able to make its product cool again. Could they suit flexitarians, meat-eaters? One venture capitalist even told Mackeythis: you know, John, I see you have got a pretty good business here, but it looks to me I looked at all the stores like you are a just a bunch of hippies and you are just selling food to other hippies and I dont think that is a very big market. He passed on investing in Whole Foods and ten years later that very same venture capitalist told Mackey that not investing in Whole Foods was the worst decision he had ever made. 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. Sustainable Competitive Advantage- Beyond Meats formula for the perfect flavoring to taste just like a real burger. 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. 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. The emphasis on the grocery channel will now almost certainly evolve into a long-term focal point for Beyond Meat. To do so, employees need to very clearly understand the companys priority: is it safety, profits, brand fidelity? (Photo by Smith Collection/Gado/Getty Images), BYND Operating Expense As Of Revenue Beyond Meat, BYND Current Valuation Implies Massive Revenue, BYND Implied Acquisition Prices For Value Neutral, BYND Implied Acquisition Prices For Value, See the math behind this reverse DCF scenario, directly correlated with creating shareholder value, The lack of competitive advantages that nearly all competitors possess, Doing the math: stock price implies huge increase in revenue/profits, Incogmeato by Morningstar Farms, owned by Kellogg Co. (K), Simply Plant-Based Meatless Burger, a SYSCO Corp. (SYY) exclusive product, Simple Truth plant-based meat, owned by The Kroger Co. (KR), Sweet Earth Brand, owned by Nestle (NSRGY), Happy Little Plants, owned by Hormel (HRL), Lightlife Foods, owned by Maple Leaf Foods, Shelf space large amounts of space, which can be very difficult to acquire, especially from firms like Kroger who directly control shelf space allocation, Marketing and advertising capacity existing businesses generate lots of cash flow that enables these firms to spend much more on marketing and advertising than Beyond Meat, Strong brand decades-long relationships with consumers across multiple brands that engender the trust that enables quicker adoption of newer products, Valuation implies massive improvement in profitability with sustained revenue growth rates, Domini Sustainable Solutions Fund (LIFEX) 3.4% allocation and unattractive rating. The company launched the Impossible Burger in 2016. Brands. 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. 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. The alternative meat producer is reportedly focusing its retail . KFC and Beyond Meat are partnering with YouTube star and influencer Liza Koshy to help reveal the debut. However, Kelloggs appears it is ready to launch Incogmeato and recently partnered with Postmates to deliver free Incogmeato samples to residents of Denver and Dallas. Plant based burgers are not new but Beyond Meat has been able to capture more of the mainstream market. This competitive disadvantage only makes Beyond Meats path to sustainable profitability that much more difficult. And if this happens, you need to have others you can roll out. Clearly, vegan meat alternatives were no longer a fad. If youre always innovating and looking towards the future, youll rarely be caught off guard. Also, these meat products are offered by themselves at the grocery stores. There are countless advertisements with men barbequing burgers or hanging out with their friends as they bond over their favourite protein, read meat. Its stock value gained 163% on the day of its stock introduction. The number of shares sold short has increased by 10% since last month. Therefore, they have a lot of time and competitive advantage before others to create the most well-known category before all other competitors. In the first quarter of 2019, Beyond Meat's first as a public company, its gross profit was just 26.8% of net revenue. As Kroger invests further in its Simple Truth brand, wed expect the firm to allocate more shelf space to its own in-house brands, rather than a competitor such as Beyond Meat. 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 . Insider Trading and Short Interest Indicate Market Skepticism. The company has a culture of accountability among its employees: they are all responsible for driving up performances by making suggestions, pointing out what is not working. 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. This is very rare: imagine if menus displayed all the product brands they use to cook the dishes you eat. Additionally, the companys new partnerships will also drive impressive top line growth. 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. There are currently 7 million shares sold short, which equates to 9% of shares outstanding and just over one day to cover. Letting go of your vision and plans is hard, but if its the right thing to do, you have to be willing to pivot. Instead, due to theproliferation of noise traders, the focus tends toward technical trading tends while high-quality fundamental research is overlooked. Going forward, Beyond Meat will find it even more difficult to grow revenue and profits as competitors flood the market. The company's second-quarter 2020 earnings report, released Tuesday after the markets closed, revealed that it's still experiencing rampant growth. However, some investors have growing concerns about the companys ability to maintain these results. However, the lack of fervor for their first product did nothing to stop Beyond Meat from trudging forward. The superior scale of Beyond Meats peers will also challenge what the firm believes to be a critical competitive advantage its innovation.