Beyond Meat released its fiscal 2021 and fourth-quarter fiscal 2021 earnings at the end of March. The company's performance was underwhelming overall, with sales down 20% in the fourth quarter; this caused a negative market reaction, sending its shares plunging 15% in early trading the next day. Beyond Meat pointed out that the COVID-19 pandemic has severely hindered the company's food service business.
Here are some key figures for the three months ended December 2021, according to Beyond Meat's fiscal 2021 and fiscal 2021 fourth-quarter earnings reports: Net income of $100 million in the fourth quarter of 2021, down 1.2% year-over-year; Gross margin was 14.1%, reaching $14.2 million; fourth-quarter net loss was $80.4 million, or 79.8% of net income. Adjusted EBITDA for the quarter was negative $62.9 million, with U.S. retail food sales down 20% in the fourth quarter.
Judging from the performance for the whole year of last year, net income in fiscal year 2021 was US$465 million, a year-on-year increase of 14.2%; gross profit margin was 25.2%, reaching US$117 million; net loss was US$182.1 million, accounting for 39.2% of net income; adjusted EBITDA was negative $112.8 million. For investors who bought shares from the company's IPO in May 2019, Beyond Meat's performance has been pretty volatile over more than two years.
Food service problems
Foodservice has proven important for Beyond Meat to build awareness among consumers and increase sales. Over the past few years, the company has partnered with the likes of KFC, McDonald's and Starbucks, and has also launched Beyond Fried Chicken, McDonald's and Starbucks' plant-based burgers in China.
Foodservice is Beyond Meat's best sales channel when it comes to mobile products, and most foodservice sales come from fast food chains. The industry leader is McDonald's, which is testing its plant-based brand McPlant in partnership with Beyond Meat. Because McDonald's menus have been trimmed to simplify operations and reduce wait times amid a labor shortage caused by the pandemic, space on the menu is now at a premium. So, it stands to reason that the bar for adding something fancy to a fast-food chain's menu has been raised quite a bit.
If McDonald's rolls out plant-based burgers more broadly outside of the current test, that could change the situation for Beyond Meat today. However, indications from McDonald's initial testing of McPlant are not entirely optimistic. According to an analysis by BTIG Research & Strategy, McPlant's sales performance has been mediocre, franchisees do not see enough evidence to support a large-scale rollout in the near future, and the low-volume McPlant will slow down the service time of other orders. It’s believed that McDonald’s may still be testing and even offering McPlant in higher-income cities, as those markets seem more receptive to plant-based meat products, but for now it looks like a large-scale rollout is still some way off.
In light of this, retail is even more critical to Beyond Meat's future growth, as well as the long-term prospects of plant-based protein products, as it offers potential in terms of brand building and higher profit margins. Retail is important to any company that aspires to run a high-margin business. Unless you have brand power and consumer acceptance, there is little pricing power. While it may be easier for the foodservice industry to expand sales, it's always been a competitive space when it comes to pricing and profit margins. Also, fast food chains have no incentive to involve you unless you are a recognized and preferred brand.
Competition is growing
It is clear that Beyond Meat is trying to improve its retail business, especially through the different series of product lines. As it tries to secure and expand its share of the plant-based protein market, it faces increasing competition, and not just from old rival Impossible Foods.
Plant-based meat is already an increasingly crowded market, with private-label brands including many major food manufacturers competing on price, driving down profit margins across the category. If growth slows, and there are still more and more emerging brands springing up, and the category is suddenly crowded and has to compete on price, then there will be investor interest in the category as a whole. will be greatly reduced.
When Beyond Meat hit the market in 2019, it was one of the few major "players" in the plant-based meat space. Since then, the number of plant-based meat startups and producers has exploded. There is now a range of alternative protein products to contend with, and cell-cultured meat may be slowly approaching commercialization.
According to Agfunder's 2022 Agri-Food Tech Investment Report, VC investment in innovative food more than doubled year-over-year to $4.8 billion, mostly in alternative protein startups; strong. Impossible Foods, Nature's Fynd, and NotCo were the largest single-round beneficiaries, with more than $200 million each. Impossible Foods even closed a funding round of more than $500 million in 2021.
By comparison, Beyond Meat had only raised a total of $122 million in venture capital before its IPO, according to Crunchbase data.
Marketing spending inflates
More competition means spending more money in the "battle" of marketing, recruiting talent and gaining consumer awareness. For now, companies including Beyond Meat and Impossible Foods are fighting price wars as they try to defend market share through discounts and promotions. Beyond Meat's fiscal 2021 revenue was $465 million, up 14% year-over-year; this was helped by nearly $100 million in additional costs in sales, marketing, and general expenses, up 57% year-over-year.
The problem with Beyond Meat is that even as the popularity of plant-based protein and plant-based meat continues to climb and sales are on the rise, much of it will likely be carved up and absorbed by numerous competitors, meaning ballooning marketing spending could see not the end.
In the early days of the COVID-19 pandemic in 2020, the alternative protein space attracted undue attention and demand. At the time, consumers were stockpiling food due to the prevailing supply uncertainty; in addition, many meat processing plants had to be closed due to the impact of the pandemic, resulting in a temporary shortage of meat products.
Beyond Meat reported its highest-ever sales growth at the time, but it also attracted a number of players, including major food giants, into the space quickly. So, as the market gradually returns to normal from the pandemic, the supply of plant-based meat has multiplied, while prices will fall. For new players with deep pockets and established food manufacturers with deep pockets, it means deep discounts and fierce competition. This is both a short-term problem and a long-term problem that Beyond Meat has to face.
Where is the path to profitability?
Despite poor overall performance in 2021, Beyond Meat expects 2022 net income to be in the range of $560 million to $620 million, a year-over-year increase of 21% to 33%. This financial forecast is based on the assumption that the worst of the COVID-19 pandemic is behind us, and Beyond Meat should benefit from a rebound in demand from the foodservice industry. Before the Covid-19 outbreak, the company reported foodservice sales of $58 million in the fourth quarter of 2019, compared with just $36 million in the fourth quarter of 2021.
If all goes according to plan, Beyond Meat's expansion efforts in Europe and Asia Pacific, as well as further collaborations with other big brands, should also support revenue growth. But there are still question marks over Beyond Meat's prospects in the all-important retail space. In response, a new product recently developed by Beyond Meat, plant-based beef jerky, hit shelves last week. The new snack comes in three flavors and is primarily made with pea and mung bean protein. Beyond Meat aims to increase people's intake of plant-based protein around the world by creating new snack options, and opening up a snack front is likely to be a new bellwether for its future performance.
In this case, Beyond Meat management's 20% to 30% growth target didn't satisfy industry analysts and fell short of expectations. The food industry has realised that as younger generations become more aware of the side effects of climate change and livestock farming, the need for alternative proteins will persist. However, competition in this space is unlikely to abate anytime soon, and there will be many unknown effects.
On the other hand, Beyond Meat's fiscal 2021 report could impact the alternative protein industry in other ways, particularly the prospects for further large-scale IPOs. Impossible Foods has reportedly been planning to go public by the second quarter of this year, but given Beyond Meat's struggles, that could make Impossible Foods reconsider its IPO timeline.
Impossible Foods has raised more than $2 billion from private investors at a valuation of more than $5 billion and hopes to go public at a $10 billion valuation. But now that Beyond Meat's market cap is just $3 billion, the industry's prospects for an IPO in the near term don't seem promising.
