All Beyond Meat Does Is Win – For Now

(Bloomberg Opinion) -- Beyond Meat Inc. has been quite the star on Wall Street since its May initial public offering. Shares of the maker of plant-based burgers and sausages soared a whopping 163% on their first day of trading, and they’ve only rocketed higher since then, even topping $100.

The stock’s splashy debut landed not long after Burger King said it would soon add a plant-based Whopper to its national menu from another newcomer, Impossible Foods. And just like that, there was no buzzier topic in the food business than meat substitutes.

Beyond Meat reported earnings results Thursday afternoon, its first time doing so since its IPO, and the company continued to dazzle. Its revenue of $40.2 million slightly exceeded the preliminary estimates it had provided in an earlier securities filing, while its operating loss of $5.3 million wasn’t as steep as had been projected then. The shares jumped more than 20% in after-hours trading. 

There are good reasons for investors’ zeal; the movement toward healthier and more sustainable food, including meatless options, seems to be more than a fad. But some caution is warranted. Beyond Meat’s valuation has gotten unreasonably lofty, even if it is at the forefront of a dining preference that I believe represents major long-term cultural shift.

As of Thursday afternoon, before the earnings report pushed up Beyond Meat’s shares even further, the company’s market  was just shy of $6 billion. That meant, with a mere $88 million in revenue last year – yes, that’s million with an “m” – it was nipping at the heels of established poultry producer Pilgrim’s Pride Corp., which is d at about $6.6 billion and rings up $11 billion in annual sales. Beyond Meat did offer full-year guidance on Thursday of $210 million in revenue, a significant increase over its 2018 sales. Even so, Beyond Meat is in a different league valuation-wise from any major company in the packaged-food business.

I suppose you could justify that premium by saying the newcomer Beyond Meat is in a dramatically different position than those legacy package-food companies. Those guys, after all, have endured years of cost-cutting and are saddled with a suite of products that feel stuck in a different era (canned soup, anyone?). Beyond Meat gets to build its merchandise selection, supply chain, marketing, and vendor relationships from scratch for today’s business reality, and surely that could be helpful.

But the old-school players aren’t blind to the interest in this category. Nestle SA has already announced its plant-based Awesome Burger will debut in the U.S. later this year and Tyson Foods Inc. – a one-time investor in Beyond Meat – will roll out a plant-based product later this year. Bryan Spillane, an analyst at Bank of America, wrote in a research note that the extrusion process used to manufacture Beyond Meat products is fairly common in the making of other packaged foods. So it might not be that difficult for established players to catch up. Beyond Meat’s prospectus says, “We currently do not have sufficient capacity to meet our customers’ demands and to satisfy increased demand, we need to expand our operations, supply and manufacturing capabilities.”  What will happen once established, large-scale food manufacturers are there to step into the void?

Also, it’s important to keep in mind that Beyond Meat’s burgers aren’t exactly cheap. The Bank of America analysis found that the average retail price for Beyond Meat burgers is $12 per pound, compared to $4 per pound for regular beef patties. I’m sure that gap will narrow as it grows and economies of scale provide new efficiencies. But for now, that is a clear obstacle to growth. The promise of this new generation of plant-based meat products is that they will appeal not just to dedicated vegetarians, but also to omnivores, because they taste like real meat. It will be challenging to lure new customers to give this format a try at a premium price point.

That said, the enthusiasm for this category overall isn’t misplaced. Awareness is increasing of the environmental impact of the meat supply chain, and consumers generally continue to embrace plant-based products in pursuit of a healthier diet.

I can see how Beyond Meat’s tactic of trying to get its product into grocery-store meat cases – not freezer cases next to veggie burgers from Kellogg Co.’s Morningstar Farms or Kraft Heinz Co.’s Boca – might prove a breakthrough for reaching more shoppers. And we continue to see chain restaurants experimenting with plant-based protein offerings, a clear sign these items are being mainstreamed. In addition to the upcoming Burger King launch, Little Caesars is testing a pizza topped with Impossible Sausage. Tim Horton’s, the Canadian breakfast spot, is testing breakfast sandwiches that contain Beyond Meat products.

Beyond Meat is certainly in a rare corner of the packaged-food industry that looks primed for growth. But investors should want to see a longer trail of evidence that it can scale efficiently and ward off competitors before rewarding it with this kind of valuation.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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