Beyond Meat’s Delayed Chicken Launch Raises Growth Questions
(Bloomberg) -- This was supposed to be the year of the fake chicken.
The alt-meat wars began in earnest in 2016, when Impossible Foods Inc.’s burger landed in Momofuku Nishi in New York City and Beyond Meat Inc.’s burger hit dozens of Whole Foods meat departments a few months later. Impossible beat Beyond to a national fast-food launch, but Beyond beat Impossible to supermarket domination. As the two were battling it out, established manufacturers as well as a handful of new entrants jumped into the race—and beat both front runners to vegan chicken.
Kellogg Co., Conagra Brands Inc. and Maple Leaf Foods Inc. all released multiple chicken products before Beyond or Impossible launched a single one. By late April, Beyond was telling customers that its chicken would arrive this summer. But the eventual July 8 rollout was substantially smaller than previous Beyond launches and was limited to restaurants; supermarkets, where the bulk of the company’s U.S. sales are happening, would have to wait. (It did, however, manage to beat Impossible, which began rolling out its nuggets in early September.)
When Beyond Meat went public in May 2019, it held the most successful initial public offering since the 2008 financial crisis, catapulting the company, and the entire plant-based meat category, into investor portfolios. Two and a half years later, the company is still struggling to turn that buzz into products on the shelf, leaving Wall Street disappointed and some customers empty-handed as the competition closes in.
The relatively small chicken rollout is just one of a series of instances in which the company has been unable to satiate demand for its products. Insiders and onlookers alike lay substantial blame at the feet of founder and Chief Executive Officer Ethan Brown. He is frequently described as a visionary by both his supporters and his detractors, but some of those who have worked closely with him also say that he isn’t an effective manager of the day-to-day operations of a public company. In reporting this story, Bloomberg News had conversations with five former employees, all of whom left the company in the past year and asked not to be named discussing private company information. Unless otherwise noted, every description of internal business, conversations and culture at Beyond Meat in this story has been corroborated by at least three of these people, who were directly involved in the matters discussed.
Beyond Meat declined to make Brown available for an interview for this story.
As Brown successfully penetrated the mainstream food world, announcing expansions into more fast-food chains, more countries and, ultimately, more ways into consumer diets, he has also been Beyond’s outward face, an amiable, passionate advocate for his products, and an evangelist for the health benefits of plant-based eating. In 2018, A&W Food Services of Canada Inc. restaurants were selling out its Beyond Burger faster than stores could restock them; by April 2020, the company was announcing its arrival in China with a splashy Starbucks Inc. partnership. Earlier this year, even as the company reported disappointing earnings, it announced multiyear partnerships with two major fast-food companies, McDonald’s Corp. and Yum! Brands Inc.
Meanwhile, the company was experiencing an exodus in the C-suite. In 2021 alone, the company lost its chief financial officer, chief growth officer, chief operating officer, chief marketing officer and chief people officer through a mix of retirements and severance. Of the six executive officers listed in the company’s IPO registration statement, only one besides Brown remains in place, the company’s chief innovation officer. “Each of these departures was expected and amicable,” a Beyond spokesperson said of the C-suite exits, in an emailed statement.
“Just after the IPO, [investors] want to see stability, a determined strategy and that the company is executing it,” said Mary-Hunter McDonnell, an associate professor of management at the University of Pennsylvania’s Wharton School, in a conversation about Beyond Meat. “Market participants have some patience while you’re ironing out the kinks, but a lot of turnover indicates a lack of strategy.”
Investors are starting to notice. When Beyond released its third-quarter guidance in early August, the stock price quickly slumped on the lower-than-forecast numbers. Analysts had estimated $153 million in sales, but the company forecast a range of $120 million to $140 million. On Oct. 22, the company put out a press release with a Form 8-K explaining that revenue would fall short of that range, too — with a new estimate of $106 million.
The filing laid bare the reasons why: a drop in retail sales in Canada, a change in distributor that reduced a major customer’s expected orders, expansion slowdowns and delayed “shelf resets” due to the labor shortage, even “the loss of potable water for two weeks” at one of the company’s facilities and water damage to inventory at another from Tropical Storm Ida.
Other packaged-food companies have also experienced supply-chain challenges. But with at-home food spending that is 13% higher than in February 2020, companies such as Kellogg Co. and Kraft Heinz Co. have signaled plans to increase capacity to meet the higher demand, according to Bloomberg Intelligence. Both Kellogg and Kraft Heinz also beat estimates in the third quarter. After Beyond reported third-quarter earnings late on Nov. 10, its shares fell 13% the next day, the most in a year. That left the stock down about 35% for 2021, far below the 24% rise of the S&P 500 index.
Beyond shares fell as much as 3.8% during Wednesday’s trading session, following Bloomberg’s report.
Brittain Ladd, a global supply-chain and retail consultant who has worked with companies including Nestle SA, Amazon.com Inc. and Procter & Gamble Co., said the spectrum of problems points to a void in leadership. “The CEO is that individual who has to set the vision and make sure they have the right people and infrastructure to turn that vision into a reality,” Ladd said in a conversation about Beyond. “They don’t have the right talent in the company to design and implement an optimal supply chain.”
Game of Chicken
Brown founded Beyond Meat in 2009 with the then-fantastical idea of making meat without animals. His first product, chicken, was born out of a collaboration between the University of Missouri and the University of Maryland. But that product was eventually pulled, with the company saying the strips “weren’t delivering the same plant-based meat experience as some of our more popular products.”
Ever since, making a satisfactory and realistic faux “whole muscle” chicken for the masses has been just out of reach for the company. (The early Beyond Chicken was a whole-muscle product sold nationally, the Beyond Meat spokesperson said in the emailed statement.) To be convincing, a chicken product has to mimic the flavor as well as the fibrousness of the animal’s muscle. The alternative is to make a version of a chicken nugget — what those in the industry call “chop and form” — a technologically simpler ground product that is more similar to a sausage or burger than an actual filet of chicken breast.
In January 2020, when Beyond announced its second plant-based chicken nugget trial with Yum’s KFC, Brown marveled at the advances in the company’s whole-muscle chicken technology, compared with its first KFC test six months earlier, which was chop-and-form. “If you look at what we launched with in Atlanta versus what we’re doing today, we all agreed that we need to get that muscle-like structure,” Brown said in an interview at the time. “We could have done a formed product very easily,” but ultimately Beyond and the team at KFC wanted to be more ambitious. “Let’s make something that’s really, really a step above,” he said.
Beyond announced the expanded partnership with Yum earlier this year, but a national Beyond Fried Chicken rollout still hasn’t materialized. In July, when the company announced its latest product, the Beyond Chicken Tenders, it was chop-and-form instead of the whole-muscle style Brown had so enthusiastically tested with KFC. A tender, however, is meant to be a “chicken strip,” according to the National Chicken Council. At the time, the company said the ground product was “less expensive to make” and therefore more accessible to a broad market. “Across our products, we seek to match the animal protein equivalent, and nuggets and tenders are largely chopped and formed,” the company spokesperson said in the emailed statement.
When it came to distribution, the tenders first launched in fewer than 400 restaurants, paling in comparison with the more than 9,000 locations of Inspire Brands Inc.’s Dunkin’ that had sold Beyond’s sausage, or the more than 1,500 Denny’s Corp. restaurants that began listing the Beyond Burger nationally on menus in 2020. Over the course of the following weeks, the restaurant rollout would expand to include chicken products for some Panda Express locations and A&W in Canada. In late September, the company announced a small retail rollout coming in October, but even that is running late. One of the handful of U.S. grocers expecting to sell the Beyond Chicken Tenders was told to wait until late November. “We have been advised that we are expected for delivery to our stores and in-stock at the week of Nov. 22,” a spokesperson for Giant Food Stores told Bloomberg News in an email. The Beyond spokesperson didn’t comment on the late supermarket deliveries.
The slow, uneven launch was the result of significant internal problems around formulation — from confusion and misalignment to belated decision-making — leading to corresponding production delays, according to multiple former employees with knowledge of the matter. Questions arose about whether the chicken product should be raw, like the company’s beef and sausage offerings, or precooked, like similar chicken and alt-chicken products. Late in the process, the Beyond team landed on a cooked tender, more like competitors in alt- and real meat. In the emailed statement, the Beyond spokesperson said that was a decision made for safety reasons to avoid a consumer eating a raw or undercooked product. The spokesperson added, “We stand by this decision, even at the expense of timing.”
The late decision had a domino effect. “Essentially you have to create a whole other production line,” said Peter Golbitz, founder of Agromeris, a consultancy for food companies. After the processing of a raw product, it needs to be baked, fried or grilled, Golbitz explained, before it can be cooled again for packaging. For Beyond, which relies heavily on co-manufacturers, that means pushing back delivery dates to customers.
“We elected not to use an additional co-packer who had availability because they did not meet our high safety standards for production,” the Beyond spokesperson said. “This is not a question of internal problems with formulations or resulting production problems; rather, it is about ensuring we only deliver the best product expected by our customers.”
Ongoing Scaling Problems
But the chicken wasn’t an isolated issue for the company — commercialization is an ongoing challenge for Beyond, according to five former employees. Plant-based products typically are first made on a small scale as prototypes, then in pilot plants at a larger scale and, finally, in a commercialized setting to produce mass amounts—each step requiring different quantities, timing, machinery and cadence, Golbitz explained. Every time a change is made, adjustments at other levels could be necessary. Scaling up is an industrywide challenge also faced by players including Impossible and Oatly Group AB, though the former has partnered with global food producer OSI Group to overcome its production issues.
“The desired speed to market, the tight supply of some of the key ingredients, the continual tweaking of the current products to improve their taste or nutritional profile, the number of new products being developed and the increased competition for shelf space created by a continual flood of new companies entering the market” all exacerbate the industry’s scaling challenge, Golbitz said.
The Beyond spokesperson disputed the characterization of the company’s problems scaling products, saying that since March 2020, it has “commercialized and introduced more than a dozen retail and foodservice products in the U.S. and abroad.” The spokesperson listed the Chicken Tenders as an example.
Yet Brown discusses products with customers before scaling has been figured out, according to four people with knowledge of the matter. “Mr. Brown, at his discretion, does show foodservice customers prototypes to illustrate the art of the possible,” the spokesperson said.
Beyond’s chicken isn’t its only product to come out late or have short supply. The new version of the Beyond Burger announced to launch in “early 2021” didn’t hit shelves until May. More recently, Beyond Meat has been cutting orders of its bratwurst, Italian sausage and meatballs to retailers since mid-October, according to data from DecaData, which tracks retailer transactions with shoppers and manufacturers from over 1,000 stores in 16 states. The company has gone from filling 100% of these orders in September to an average seven-day fulfillment rate of 60% on Oct. 30.
“Ultimately, excess demand that cannot be satiated on time is a supply problem,” said Doug Edmonds, co-founder of DecaData. The company attributed these late-October order reductions to the severe-weather impact in early September that reduced its third-quarter earnings.
After Brown said in 2019 that Beyond planned to be “as aggressive as we can” in China, the company put out a press release in September 2020 saying full-scale production at its new China operations would begin in early 2021, calling the country “one of the most important markets in the world.” In August, Brown said the company was still “validating our extrusion capacity… [to] enable full end-to-end production.” Finally, in his Nov. 10 earnings call with investors, Brown said the company was now performing each step of manufacturing in China.
There are reasons why delays like these could be faultless — the pandemic, a clogged supply chain — but the company didn’t provide an explanation to Bloomberg News on the matter, beginning with inquiries in March. In the emailed statement on Nov. 12, the Beyond spokesperson said the delays have been “Covid-related.”
“It’s not good when you give expectations to investors and constantly have to push back without giving a clear reason why,” said Arun Sundaram, an analyst at CFRA.
Now that Beyond’s chicken has officially arrived, demand is uneven, with some customers unable to keep it in stock and others unable to sell what they expected.
Online vegan grocer Vejii Holdings Ltd. can’t keep the tenders in stock, said CEO Kory Zelickson, a result of “both high demand and low supply.”
At Epic Burger Inc. locations in the Chicago area, the initial high performance of the tenders hasn’t lasted. They were “exceeding expectations” in August, CEO David Grossman told Bloomberg, and the distributor had trouble keeping up with his orders. In early November, Grossman said the product was still selling, but he was “not seeing a lot of new customers,” which he attributed to a lack of promotion by the company.
“We just didn’t see the performance we thought we would,” Kevin Lindgren, director of merchandising at restaurant distributor Baldor Specialty Foods Inc., said of the tenders. “Maybe we weren’t gung-ho about promoting it because of the supply-chain issues we’ve had [with Beyond Meat] in the past.”
The Beyond spokesperson said the company saw “immediate high demand.”
Gaps in the C-Suite
During the course of reporting for this story, four former Beyond Meat executives sent positive statements about Brown to Bloomberg News.
Former Chief Financial Officer Mark Nelson, former Chief Growth Officer Chuck Muth and former Executive Chairman Seth Goldman, still a board member, all called Brown a visionary. Nelson called Brown a “strong and effective leader,” and Goldman said he has “complete confidence” in the CEO. Muth said that Beyond has challenges, like any fast-moving, innovative organization, but “I remain confident in Ethan’s visionary leadership and trust Beyond’s future remains very bright.” Former Chief People Officer Cari Soto said she was “grateful to Ethan for the opportunity to work with the tremendously talented leaders at Beyond Meat.”
However, multiple former employees who worked directly with Brown say that while he is a far-sighted leader with significant accomplishments, he lacks the experience to run the day-to-day operations of a fast-growing public company. As Beyond faced significant hurdles with production, pressure from Wall Street and a direct competitor gaining supermarket share, the company has developed an internal culture of blame, according to multiple former employees in different departments. Brown doesn’t want to hear differing opinions, they said. Muth, a company veteran, was most able to push back, according to two people with direct knowledge, but he left earlier this year in a planned, amicable departure.
“Mr. Brown’s unclouded vision, mission and dedication have enabled Beyond Meat to get to where it is today. No one is better equipped than Mr. Brown to continue leading our growth trajectory,” the Beyond spokesperson said in the emailed statement. “We have a culture of accountability to achieve results.”
Meanwhile, some of the talent Brown has recruited for his executive team lacks a food-focused background. Newly installed Chief Financial Officer Phil Hardin comes from Amazon, and Chief People Officer Margaret Trask is from the cosmetics industry. The recently departed operating chief, Sanjay Shah — who joined the company only after its IPO, in late 2019 — came from Amazon and Tesla Inc. Beyond expects to announce a new leadership hire next month with relevant experience, the company spokesperson said.
Each explanation given in the October filing for lost sales or production — delayed shelf resets at supermarkets, customers changing distributors, extreme weather — was either avoidable, had a solution or didn’t add up, said supply-chain expert Ladd. Shelf resets — the handful of times each year when supermarkets rearrange products and introduce new ones — aren’t being delayed by more than several weeks, and items are still in the store. Inventory can be moved if it’s vulnerable to weather, and outside vendors can bring in potable water.
“A person outside the company cannot possibly be in a position to know anything about the actual circumstances that we were facing or what may or may not have been possible,” the Beyond spokesperson said.
All in all, the Oct. 22 filing left investors confused, said Sundaram, the analyst at CFRA. “The fact that they issued that without having a call to give us more clarity, that left us with way more questions than answers,” he said. Still, analysts may be forgiving of Brown. “A lot is not his fault,” Sundaram said, noting the company has a new finance chief and a chief operating officer “who abruptly resigned,” and that could explain trouble forecasting.
“A lot of investors are just not completely sold on the growth trajectory of this relatively nascent industry, but the good news is that on the [third-quarter] earnings call, understandably Ethan Brown did his best to defend the company and assure analysts and investors that the long-term growth story is still there,” Sundaram added.
Others see the management turnover as indicating a more systemic leadership problem. “There are phases in organizational lives, and it’s oftentimes that the founding, innovative, new-idea group might not be ultimately the best group to take it forward, as the operation grows in size,” said Tim Baldwin, the Randall L. Tobias chair in leadership at Indiana University’s Kelley School of Business, in a conversation about Beyond. “On its face, with a successful company, it’s a flag.”
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