Beyond Meat: Competition Intensifies

Summary

• McDonald's expands Nestlé partnership.
• Conagra emphasizes its alternative meat brand Gardein and launches new product formulations and packaging.
• Before the Butcher is bought by large private food company, intends on becoming a big player in the alternative meat market.
• I summarize the full competitive landscape.

As I presented in some detail in my original Beyond Meat (NASDAQ:BYND) article, I believe that the company's recent share price spike will be short lived, as the market begins to appreciate the depth and breadth of the competition BYND faces. This competition will manifest itself in battles for grocery shelf space (where large companies have advantages due to existing customer relationships) and in restaurant adoption; which in turn will result in pressures on unit growth and pricing -- ultimately impacting BYND's revenue growth rates and profitability.

And while I was very bearish when I wrote my initial article, even I have been surprised at the breath-taking pace at which competition has been emerging and ratcheting up in the past several weeks. In this article I highlight many of the new competitive threats. Then I step back and present a comprehensive summary table of competitors which can serve as valuable comparative "crib sheets" for investors interested in the space.

Beyond Adds Some Accounts

Not to bury the lede, but before turning to the competition, let's begin by noting that BYND landed two new restaurant accounts over the past week: Chanticleer Holdings (BURG) and Famous Dave's (DAVE). The former has 45 locations the latter has 136.

BURG's is a full rollout starting on July 1st, while DAVE's is only a test run to begin with:

Famous Dave's is pleased to announce a partnership with Beyond Meat and will be launching a test of plant-based protein menu items in mid-August. The test will roll out initially in five locations, four throughout Colorado and one in Minneapolis, MN.

[...]

This collaboration between Famous Dave's and Beyond Meat marks a milestone for the restaurant as the first time that they have tested plant-based protein options. The test will launch in select stores with the intention of being deployed throughout the Famous Dave's network in the fall of 2019.

In the big picture, these are very modest developments. Assuming that the test programs go well, then eventually BYND could be selling in 181 new locations. Generously assuming these locations produce 1.5X the average revenue per location per day (see here) as the rest of BYND's customers would result in additional annual revenues of 1.5 x $20 x 181 x 365 = $1.98M. Give this additional revenue a 3X P/S multiplier and it should increase the stock's market cap by $6M or about $0.10 a share! As I said, very modest or even immaterial.

Nestlé and McDonald's Expand Partnership

The biggest news of the week was that McDonald's (MCD) has expanded its partnership with Nestlé (OTCPK:NSRGF) from Germany to Israel. Recall that Nestlé is providing McDonald's with a soy-based burger substitute branded by MCD as "The Big Vegan TS" which eKitchen says is "McDonald's best veggie burger so far" and compares well to the Big Tasty.

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Recall also that as recently as the end of April 2019 (per livekindly, my emphasis):

There are no known definite plans to launch the Big Vegan TS in any other countries, although this could change in the future.

Well that changed in the blink of an eye, with the McDonald's now launching the product in Israel:

McDonald's Israel, the largest fast food chain in the country, will introduce a hamburger made of wheat and soybeans in six weeks.

The hamburgers, which were developed by Swiss food manufacturer Nestlé, are already on sale at McDonald's outlets in Europe. The price for the product, which will be called Big Vegan, is unknown. It will be launched at a few branches in the Tel Aviv area as a pilot, and a decision about whether to offer it in all of McDonald's branches will be taken later.

The Spoon noted that this development is very promising for Nestlé (my emphasis):

Back in April McDonald’s in Germany began selling the Big Vegan TS, a plant-based burger made with Nestlé’s Incredible patty. In his piece on the news, author Chris asked: “will Nestlé be able to replicate this type of McDonald’s deal quickly and establish a stronghold in Europe before Beyond and Impossible can make a meaningful leap across the Atlantic?”

It’s looking more and more like the answer will be yes. Yesterday the Israeli publication Globes reported that McDonald’s Israel will start selling its own meatless burger featuring Nestlé’s Incredible patties.

Note that Nestlé's dominance also includes selling the burger in grocery stores in Europe under the Nestlé branding of Garden Gourmet Incredible Burger.

(source)

Conagra's Gardein Increasing Capacity and Product Line

Another major food player, whom I haven't even mentioned in my previous articles, is going big in the plant-based meat alternative category. In June of 2018, Conagra (CAG) bought Pinnacle Foods for $10.8B, a purchase which included the meat substitute brand Gardein:

With annual net sales in excess of $3 billion, Pinnacle Foods' portfolio of frozen, refrigerated and shelf-stable products includes such well-known brands as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin's, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim's Cascade Snacks, Udi's, Vlasic and Wish-Bone, among others.

As an aside, note that this purchase was for a profitable company valued at less than 3.6X sales. Contrast that to BYND's current unprofitably and its TTM P/S ratio of 84!

In any case, during an investors day presentation on June 27, 2019, CAG highlighted the Gardein Brand as a rapidly growing product line.

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Wikipedia describes Gardein thusly (my emphasis):

Gardein (a portmanteau of garden and protein) is a product line of meat-free foods made by Garden Protein International in Richmond, British Columbia, Canada. In November 2014, Pinnacle Foods purchased Gardein for $154 million. Founder and chief executive Yves Potvin stayed on with the company, and has stated that the buy-out assisted Gardein to access more capital and expand manufacturing facilities to Hagerstown, MD.

All Gardein products are vegan, and they are certified by Vegan Action. Most of Gardein's products are certified Kosher pareve by Kosher Check (The Orthodox Rabbinical Council of BC). In 2014, they added gluten-free beefless products to their range in response to the expanding gluten allergy market.

Gardein's new process creates meat-like fibers from vegetables. Ingredients include proprietary formulations of proteins (slow-cooked soy, wheat and pea), organic flours (kamut, amaranth, millet, quinoa), potato starch, modified vegetable gum, organic beet fibers, and carrot fibers.

CAG is currently expanding Gardein's production capacity, with a $16.1M plant upgrade due to be completed in the fall of 2019.

(source)

Of more direct worry to BYND longs is the following slide, in which CAG highlights further developments to its burger and sausage lines, including new products and packaging. There's no doubt this slide is aimed directly at BYND; with the Gardein ultimate burger now set to compete with BYND and Lightlife in the meat section.

(source)

To better appreciate the importance of this, compare the new lines to the older style packaging and content:

(source: author's compilation from photos here)

CAG is set to be another formidable competitor in the space.

Before the Butcher

Another important entrant that I have yet to cover is a company called Before the Butcher. It was a small startup founded by an ex-BYND employee until it was bought by by the Hamann Brothers (owners of the Jensen Meat Company) earlier this month. Now it has access to credit and a 90,000 square foot production facility and a cold storage warehouse.

Fooddive has a comprehensive story titled: Before the Butcher CEO: 'We are one of the next big players out there'. From the article (my emphasis):

"Now they're going to help us grow exponentially, because we have an opportunity with a company that's already established to help us produce our products," O'Malley said. "And then we have a ... financial source, so we don't have to keep going back to the well and looking for more money."

Thanks to the acquisition, Before the Butcher is able to stretch out and grow quickly. The company now has access to a $25 million line of credit, according to a press release.

It is quickly scaling for its retail launch, which will be in 3,000 locations of the nation's top three grocery chains.It is also preparing for speedy foodservice growth. The company's products are in about 1,500 restaurants and more than 20 school districts' cafeterias. While these are already large numbers, O'Malley expects the number of outlets for all of these categories to double by the end of the year.

[...]

In order to meet that need, Before the Butcher is getting its very own manufacturing facility. The company secured a lease on a 20,000-square-foot plant in San Diego, California, right next to Jensen's 90,000-square-foot facility. O'Malley said the build-out will begin in the next month.

[...]

These products include the four coming to stores this summer — the Uncut Burger, the Uncut Savory Chicken Burger, the Uncut Roasted Turkey Burger and Uncut Breakfast Sausage. They also include items currently available to foodservice clients, which include meat-free ground sausage, chorizo, chicken chunks, beef tips, pulled pork, ground meat and sausage crumbles.

Again, note how similar these products are to BYND's offerings. This can only further pressure pricing and grocery store shelf placement.

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Two European Contenders

There are also two noteworthy smaller European companies working in the space. Moving Mountains is a UK-based company serving meatless burgers, hot dogs and sliders to over a 1350 European restaurants and growing quickly.

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The Meatless Farms is also UK-based, but it has come on to my radar because it announced a distribution deal with Whole Food Markets. From vegnews:

This summer, United Kingdom brand The Meatless Farm Co. will make its United States debut at Whole Foods Markets nationwide. The brand secured a distribution deal with the grocery chain to carry two of its vegan products: Meat Free Mince (a ground beef alternative) and Meat Free Burgers (made with pea, soy, and rice protein). “The market is really [heating] up and it is a game changer to be working with Whole Foods Market,” Rob Woodall, The Meatless Farm CEO and a former executive at Kellogg’s, said. “The US meat alternative market is currently the largest in the world and is strategically very important for the category.” After two years in development, the company launched its vegan burgers at 600 Sainsbury’s locations in the UK last year. In addition to the US and UK, The Meatless Farm sells vegan products in Sweden, Canada, and the United Arab Emirates and aims to expand its distribution to Australia and New Zealand in the coming months.

Taking Stock of the Competitive Landscape

There are so many BYND competitors that I've had to compile them into a spreadsheet to keep track of them. Here is a screenshot of that spreadsheet which I hope will be of great value to readers. I will endeavor to keep it updated and publish as new developments warrant (please feel free to leave comments as to whether or not that would be helpful).

(source: author's compilation, financial data from Seeking Alpha)

Disclosure: I am/we are short BYND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.