Bernstein on plant-based meat: ‘We believe this is still very much a two-horse race’
Beyond Meat has “had a rough go of it due to the pandemic,” experiencing a sharp decline in foodservice sales offset by solid but slowing growth in US retail as rival Impossible Foods has aggressively ramped up its retail presence, said Bernstein in a note to investors this week.
However, things are looking up for Beyond Meat, said Bernstein: “We expect [US] foodservice channels to rebound as consumer mobility improves post the pandemic ... the rebound could be even sharper in international foodservice channels, which were meaningfully harder hit in Europe than in the US during the pandemic due to the relative scarcity of drive-thru options.”
Beyond Meat, Impossible Foods ‘still enjoy more than twice the in-store velocity of other brands’
Looking ahead, Beyond Meat's new plant in the Netherlands will improve its cost structure in Europe, while its global relationship with McDonald's could “buoy sales meaningfully over the course of 2022 and beyond,” speculated Bernstein [for the next three years, Beyond Meat is the preferred supplier of the McPlant platform's burger patty, recently trialed in Denmark and Sweden, and will also work with McDonald’s on plant-based chicken, pork and egg products under the McPlant umbrella].
Supplying plant-based burger patties to McDonald's in the US alone could generate anywhere between $168-$305m in annual sales for Beyond Meat, calculated Bernstein. “We suspect the company will want to launch in the US market in the not-too-distant future, although… current expectations are that the McPlant platform will likely start to roll out more broadly sometime in 2022.”
In the US retail market for plant-based meat, Impossible Foods, Beyond Meat, and private label products have gained share in recent years, while more established players including market leader Kellogg (Morningstar Farms), Maple Leaf Foods (Lightlife), Conagra (Gardein), Kraft Heinz (Boca) and Tofurky have lost share, although Kellogg CEO Steve Cahillane recently noted that Morningstar Farms enjoyed share gains in breakfast meats, handhelds, sausage, and poultry items in Q1, while the new sub brand Incogmeato was “showing a lot of promise.”
According to Bernstein, however: “Both companies [Beyond Meat and Impossible Foods] still enjoy more than twice the in-store velocity of other brands, and so we believe this is still very much a two-horse race.”
Los Angeles-based Beyond Meat, founded in 2009 by Ethan Brown, entered the market in 2012 with frozen beef and chicken alternatives but started to take off after launching the Beyond Burger in 2016. It is now in around 118,000 retail and foodservice outlets in 80+ countries and is best-known for its plant-based burgers, meatballs, ground beef, and sausages.
The firm - which went public in May 2019 - posted a net loss of $27.3m on net revenues up 11.4% to $108.2m in Q1, 2021, with growth in retail (+45% to $81m) dented by declines in foodservice (-34% to $27.1m). In the full year 2020 it posted a $52.8m net loss on revenues up +36.6% to $406.8m.
San Francisco-based Impossible Foods, founded in 2011 by Dr Pat Brown, entered the foodservice market in 2016 and made an aggressive push into retail in 2020. It does not disclose revenues, but is now in around 22,000 grocery stores and 30,000+ foodservice locations across the US, Canada, Hong Kong and Singapore.
The firm – which has a stated goal to “produce a full range of meats and dairy products for every cultural region in the world” – is best-known for its beef burgers and pork. However, it is also working on steak, chicken, seafood, and eggs, and recently teased a plant-based milk product claimed to be “better than anything that comes from a cow."
Beyond Burger v3: ‘This renewed focus on health messaging may be an important driver of recruitment going forward’
When it comes to market positioning, added Bernstein, “We are hopeful that the new 3.0 version of Beyond Meat’s flagship patties could bring more consumers to the brand… This renewed focus on health messaging may be an important driver of recruitment going forward.”
From a marketing perspective, added Bernstein, “Beyond has a choice here. On the one hand, they could choose to ‘go negative’ by comparing themselves against other plant-based meats over their GMO-free, lack of soy [credentials].” However, this could backfire by making shoppers more skeptical about the overall plant-based category, they speculated.
“Since the company's long-term goal is to grow the plant-based meat category in order to reduce global meat consumption and contribute to addressing climate change, we assume and hope that the company will be taking an approach that compares its products vs. animal meats in terms of health credentials and potentially also environmental footprint, although we suspect that the health messaging may at present be more persuasive for US consumers.”
The addressable market in the US, Europe, and China
USA: At the time of Beyond Meat’s IPO in 2019, Bernstein saw an addressable market of around $273bn for Beyond Meat in the US (the wholesale market for beef, pork, lamb, and poultry), but has since revised that down to around $207bn after excluding whole cuts and other products that present greater technical challenges.
If alt meat products capture 15% of this $207bn market, that’s roughly $31bn. If plant-based products account for around half of the market (with the rest going to fermentation-based or cell-cultured meats), and Beyond Meat captures 30% of the plant-based segment, that’s a $4.7bn opportunity, although it could “take many years to attain,” predicted Bernstein.
Europe and China: Were Beyond Meat to capture 20% of the plant-based meat market in China, that’s potentially a $2.9bn opportunity; while the eventual opportunity in China could be $4bn "over the very long term," said Bernstein.