As business indicators have worsened, Beyond Meat and other companies in the space have tried new strategies — but analysts say they may have forgotten consumers along the way.
After a year of declines, losses, launches, disappointments, job cuts, supply chain issues and inflation, Beyond Meat CEO Ethan Brown said on last week’s earnings call it is time to pivot the company’s strategy.
Compared to a year ago, the company’s fortunes have fallen. Net revenues were down 22.5% year over year. Beyond Meat posted losses of $101.7 million — $19.2 million more than its net revenues for the quarter. Sales across the board were down by double-digit margins, except for food service in the U.S., which saw a slight uptick.
The year-over-year declines are nothing compared to Beyond Meat’s history as a publicly traded company. In July 2019, its share price hovered above $200 and plant-based meat was a quickly growing segment. Today, Beyond Meat’s stock is worth less than a tenth of that amount.
On the whole, plant-based category sales are stagnating, with no growth in the number of consumers who are buying it this year compared to last, according to a study from Deloitte.
Compared to the mega-growth of plant-based meat in years past, Brown said this is not what he expected.
“I think that is something that is new to our business, given the 12-plus years of pretty aggressive growth that we had enjoyed — and I think we will enjoy again in the future,” he said. “But for now, it’s really about stabilizing the business based on a more reasonable revenue growth trajectory.”
Beyond Meat isn’t alone in scrambling to turn back headwinds against plant-based meat — though as the only publicly traded company primarily in this segment, it shows the struggle much more acutely than private competitors or plant-based brands owned by larger CPG companies.
Many brands have seen a year that progressively has gotten worse, despite investment, new product launches and cutting edge technology. Planterra, the U.S.-based plant-based meat subsidiary of meat giant JBS, abruptly shut down in September, while Maple Leaf Foods cut about a quarter of the staff of its plant-based Greenleaf Foods division and wrote down $190.9 million in goodwill for that business.
Peter Saleh, managing director and restaurants analyst at BTIG, said a big part of the problem is that many of these companies let their ambitions and ideas get ahead of consumers. As plant-based meat companies have grown, they have rapidly expanded into different products, different geographies, and different retail and foodservice channels.
“It feels to me like they’re doing too much all at once, and they’re not doing it profitably,” Saleh said. “And then, this theory that consumers are just going to want this. Consumers haven’t been convinced why they should be eating plant-based food.”
Considering the rising rates of inflation, the waning consumer enthusiasm for plant-based meat and companies’ cutbacks to stanch their losses, analysts say it may be an uphill climb for companies in the segment to step back and make the case for plant-based food to regular consumers.
Making fickle consumers want plant-based
In the last couple of years, Beyond Meat has rapidly innovated into new products. They started with the Beyond Burger. They created Beyond Sausage. Then Beyond Chicken, Beyond Jerky and Beyond Steak.
Brian Holland, a managing director and senior research analyst at Cowen, noted every new innovation has done worse on the market than the previous one. It’s not necessarily a matter of execution, he said. It’s more a matter of convincing consumers to try another product line in the plant-based meat segment.
“If people aren’t buying the core product, they’re certainly not inclined to move into some of these other adjacencies, where maybe they think it makes less sense,” Holland said.
For example, he said, years of development and product knowledge likely has convinced consumers there are plant-based versions of burgers potentially worth trying. But the average consumer may not be as likely to try a plant-based steak, since it is a product with a very distinct taste and eating experience.
To get consumers there takes time and careful convincing through product quality. But even if companies are taking the time and effort, target consumers are somewhat elusive. Plant-based meat companies tend to zero in on flexitarians — people who eat meat but are willing to substitute plant-based alternatives some of the time.
“Consumers haven’t been convinced why they should be eating plant-based food.”
But BTIG’s Saleh said flexitarian consumers aren’t very loyal. They easily switch from animal meat to plant-based meat. They will switch between brands of plant-based meat. And they may decide not to switch to any form of plant-based meat if the price or experience isn’t right. So when dealing with not-so-loyal consumers, Saleh said, there’s no opportunity for plant-based meat companies to do much in the way of adjusting prices in order to bolster margins.
Corey Chafin, an associate partner in Kearney’s consumer practice, said few consumers see plant-based meat as a replacement to what they normally buy. It’s considered just another option to add. Flexitarian consumers planning a barbecue may get a package of plant-based burgers to grill along with traditional meat ones, but they will still buy the meat ones, Chafin said.
And while all plant-based products look at plant-based milk’s 16% share of category sales as a goal, Holland said this logic is somewhat flawed. “It’s need-to versus want-to,” he said, comparing alternative dairy to alternative meat.
“There is a built in need state driven by lactose intolerance and sensitivities,” Holland said. “There’s nothing analogous to that in plant-based meat. I think that’s where we struggle to see an adoption curve that will look anything like what we’ve seen in plant-based beverages.”
Price and taste
In Beyond Meat’s earnings call, Brown said the company was working on two things long seen as the key to plant-based meat acceptance: Price and taste parity.
Right now, plant-based meat is more expensive than its traditional counterparts largely because of the increased costs of new production methods for a new product produced at a relatively small scale.
Kearney released a study in March correlating the price and growth rate of plant-based meat. According to the study, falling prices could lead to exponential growth. For every 1% drop in price of plant-based patties, the study said they could get a 3% increase in market share.
In the months since the study, Chafin, who was one of its authors, has moderated his outlook somewhat. He’s seeing potential growth rates slowing down but also a renewed focus on the importance of getting taste right.
Inflation’s pull on traditional meat companies is giving plant-based meat a bit of a leg up when it comes to reaching price parity, Chafin said. Right now, he said, plant-based meat is pricey primarily because companies are trying to recoup R&D and investment costs, and they don’t have the same commoditized supply chain as meat companies.
“It gives more time and space for the plant-based companies to become more competitive over time,” Chafin said. “They’re not having to compete as aggressively on price.”
Price notwithstanding, meat has become a more formidable commodity in recent years. Brian Earnest, lead protein industry analyst from CoBank, said in the years before the pandemic, grocery stores featured more high-end cuts of meats and better quality products, making them seem accessible to all levels of consumers.
Today’s grocery stores — and consumers — are more focused on value promotions, Earnest said. They are pushing cheaper ground beef or chicken drumsticks. And because of the higher price of plant-based products, fewer consumers are picking them up now.
Inflation may not really be changing this behavior. Earnest recalled the early days of the pandemic, when pantry-stocking consumers emptied shelves, refrigerator cases and freezer sections at grocery stores. There was little traditional meat to be found, but plant-based meat was plentiful.
On the earnings call, Brown said there is a forthcoming “fourth iteration” of the Beyond Burger, and he’s thrilled with the improvements it has made on earlier versions of the company’s plant-based burger.
“I’ve watched key customers and stakeholders come through the innovation center, try a version of this fourth generation product, and quickly share my belief that it’s a meaningful advance toward our North Star of being indistinguishable from its animal protein equivalent,” Brown said.
Holland said it’s good to see that Beyond Meat recognizes price and taste as key aspects that need to be addressed, but these attempts are only worthwhile if they can help the company increase revenue.
“Saying you’re going to do those things doesn’t actually mean you achieve those things,” Holland said. “The consumer will vote on whether the latest iteration of the Beyond Burger meets its taste thresholds.”
Getting to a future where plant-based is not the alternative
Impossible Foods, which is also a leader in the plant-based meat space, is a private company and does not report sales or earnings. CEO Peter McGuinness has said Impossible Foods is growing 65% to 70%, with a strong balance sheet and a good cash position.
In an emailed statement from an Impossible Foods spokesperson, the company said while price parity is a goal it is striving to achieve, it is looking to provide consumers with value.
“We have to more clearly articulate our value proposition and benefits around health and planet, and then we need to communicate with consumers at scale to make our value proposition fundamentally and broadly clear,” the Impossible Foods statement said. “All while continuing to innovate and make great products that are better than animal meat in terms of taste, texture and nutrition.”
“The consumer will vote on whether the latest iteration of the Beyond Burger meets its taste thresholds.”
It’s a tricky balance, and one Cowen’s Holland said might be a bit easier for Impossible Foods because the private company has always been more deliberate about its launch strategy.
But Brown said on the earnings call he plans to make Beyond Meat’s value proposition clearer to grow the company. Brown has two groups of targeted consumers in mind: Those who are concerned with their health and those who are concerned with the environment.
Brown said the conversation about how Beyond Meat is a better choice for consumers would start happening soon. Earlier this week, the company announced a partnership with the American Cancer Society to facilitate research on plant-based meat. It’s not clear whether the partnership actually will lead to any endorsement of Beyond Meat or other alternative products, but the cancer advocacy and research group already warns against diets containing red meat.
BTIG’s Saleh said if Beyond Meat could convince consumers its products were healthier, the company may be able to attract more buyers. However, that’s a steep hill to climb. Saleh said Beyond Meat could do better if it made consumers believe the products are as good or superior to meat and also win on price and taste.
But Beyond Meat still faces the challenge of getting its products more widely accepted. Last year, the company brought on a pair of former Tyson executives, and Holland said the underlying message was they would help get Beyond Meat into McDonald’s. Today, neither executive is at the company and the Beyond Meat McPlant trial ended without any announcements.
Beyond Meat has had supply and demand problems — and the demand problem is a more difficult one to fix, Holland said. And, he continued, that dilemma is a red flag when a company is cutting back and hoping for growth.
“Can they actually generate growth on a more streamlined portfolio with presumably less investment?” Holland said. “That seems to be a tall ask.”
But on the earnings call, Brown tried to convince investors that growth will happen. He admitted there are risks — if the economy continues trending downward or the company fails to connect with consumers. But the new structure, he said, will likely prevent failure.
“We’re going to structure the business differently, where even if there’s some moderate growth — I mean, very moderate — we’ll be able to achieve the goals that we’re talking about,” Brown said.