By Jon Swartz
When the publicly traded face of a burgeoning industry begins to struggle for growth, the question will always be the same: Is it the company or the industry?
For Beyond Meat Inc. /zigman2/quotes/211617595/composite BYND -5.55% and the audacious attempt to replace meat and dairy products with lab-grown alternatives, that question is existential. Beyond Meat’s sales growth has turned negative after showing triple-digit-percentage growth in its early days on Wall Street, and executives are looking at deep cost cuts, including a 4% reduction in its global workforce .
Beyond’s ongoing troubles — which include a star-crossed partnership with McDonald’s Corp. /zigman2/quotes/203508018/composite MCD -1.81% — were taken as evidence of a ground-up industry failing to fulfill hyperbolic expectations, and cast an increasingly dark shadow on a fledgling market with which many Americans are still unfamiliar. While highly educated residents on both coasts have shown more of an appetite for products from Beyond and rival Impossible Foods Inc., the product hasn’t broken through to a mass audience and isn’t growing as quickly as many analysts had initially predicted.
“The industry in general is struggling, and Beyond isn’t helping,” Rupesh Parikh, senior equity research analyst at Oppenheimer & Co., told MarketWatch.
See also: What’s behind the “beyond” branding? From Beyond Meat to Beyond Paint, companies embrace a buzzword.
The plant-based meat market was growing at a modest clip before the COVID-19 pandemic turbocharged retail sales by some 50% to 60% as more Americans ate at home or chose plant-based products amid meat shortages. While Beyond greatly benefited from widening distribution and going public in early 2019, Impossible burst upon the scene and sent the category into hypergrowth mode.
“People in the health-and-wellness crowd and environmentalists were really jazzed. Investors were abuzz,” John Baumgartner, analyst at Mizuho Group, told MarketWatch.
The sudden, dizzying growth led bulls to breathlessly predict the industry would catapult to as much has $50 billion in annual revenue by 2030, and investors piled on, valuing Beyond at more than $10 billion in the public markets and giving Impossible Foods Inc. a reported $7 billion private evaluation. But reality came crashing down during the past year as the industry’s growth slowed and Beyond’s valuation was chopped to less than $2.5 billion.
Market research company Nielsen calculates the market for plant-based meat is roughly $1.3 billion in annualized sales at retail after a year-over-year decline of 0.4%. An ailing economy has led to inflation and prompted cost savings by consumers wary of the price of plant-based meat — roughly twice that of animal meat — as well as a hesitancy to buy new products during a downturn, Baumgartner said.
The two biggest sellers of alternative meat were the primary cause of the downturn. Beyond Meat, the No. 2 company in sales, saw retail sales shrink 9% to $235 million, according to Nielsen, while market leader Kellogg Co.’s /zigman2/quotes/209631250/composite K -2.57% Morningstar Farms sales declined 10% to $330 million. While food-service sales are trickier to track, Baumgartner said highly publicized rollouts of Beyond products at McDonald’s (the McPlant burger) and Dunkin’ Donuts (a breakfast sandwich) fizzled, slowing the future sales trajectory. Analysts attribute a combination of price, taste and product visibility for Kellogg and Beyond Meat’s performance.
“The market leaders let down the market,” Barclays analyst Benjamin Theurer told MarketWatch. “Meat alternatives are more expensive than animal-based meat despite a rise in animal-based meat prices the past year.”
Kellogg did not reply to email messages seeking comment. When contacted by MarketWatch, Beyond /zigman2/quotes/211617595/composite BYND -5.55% pointed to buoyant comments on the state of the fledgling industry by its chief executive, Ethan Brown, and declined requests for an interview.
“I want to reiterate my enthusiasm for our brand and our long-term growth prospects,” Brown said during a call with analysts following the company’s fiscal second-quarter results on Aug. 4. “I’ve said many times that I believe the rise of plant-based meats to a prominent role in the global diet is inevitable.”
What growth the meat-alternative retail market gleaned over the past year came from Impossible, which soared 70% to $137 million in sales, and Conagra Brand Inc.’s /zigman2/quotes/200394144/composite CAG -3.67% Gardein, which rose 27% to $116 million.
Retail data from market researcher Information Resources Inc. highlights Impossible’s rapid ascent as the fastest growing brand in dollar sales. Despite being a late entrant to retail with a network of less than 150 stores at the start of 2020, Impossible’s sales quickly outpaced Lightlife Foods that same year, and have since surpassed Gardein earlier this year. And the brand is quickly closing in on Beyond Meat and MorningStar Farms, both of which are declining. Absent Beyond’s new beef jerky line, Impossible Foods would have already surpassed it in terms of dollar sales in retail, according to multi-outlet data from IRI.
“This isn’t a market that needs fixing, and [our] company is ready to take off,” Impossible Foods Chief Executive Peter McGuinness told MarketWatch. “In many regards, both are in [their] infancy.”
Baumgartner believes the bullish sales forecasts of $40 billion to $50 billion by 2030 worldwide were “unreasonably high” because it will take decades — not a few years — for Americans to fully embrace plant-based products. He said a more realistic size for the market is $11 billion to $16 billion in the next several years, with one major hurdle: The lack of whole meat cuts such as filet mignon, pork chops and chicken breasts, which make up 75% of the more than $300 billion U.S. meat industry.
“There is still a huge growth opportunity in the next 10 years despite a rough patch,” Baumgartner said.
Older consumers aren’t sold (yet)
So far, America’s appetite for meat alternatives has skewed toward young, affluent and educated residents of the coasts. Those over 45 are not as interested in buying plant-based meat patties, chicken nuggets and pork sausages, according to a consumer survey by Mizuho Securities this year.