Beyond Meat sell-off further ignites debate about demand for plant-based protein. From my perspective, Beyond Meat’s earnings and the fallout have been the most interesting CPG-related news this week. The recent returns for shareholders have been ugly — down 20% in the past week and down 35% year-to-date. Since the company had already preannounced its third-quarter results, I expected its earnings report this week to contain few surprises. But what surprised the Street was the outlook for the fourth quarter of revenue between $85 million and $110 million, compared to the consensus revenue estimate of $130.5 million. The company’s earnings loss in the quarter was 87 cents, compared to the consensus estimate of a 37 cent loss. The company’s U.S. revenue declined 13.9% y/y in the third quarter, a far cry from the fast growth the company has generated in many recent quarters.
The company blamed the disappointing third-quarter results and fourth-quarter outlook on numerous factors that it considers temporary, including a pull forward of shipments from the third quarter into the second quarter ahead of the Fourth of July; unusually low sales in the food service revenue segment due to the rise in the delta variant; downtime at one of the manufacturing facilities; difficulty sourcing packaging material; and an explosion at one of the company’s key suppliers. Despite management’s comments that were primarily focused on near-term headwinds, management conceded that demand was also driven by an unexplained lower level of consumer interest in healthy options and consumers showing less interest in trying new products.
What’s difficult to decipher is whether the company’s disappointing performance this year really was due to transitory factors or whether demand for plant-based protein alternatives has been overestimated as well as the potential population of “flexitarians” (meat eaters interested in introducing plant-based protein sources into their diets) that are the company’s target market. Much of the company’s strategy seems to be built around rolling out new plant-based products (e.g., Beyond chicken tenders) and regaining its footing in the food service business through various partnerships with fast food restaurants such as McDonald’s and Pizza Hut. That brings up questions like — are flexitarians really the same people that roll through a McDonald’s drive-through? Fast food partnerships also place additional pressure on the company to get closer to cost parity with traditional products (its target is to be at cost parity for at least one protein source in the next 2.5 years). Beyond promises to continue to be an exciting and controversial stock, which will be even more true if competitor Impossible Foods goes public in the near future (which seems highly likely based on the CEO’s recent comments) providing a meaningful point of comparison.
Cell-based meat is another food technology category that could forever change how protein is sourced. It’s not yet clear whether growing meat in a lab will take hold and when (aside from a few niche locations where it is currently being sold), but there are more than 70 startups working on producing meat from cells. The players that have received funding are outlined in an article from Food Dive.
Clorox turns to contract manufacturers and suppliers. As reported by Supply Chain Dive, Clorox is now using contract manufacturers for about 50% of its shipments, up from 20% historically. That has allowed the company to meet retailers’ demand expectations and avoid raw material shortages. But that strategy has also come with major costs on top of the inflationary pressures that CPG companies are facing throughout their supply chains. The company plans to return to its historical mix when demand moderates — presumably, demand will return to more normal levels as diminishing concern over COVID will likely cause consumers to spend less on cleaning supplies.
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