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Since the beginning of the company's founding, the CEO of BYND has been building the company on the changes in consumer eating habits to plant-based meats, but more closely aligned with an obsession of getting MCD to spend millions buying his product. Our view has always been MCD was never going to be a lifeline for BYND, and now the pandemic permanently altered the course of what may have been possible for BYND. If not for the pandemic, McPlant would probably have seen a more significant test in late 2020 and possibly nationwide distribution in 2021 if successful. Yes, BYND was always destined to be the primary supplier of plant-based products, given the connections to the ex-CEO of McDonald's, Don Thompson, but what is that worth? My primary concern has always been that it's doubtful that the MCD system advertising dollars would be used to support the value of another public company, of which the only McDonald's related person that has an economic interest is the ex-CEO, Don Thompson. I believe the current CEO of MCD, Chris K, gave BYND one last shot in a three-year deal to test the product to see if there is any real demand from McDonald's customers.
Is this Obsession with MCD leading to other potential problems? Since going public, the company has not landed a single contract with a significant QSR company that supports the fundamental thesis management has been espousing about the shift to plant-based meats. Thus, all the relentless and repetitive press releases and "testing" is the only way to prop up the Beyond Meat stock.
Fast forward to last week and another BYND profit warning, making it four of the last five quarters it has missed revenues. The excuses for the miss were many; experienced a decrease in retail orders that persisted longer than expected from a Canadian distributor coinciding with the reopening of restaurants (Canadian demand problem?); expected incremental orders that did not materialize from a change in a distributor servicing one of the company's large customers (another demand problem); observed delays in distribution expansion and shelf resets believed to be driven by customer labor shortages, severe weather, water damage to inventory and "incurred shortfalls at specific U.S. foodservice customers believed to be driven by the effects of the COVID-19 Delta variant." The last one is the most relevant to the SHORT case for BYND. First, the Foodservice TAM is lower than some want to believe, and more importantly, the company's Obsession with MCD further limits that opportunity.
The litany of reasons blamed just about everything but the obvious. As we have seen from the casual dining companies reporting 3Q21 numbers, demand was impacted by the effects of the COVID-19 Delta variant but BYND is ignoring reality. The BYND product is unhealthy; competitive risks are growing, margins are shrinking, growth is slowing, and a McDonald's lifeline is unlikely.
We will detail our current thoughts in a call on 11/2 @ 10 AM:
- Updated Foodservice TAM
- Competitive pressures
- Margin trends
And more...
