Beyond Meat is very skilled in the art of issuing press releases. Rather than representing a new TAM, today's announcement opens up a new TAM for future press releases - the snack grocery aisles. What does the JV with Pepsico really represent?
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THE CHAIN RESTAURANT OPPORTUNITY IS FADING – If plant-based products took a 5% share of the $235 billion in Chain Restaurant systemwide sales in the USA, that would equate to an $11.7 billion market. If only 50% of the chain restaurants sell a plant-based product, it's only a $5.8 billion opportunity. If we assume that BYND gets a 25% market share, the real opportunity for BYND is about $1.4 billion. The company cites a $35 billion opportunity in the USA. If the chain opportunity was so massive, why aren't more chains signing supply agreements?
GROSS MARGIN IN THE HIGH 30's? WHEN? - On the earnings call, management said in 2020, BYND will have the capacity to generate $1 billion in revenues. As the company continues to build excess capacity the real opportunity falls short of the company inflated TAM. The target of mid to high-30s gross margins will be challenging to achieve with excess capacity. The current near-term gross margins headwinds will come from volume deleveraging and repackaging costs as they repurpose specific existing foodservice inventory into retail SKUs. Gross margin looks to be sequentially lower in 4Q20 and into FY21.
AGGRESSIVE INTERNATIONAL EXPANSION – On the recent earnings, call management stepped up its commentary around international expansion. The CEO said, "looking forward, we've made significant additions to our team, including senior leadership in operations and marketing while investing in aggressive international expansion." The pressure on customers in the international markets is no different that in the US, when looing at the pandemic's pressure on sales trends.
A SHIFT TO ADVERTISING AND INCREMENTAL PRICE PRESSURE - One of the most significant issues I have with the bull case is the competition level already in the space with better-capitalized companies than BYND. We are led to believe that BYND can compete better against these much larger companies because of BYND brand's strength. How relevant is the brand strength discussion if companies like MCD don't want to put the brand name on the menu? Notably, the company cites the success of the brand so far because "we built it with some very famous consumers and users that are lending their name and their voice to our brand, whether it's the many professional athletes or the celebrities that work with us." Celebrity or professional athletes help build brand awareness when you are a start-up company. Eventually, real advertising dollars will need to be spent to drive sales. Finally, Impossible Foods and the emergence of more store brands continues to drive prices lower in the Foodservice segment.
