Dylan Lewis: Hey, there! I’m Dylan Lewis
from The Motley Fool. Today we’re going to be going inside a Beyond Meat patty and inside
the market for plant-based alternatives to get a sense of what
it might look like for the future. Earlier this week, I went to my neighborhood
Giant and picked up some Beyond Meat patties, as well as a couple of patties from their
competitors and some fixings for burgers. We’re going to dive into exactly what is in
these burgers, as well as what the competitive landscape looks like for Beyond Meat,
their competitor Impossible Foods, and some of the other big meat players out there.
First, though, a little background on Beyond Meat. Beyond Meat was founded in 2009 by
Ethan Brown, and you could first get their patties about 2013. But most people didn’t really
hear much about this business up until the lead-up to its IPO in 2019. Its IPO was
a resounding success with shares spiking 160% on the first day. The stock has been one of
the best performers on the market in 2019. More on that later.
First, let’s dive into these burgers. Beyond Meat offers the Beyond Burger, the
Beyond Sausage, as well as Beyond Beef, ideal for meatballs, and Beyond Beef Crumbles, perfect
for taco nights. The company uses peas, mung beans, and rice in order to bring protein
to their patties, and try to get that meat consistency that people are used to.
They’re also able to achieve the bleeding that you might expect with meat thanks to the inclusion
of beet juice. Oh, and if you look in there, there’s a little bit of marbling. They’re able to
achieve that with cocoa butter and coconut oil. If you look at Beyond Meat’s website, it’s clear — they’re looking to get beyond just
the core vegetarian and vegan market and get into the grocery baskets of core meat eaters.
They even have their products in the meat section of most grocery stores. If you look
at the demographics behind vegetarian and veganism, it’s pretty clear why — while there
may be far more vegetarian and vegan options out there, and tons of restaurants catering
specifically to vegetarians and vegans, those attitudes probably aren’t as widely held as
you might expect them to be. In 2018, Gallup polled a thousand U.S. Americans. In that poll,
they found that 5% of Americans consider themselves vegetarian, and 3% consider themselves
vegan. Now, Gallup has actually done this poll several times over the past 20 years,
and those percentages have pretty much held even. When you factor in U.S. population growth,
it’s likely there are more people that are considering themselves vegan or vegetarian;
but those attitudes are not more widespread than they were 20 years ago. So, for Beyond Meat
and its core competitor, Impossible Foods, to really make it into the big time,
they need to move past the vegan and vegetarian markets and get meat eaters to
occasionally choose plant-based alternatives. This is particularly true because,
if you look at the demographics, the people that are most likely to identify as vegetarian
are people that are probably priced out of buying Beyond Meat products. In that Gallup
survey, the vegetarian rate is highest among people that make less than $30,000 a year, at 9%.
That number is nearly twice the other income brackets polled. People have theorized
that vegetarianism is higher in low income brackets because meat is generally an
expensive item add to your grocery basket. And, when you look at the prices for Beyond Meat products,
it’s clear they’re more expensive than the average meat product. At the grocery store
near me, their eight-ounce package of two patties cost $5.99. For that amount, you could
buy a pound and a half pounds to two pounds of ground beef. Right now, it’s clear that
production costs for Beyond Meat are simply too high for them to meet consumers that are most
likely to buy vegetarian or vegan-oriented products. So, the big hope
for these businesses is that over time, more people opt for vegan and
vegetarian diets, but also that frequent meat eaters will occasionally choose plant-based proteins
instead. There are some reasons to think that that might happen. Increasing awareness on
the global impact of our production and consumption of beef might be enough to push people that way.
We’ve reached a point where cattle produces as much near-term climate impact as cars,
and cattle ranching is one of the leading causes of deforestation in the Amazon rainforest.
These environmental issues make a strong case for plant-based protein alternatives, especially
when you consider animal welfare and the impact of increased factory farming.
All told, the current market for plant-based proteins is somewhere between $12 billion
and $14 billion, or just about half of what U.S. food giant Tyson will make in 2019 selling
chicken, beef and pork. That said, there are some huge estimates for where this market
could go. Analysts over at Barclays ballpark that the market could reach $140 billion over
the next decade, growing at a compound annual growth rate of about 25% and ultimately
becoming about 10% of the global meat market. These kinds of estimates, plus the fact that
Beyond Meat is the only pure-play way to invest in plant-based proteins has pushed
shares of Beyond into incredible territory. It’s driven a lot of demand for Impossible
Foods once it ultimately IPOs. It’s also pushed the valuation for these companies well beyond
their core business results. Over the past 12 months, Beyond Meat has sold roughly
$165 million in meat alternatives. As of taping, the company is worth about $9 billion.
So, Beyond’s shares are currently trading at 55X the company’s trailing sales, and the company
is worth half of an industry that they only own 1% of sales. Put another way,
this is the meat alternatives market, and this is how much Beyond Meat is worth,
and this is how much Beyond Meat actually does in sales in meat alternatives.
Beyond Meat has been consistently doubling its revenue each year, and posting pretty
impressive growth, but those types of valuations are usually reserved for software companies
that are incredibly high-margin — think 70% to 80%. Beyond Meat’s
margins are somewhere around 28%. To go back to our raw meat assistant here
for a second, if this is $1 in Beyond Meat sales, this is how much is left over when
you account for actually creating the product that you’re buying. But there are more expenses
to account for. Beyond Meat has an R&D budget, a sales team, marketing — all of the things
that go into actually running a business. When you get to the bottom line for Beyond Meat,
the company is losing money. That’s not rare for a young business, but it’s an important
thing for investors to understand. Alright, why don’t we take these and throw
them on the grill, and we’ll wrap up outside? The bet that investors are making is that
Beyond and Impossible will become the Kleenex of plant-based proteins. Both brands are doing
quite a bit to gain mindshare in consumers’ heads. This fall, you’ll notice that Subway
is offering Beyond Meat meatballs in their meatball marinara sub, and Dunkin’ Donuts
is also offering sausage patties from Beyond as part of their breakfast sandwiches.
Now, Impossible partnered up with Burger King to create the Impossible Whopper.
Really, all of these are efforts to legitimize and mainstream plant-based proteins, because more
and more competition is coming for these companies. Even over the past few months,
major players like Nestle, Hormel, and Tyson have announced some form or plan for
a plant-based protein product. Now, as the major players come in, they’re likely going to be able to
come in at a lower price, meaning the brand identity for Impossible and Beyond is going
to be all the more important. Even in going to Giant to prepare for this shoot, I wound
up seeing something that I hadn’t noticed before on supermarket shelves. Here we have
a product from Pure Farmland, which is actually owned by Smithfield, a major food company
in the United States. For the same price as eight ounces of Beyond Meat, I was
able to get 16 ounces of their product. If Beyond can become a major brand name and
a go-to for traditional meat-eaters when they’re looking for meat alternatives, it could mean
big business. If not, it could spell trouble for the company. For now, though, the soaring
stock price and the series of partnerships with other nationwide chains has worked.
I’m a traditional meat eater, and even when I have my summer cookouts, I wind up grabbing
a couple of patties of Beyond Meat burgers. Now, my producer, Austin Morgan, is not yet a convert.
He hasn’t tried anything from Beyond or Impossible. We’re going to
see how he feels about them. Lewis: You want some onions?
Austin Morgan: I’m good. Your girlfriend will
probably appreciate that. Lewis: Fiancée.
Morgan: She doesn’t like onions either. Lewis: It’d be really awkward if she loved
them. So, I’m going for the potato buns. I feel like that’s one of the easiest ways to
immediately raise the profile of any burger. Are we good?
Morgan: Good. Lewis: Alright, which one are you going with first?
Morgan: Let’s go with the burgers, see what we got. Lewis: Alright. Thoughts?
Morgan: It’s weird. Lewis: Does it taste like meat?
Morgan: No. It does not. Lewis: Does it taste good?
Morgan: It’s not bad, but it’s not good. Lewis: [laughs] I will say, though,
with all the lettuce and tomato and cheese, all the markings of a burger —
Taste test No. 2. Let’s try the sausage. Oh, you’re still on the burger.
Morgan: I don’t know if I like it. [laughs] Lewis: Alright.
I’ve heard the sausage is better. Morgan: I’ve also heard
the same thing. Let’s give it a shot. That’s better than the burger. Lewis: Yep. Morgan: It tastes like a sausage.
Lewis: I think because sausage is just inherently processed meat, it’s a lot easier to replicate
the texture of that. I had a feeling this might happen, so I also
bought ground beef. [laughs] If you’ve had an Impossible or a Beyond Meat
burger, we want to know your thoughts. And if you haven’t and you’re not going to,
we also want to know your thoughts. We’re trying to learn a little bit more about the plant-based
protein space, and what consumer attitudes are towards it. Drop those down in the comments
section below. Also, if you have an idea for a future one, we’re looking for them. We want
to know what our viewers are into and what might make for great content here on YouTube.
Drop that down in the comments section. Of course, if you haven’t already, please
like the video and be sure to subscribe and get more content like this from
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more content like this, and Austin and I love doing that, so please help us out.