Beyond Meat’s (BYND) $1 Billion Problem 🥩📉
Why Beyond Meat's biggest problem isn't competition; it's math.
Before diving in, I want to say thank you to everyone reading, sharing, and subscribing to Becoming Berkshire.
This Substack started with a simple goal: to study how Warren Buffett and Charlie Munger actually built Berkshire Hathaway, from the early partnerships in the 1950s to the $1 trillion conglomerate it is today.
But along the way, it’s become much more than that. My goal is to provide a newsletter where my subscribers get the following:
(1) the history of Berkshire Hathaway and the markets,
(2) updates on the million-dollar portfolio I help manage
(3) an analysis of the occasional business that catches my attention, to apply the lessons I have learned along the way.
Buffett once said that his policy is “reading every annual report in sight that can further his knowledge about anything.” Since my goal in life is to create a mini Berkshire Hathaway, I’ve taken this policy to heart. I own over 70 companies, which I constantly add to, solely to receive their annual reports and allow my knowledge to compound.
Today’s report, randomly selected, is from Beyond Meat (BYND). This company is quite popular at the moment, as it has recently become a meme stock, with its options soaring over the last couple of weeks.
My task today is to review the 2024 annual report, as I use it as a journal to organize my thoughts. It is also interesting to observe how a company manages itself during a debt restructuring while its revenue continues to decline and cash burn remains a challenge. I’ll break it down with an overview of the business, the numbers behind the financial statement, and a 10-year projection on where the stock will be using FCFE & EBITDA.
While it’s not the same as reading through the Substack, I cover some of the analysis in the YouTube video below. Feel free to subscribe!
The Story of the Business
BYND produces plant-based meat alternatives that replicate the taste and texture of beef, pork, and chicken. Their products are entirely made from plants but are crafted to be indistinguishable from animal meat to the human senses. The company sells its products through approximately 129,000 retail and foodservice outlets across more than 65 countries.
Cost-Down Strategy
If you look at the table below, you’ll see that the share count and total debt continue to increase year over year, while cash per share and book value are declining each year. Therefore, it is not surprising that the company is focused on reducing debt. They hope to cut costs enough to match animal protein prices by implementing lean manufacturing, improving inventory controls, and reducing the workforce
Long-Term Growth Strategy
Management plans to expand distribution, invest in manufacturing, and broaden its product line with items like the Beyond Burger V and Beyond Beef IV series, which feature cleaner ingredients and certifications such as the “Clean Label Project.” They are also pursuing partnerships with health organizations and influencers.
However, with a lack of interest from a prior consumer base, the company is navigating a delicate balance between cutting costs to reduce debt and continuing brand growth. This creates a capital allocation dilemma, which is why I wanted to study this company. In the grocery sector, claiming and reclaiming shelf space will be a competitive challenge, and it’s shaping up to be an all-out bare-knuckle fight in aisle 5.
Products
BYND offers plant-based meat products across three categories: beef, pork, and poultry. Their product lineup includes ready-to-cook and ready-to-heat items suitable for any meal occasion, including Beyond Burger, Beyond Beef, Beyond Sausage, and Beyond Chicken. They also have new innovations such as the Beyond Sun Sausage and Beyond Bakes, which is a value-added meal line.
In their annual report, terms like Beyond Burger IV and Beyond Beef IV are mentioned, indicating that the company is focused on perfecting the ingredients and taste of their products. This strategy of continually refining the product is unusual in the food industry and raises questions about its effectiveness, especially given that consistent product quality is often a priority. If anyone reading these has noticed a difference in their taste or quality as of late, please let us know in the comments.
Customers
Beyond Meat products are sold in about 27,000 U.S. retail outlets, 38,000 international locations, and 38,000 foodservice outlets worldwide, serving both restaurants and grocery stores.
This chart is a few years old, but it gives you an idea of where you may find the product.
I’m exploring the distribution strategies of Tyson and other major players, as they likely dominate the market and challenge smaller companies like BYND. Nonetheless, having access to 27,000 retail outlets is significant.
Supply Chain
Pea protein is BYND's primary raw material, sourced through a multi-year contract with Roquette Frères that runs through 2025. The company is actively looking for additional suppliers to diversify its sourcing and ensure long-term access to plant-based proteins.
While relying on a single supplier carries some risk, it is reassuring that they are working with a global leader in plant-based ingredients. Unfortunately, BYND is currently facing a demand issue rather than a supply issue.
Sales and Marketing
BYND’s sales are split into retail, foodservice, international, and strategic partnerships. They focus their marketing on social and digital channels, such as Facebook, Instagram, LinkedIn, Threads, TikTok, and YouTube, to reach health-conscious, sustainability-minded consumers.
Their main demographics are millennials and Gen Z. Although they have about 1 million followers on Instagram, their presence on other platforms is limited. The lack of social media presence is frustrating, especially given the misinformation about the health benefits and risks associated with their products discussed in the last earnings call.
Competition
BYND operates in a highly competitive environment that includes traditional meat giants such as Tyson, JBS, Cargill, and Hormel, as well as other plant-based competitors like Impossible Foods, Lightlife, Gardein, and Quorn. Competing with new entrants in the market is already challenging, but Tyson and Cargill also have their own plant-based products, making it even harder for BYND to compete, given their strong distribution capabilities. This competition likely explains the drop in revenue. It’s extremely tough to go against established players with large distribution networks. Once they recognized the opportunity in the market created by BYND, they developed similar products and crowded out BYND.
The Numbers
