How can Beyond Meat lead in 2022?

Bhavya Siddappa
9 min readNov 22, 2021

Beyond Meat Economics Analysis in the US Plant-based Meat Market

This is my amazing team from HKU MBA — Meet Tomomi Mikami, Angela Lee, James, and Annie Lu. We decided to pick Beyond Meat for our Managerial Economics Case Study. Presenting to you all our team research paper!

— — ****** — — — — — ***** — — — — — — ****** — — — —

Intro

Plant-based meat mimics meat which has been growing dramatically in recent years. Beyond Meat, is the pioneer and leading brand in the plant-based meat market in the US. Beyond Meat went public in 2019; the stock price is 85.15 USD as of November 12th, 2021. Figure 1 reveals the market size and its growth, and Figure 2 indicates the major players and their shares.

Currently, meat is still the key player in the food industry. According to the statistics launched by United Nations Food and Agriculture Organization (FAO), by 2040, the meat market could be worth as much as $2.7 trillion. The meat industry is undergoing a vast transformation to meet this growing demand; as a result, plant-based meat skyrocketed. As the pandemic has spread globally, coronavirus outbreaks in slaughterhouses in the USA and shifting consumer behavior have accelerated the growth of plant-based meat. Based on Bloomberg News, many big-scale meat processing factories have shut down, including Cargill, JBS, etc. The meat supply chain in the US has mainly been affected, and with the beef industry alone, it was facing a massive $13.6 billion loss.

Demand & Supply

Yet, the plant-meat industry has boomed. As per CB Insights data, the demand for vegan meat has soared, and the holistic market has reached $7 Billion in retail in 2020 — a growth of 27% from 2019. Beyond Meat has realized a 233% retail increase referring to the first quarter financial report in 2020. Figure 3 reveals that the demand for plant-based shifted from D1 to D2. Therefore, the quantity demanded of the vegan meat associated with the price P1 is now Q3.

There are two main reasons for the demand increase in plant-based meat. Firstly, the shuttered processing plants have contributed to the meat shortage in supply, and when demand for meat exceeded supply, the meat price soared. Though there is a vast gap between real meat and plant-based meat on the production cost, the skyrocketing meat price has narrowed the price gap.

Secondly, the hygiene problems in processing factories and outbreaks of virus have shaken the immutable consumption behaviors. The increasing distrust of real meat production has finally benefited the emerging plant-based meat market. Ultimately, consumers were more likely to accept vegan meat. Furthermore, to theoretically meet the growing demand for plant-based meat, we expect that Beyond Meat, as an outstanding game player, should have made an additional supply of vegan meat. The supply slope is expected to move from S1 to S2 in Figure 4. All in the demand and supply shifts in the vegan meat industry are still following the law of supply and demand.

However, reaping a profit from the virus is not a long-term solution. According to the data from FAO in 2021, the average retail price for a beef burger is $5 / lb. As the substitute for beef, Beyond Meat beef burgers charge $9.68 / lb, almost doubled. Due to the supply chain and technical obstacles, planted-based meat cost more than animal meat products. Though based on the report from CNBC, experts say “vegan meat products could remain more expensive for anywhere from 5 to 20 years”, in the past 18 months, Beyond Meat has lowered retail price several times, each time by 15% to 20%. Its significant price drops may inspire more consumers to try plant-based meat.

Price Elasticity

The plant-based meat industry is still controversial and facing enormous challenges. Why are these vegan meats attracting some shoppers while others don’t seem convinced enough to add them to their shopping cart? Recent data from vegan-focused market research firm Moonshot Collaborative indicates three-quarters of plant-based consumers are willing to pay a premium for plant-based alternatives. But there’s a limit: the study, based on U.S. consumers, who participated in an online questionnaire in January 2021, we found that when the premium reaches 50% or more, only 1 out of 25 consumers — even if they were following a plant-based diet — will pay up. The result shows that the Plant-based consumer demand curve is less elastic at a lower price as their elasticity increases when the premium is more than 50%.

What about consumers with different diets? 88% of vegetarians, 78% of flexitarians and 62% of meat-eaters said they’d pay more for plant-based foods. Vegetarians demand curve is the least in elastic among the three while meat- eaters are most elastic in demand (3 demand curves with diff. elasticity), 3 demand curves in a chart. Elasticity of generations are also different. 92% of Gen Z, 81% of Gen Y and 72% of Gen X saying they would pay more. The Younger group is more open to plant-based meat.

A study by the Cattlemen’s Beef Promotion and Research Board (CBB) in January 2021 shows a 1% drop in Impossible Burger’s price would lead to a 0.14% reduction in purchases of Store-Brand ground beef at retail grocery (across all consumers). If we extrapolate that to a 20% decrease, that suggests the recently announced price change will lead to a 2.8% decline in Store Brand ground beef. Demand elasticity among plant-based meat brand is more elastic give plant-based meat brands are strong substitutes.

Challenges

Beyond Meat is facing some serious business challenges. Its stock prices have fallen by 20% from 2020. Their net income is zero, and their cash flow is now -99M, making their share very volatile. The price to sales ratio is 13.3% making it difficult for them to justify their valuation. Big players like Tyson and Kellogg’s are entering the market, and Beyond Meat is on average 2$ more than real Meat making it challenging to compete. Consumers and dietitians believe fake Meat is highly processed and might not be healthier than beef. Finally, they depend on farmers to produce a healthy supply of pea protein which could slow their expansion plans.

Forecast

Despite all the above challenges, they have some solid partnerships in the roadmap for the coming years: Beyond Meat has a global partnership with McDonald’s and Yum! Brands. It will supply plant-based patties for the three-year to KFC, Pizza Hut, and Taco Bell, spanning 50,000 restaurants in 150 countries, resulting in increased demand, sales, and revenue. PepsiCo and Beyond Meat formed a joint venture to develop, produce and market innovative snack and beverage products made from plant-based protein. (Figure 11). Using ‘economy of scale’ will reduce the cost and bring the prices down to match the real meat price (Figure 12)

What should Beyond Meat do to stay ahead of the game in 2022?

  1. Economy of scale: Match meat price by using the economy of scale. They can use Pepsi to widen the market share. Meet demand by increasing the supply. Considering that revenues are likely to grow almost 2.7x by 2023, with net income turning positive in 2022 and growing steadily thereafter, generating continued returns for shareholders.

We believe Beyond Meat Revenues have the potential to rise close to 2.7x from the level of $407 million in 2020 to $1.1 billion by 2023, representing a growth rate of roughly 40% per year. There’s no single brilliant secret to making a mass-manufactured product cheaper. Instead, it’s a matter of relentlessly making every element of the supply chain, the manufacturing process, and the distribution process works slightly better.

2. Smart Marketing: Go strong with influencer marketing and keep the overall marketing cost low. Create more brand and health awareness. The global meat substitutes sector is set to grow to $23.2 billion by 2024

3. Explore User Surplus: Collude with an Impossible Burger or use Bertrand Model to compete. Demand for meat alternatives has grown and will continue to rise, but the industry still has hurdles to overcome in different parts of the world, analysts said. In this era of shocks and instability, building a low-risk value chain means focusing on where the opportunities are, and the shift towards plant-based meat shows no signs of slowing down. The pandemic has only underscored the importance of making meatless meat be a mainstream alternative to factory-farmed meat. Consumers are interested. More and more companies have launched plant-based meat brands, more and more fast food and casual dining restaurants have added menu options. The plant-based meat industry has to be bigger to compete with animal products on price — and competing on price is a key component of getting bigger as an industry.

4. R&D: Focus on pork rather than innovating into other products. Meat is a 1.4 trillion-dollar company, as complementary products they must make fake meat less processed, less expensive, taste better, and be healthy. The company has a commitment to, by 2024, sell at least one product that’s at the same price — or cheaper — than animal meat.

5. Global Expansion: Beyond Meat entered China in 2020. BYND entered into a partnership with Alibaba Group, whereby its products will be available in Freshippo stores (Alibaba’s supermarkets) in Shanghai. Beyond Meat is introducing its plant-based meatballs in Coles, the second-largest supermarket chain in Australia with over 2,500 stores. Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as the restaurant segments of Beyond Meat, potentially taking the company’s revenues to almost $1.1 billion by 2023.

6. Bound back from Pandemic: The coronavirus pandemic put a halt to the company’s fast-growing revenues as shutting down of restaurants due to the lockdown significantly affected the company’s restaurant and foodservice business, which was the fastest-growing segment for BYND until 2019. BYND revenues saw a rise of 36.6% y-o-y in 2020, which was sharply lower than historical growth rates. However, this trend is expected to reverse in the short term and the company will once again get on its fast growth track and there are multiple trends that support this growth outlook. $2.7T Global Meat Market Gets Disrupted by fake meat.

Conclusions:

All in all, Beyond Meat, as the first plant-based meat company listed on NASDAQ, has seized the growth point of new demand, although the current product prices are relatively high giving them a first-mover advantage in this industry. Based on the elasticity analysis, most consumers are willing to pay a premium of less than 50% to try plant-based meat, especially for vegetarians and Gen Z. With this consumption behavior advantage, Beyond Meat should focus on incremental production and reduce the cost by considering economic scope. Beyond Meat has a variety of product line-ups. Still, we recommend reducing it down to a single product such as grounded meat, because the single product production process is less complex than that of multiple products production processes, it helps increase productivity. Beyond Meat needs to focus on a single product and improve efficiency, which will lower the price equilibrium and compete with the meat price. Finally, organic growth and benefits from the recent global partnerships are expected to support continued healthy growth in retail and the restaurant segments of Beyond Meat, potentially taking the company’s revenues to almost $1.1 billion by 2023.

--

--

Bhavya Siddappa

Student for life. Story teller, creative thinker, woman in tech. Just some one who wants to be happy!