The escalating cost of various products in grocery stores is presenting consumers with yet another reason to forgo expensive plant-based meat options. This development is particularly worrisome for Beyond Meat, the only publicly-traded pureplay stock in the industry.
Stock Performance and Analyst Downgrade
On Thursday, Beyond Meat shares (ticker: BYND) experienced a sharp decline of 5.9% to $8.32. This drop was prompted by analyst John Baumgartner, who downgraded the stock from Neutral to Underperform and reduced its target price from $12 to $5.
An Underperform rating, coupled with the revised price target, paints a concerning picture for the plant-based food company. YTD, Beyond Meat shares have witnessed a significant underperformance, with a decline of 33%, while the S&P 500 index recorded a gain of 13%. Notably, plant-based beverage makers Oatly (OTLY) and SunOpta (STKL) have also experienced substantial drops of over 60%.
Challenges in Breaking into the Mainstream
Despite an initial wave of enthusiasm from early adopters, the growth of plant-based meat alternatives has struggled to penetrate the mainstream market.
In the latest quarter ending in June, Beyond Meat reported a sales decline of 30% compared to the previous year. According to Baumgartner, the company may face further declines in both sales and earnings through 2024.
Concerning Revenue Projections
Beyond Meat’s revenue projections for 2023 indicate an anticipated decrease of 14% to 9%, with a range of $360 million to $380 million. Baumgartner predicts that actual revenue will likely align with the lower end of this guidance and anticipates an additional 1% decline in 2024.
This pessimistic outlook contrasts with the Wall Street consensus, which foresees a 6% revenue growth for Beyond Meat in the upcoming year, according to FactSet. Baumgartner’s revised price target for the company’s shares is based on a 3.5 times enterprise value to his estimated revenue for 2024.
Company Response
Beyond Meat is yet to comment on these developments.
The Cost of Plant-Based Meat: Impact of Inflation and Consumer Trends
Recent analysis reveals that plant-based meat is priced approximately 30% to 50% higher than traditional beef. However, in the face of rising inflation and its impact on consumer budgets, individuals have been hesitant to explore new and premium products. As of September, food prices for meals at home have risen by a significant 20% since the beginning of 2021, although the growth rate has stabilized in recent months.
A survey conducted by Mizuho sheds light on the motivations behind plant-based meat purchases. Approximately one third of buyers prioritize environmental reasons when making their purchase decisions. However, as economic conditions become more challenging, this motivation may take a backseat.
The same survey also reveals that a notable percentage (30% to 45%) of consumers who have tried Beyond Meat, a prominent plant-based meat brand, were dissatisfied with the product and do not intend to purchase it again. Specifically, Generation Z and Millennials emerged as demographics with limited willingness to give the product a second chance.
Baumgartner, an industry expert, highlights a decline in sales volume for fake-meat products at grocery stores. Consequently, retailers have begun reducing the shelf space dedicated to these items. The situation is not much better at fast-food restaurants, where consumers show minimal inclination to opt for plant-based meat instead of traditional animal beef, according to Baumgartner’s analysis.
Considering these factors, Baumgartner revises his 10-year outlook for U.S. plant-based meat sales from $9.4 billion to $7.6 billion. This projection indicates that the sector’s share of the overall meat market will likely reach approximately 2.5%, instead of the previously estimated 3%.
However, there is promising news for Beyond Meat’s cost management. The company recently downsized its workforce by 19% in 2022. As a result, operational expenses in the latest quarter have decreased by one third compared to a year ago. Furthermore, Beyond Meat’s net loss has diminished from $97 million to $53.5 million.
