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The future of food? Beyond Meat & Oatly vs. traditional food industry
Floris van der Pijl published on June 8, 2022
A-INSIGHTS is specialized in analyzing company figures, which captures detailed information on the activities of companies and explains the drivers behind their performance. This blog contains a combination of financials and news sources.
- Net sales development Beyond Meat (2021): above average
- Operational profit Beyond Meat (2021): below average
Plant-based alternatives have been showing up everywhere and companies focusing on these segments have been showing tremendous growth. First movers had a great advantage as they were able to leverage a price of 200-300% of the traditional meat or dairy product. But now that food majors are entering the space (e.g. Arla with oat brand Jörd, and JBS through acquiring Vivera) competition is shaping up. Shares of first movers Oatly, oat milk producer, and Beyond Meat, plant-based meat producer, are both down close to 90% from their all-time highs. What conclusions can we draw up from their most recent financial statements?
Figure 1: Beyond Meat net sales development and %EBIT vs. the European meat landscape.
Sales of Oatly and Beyond Meat vs. the industry
Beyond Meat is outgrowing its meat-based counterparts strongly. But the growth has been stagnating in 2020 and 2021. The main reasons for these have been ‘lower demand’ and ‘higher trade discounts’, both driven by increased competition. Beyond Meat still managed to grow by 41% in 2020 and 10% in 2021, highlighting the strong growth potential of the segment. After strong growth in 2019, Beyond Meat has been surpassed by Oatly in terms of revenue in the years after.
The Swedish-based oat milk producer has also been strongly outgrowing the traditional dairy segment and has been able to continue its strong growth, mainly benefitting from strong increases in demand in relatively new markets (Americas +80%, Asia +136.5%). For Oatly, given that its products can qualify as shelf-stable, it is easier to reach these markets from existing facilities. Beyond Meat’s products are mostly refrigerated, severely impacting travel range.
Figure 2: Net Sales Development Beyond Meat vs. Oatly 2017 - 2021
Profitable growth as a business model
The real driver behind the stock price decreases of Beyond Meat and Oatly is not so much growth, but rather a profitability challenge and a decrease in the valuation of loss-making businesses in general. With interest rates increasing, investors want to see a working business model focused on ‘profitable growth’ rather than a focus on ‘growth over everything’.
And this is a strong switch, even more so because the companies within these segments are also competing with traditional meat and dairy companies which have had to focus on operational efficiency for decades. Moreover, many of their new competitors are food majors which can either more easily swallow the losses or accomplish efficiency more easily through their scale.
For Beyond Meat profitability seems to be far away. In 2021 the company lost $4.8 per kg of products sold. A large portion of that comes from direct production costs; it cost Beyond Meat $9.1 to produce one kg of product which it sells to supermarkets or wholesalers for $12.1 per kg on average. To put this into perspective: the consumer price of fresh meat hamburgers in a supermarket is around €10 per kg in Europe.
And while these products may not be direct substitutes for each other, Beyond Meat is in a difficult position: it has not shown the ability to produce more competitively over the last years, price pressure will likely continue due to increased competition and the market sentiment of investors has shifted towards profitable growth business models. Achieving scale to produce profitably while maintaining price levels will be a challenge, but the company still has $733 million of cash in the bank to survive next year (~4 times last year’s losses).
Figure 3: Net Sales, COGS, Net profit Development for Beyond Meat and Oatly in $ per kg/ liter
Oatly has a similar problem; its products cost roughly the same to produce as the consumer price of its direct traditional alternative: cow milk. But the company does clearly show an improvement in its cost of goods sold over the period, benefitting from increased scale and a move towards more in-house production. The company still had $550 million in the bank (~2.5 times last year's losses).
The future of Beyond Meat and Oatly
To conclude: Beyond Meat and Oatly are two growing businesses, disrupting the traditional food industry. Profitability is and will likely be an issue for them in the coming years. With a cash run rate of a couple of years, they have to make a shift towards profitability. With this and other market developments (e.g. increases in raw material prices) the question arises: can they turn into a mature company on their own? Or will they eventually get acquired by one of the food majors?
Want to find out more about the performance of companies like Beyond Meat and Oatly? Our trendreport Plant-Based Alternatives shares a deep-dive analysis of companies with a focus on plant-based alternatives within the agri food industry. Download the report for free via the button below.