Short sellers dine on Beyond Meat

The vegan food tech start-up Beyond Meat, known for its meat-like plant-based burgers, has become one of the most shorted companies on the US stock exchange. Currently nearly 40% of its shares are being held by investors betting on the price to fall, suggesting scepticism about the true value of the company.

Plant-based foods have taken the market by storm: demand has been driven by a growing consciousness of ethics, wellness, and the environment. Over a tenth of the UK population currently follow a flexitarian diet. The considerably lower carbon footprint of plant-based foods is a key motivator for the everyday person to cut down on their meat consumption. A life cycle analysis of a plant-based burger has shown it generates 90% less greenhouse gasses, consumes 46% less energy, and 99% less water than that of a US beef quarter-pounder. As we begin to challenge climate change, this builds a strong case for investment in the alternative protein market, which saw a year-on-year sales growth of 6.7% in 2021.

Plant based protein alternatives provide business appeal to consumer goods companies due to their significant marketing opportunities. The alternatives market is brand-led with big names such as Quorn and Linda McCartney, whereas the meat market remains unbranded.  Unlike its competitors, Beyond Meat doesn’t market itself as vegan and claims that 70% of its customers also consume meat. As a result, the company has adopted a very different marketing strategy, with a goal of becoming a household name alongside meat products.

Beyond Meat, trading as BYND, initially showed great promise with one of the most successful IPOs of 2019. The stock started trading at 25 USD and then gathered momentum immediately, increasing value by 163% and ending the day at 65.75 USD. It currently has a market cap of 3.8 billion USD.

BYND shares spiked to 700% just 3 months after its IPO. This surge however felt too good to be true for analysts who believed the company would struggle as competition in the market grew. Moving forward 2 years and this may be coming into fruition. Growth is diminishing, with the year-on-year Q3 revenue increasing by less than 20% in 2021, in contrast to over 50% for the same period in 2020. The firm is also yet to make a profit. Alongside the impacts of the COVID-19 pandemic, which led to high expenses related to inventory write-offs and repacking costs, maintaining their share in the market has become expensive. In the fight for shelf space, Beyond Meat has increased expenditure on the development of new products and the distribution of these to consumers. Selling, general and administration, research and development, and operating costs all increased materially from 2020 to 2021. Previously dependable marketing strategies are also starting to become unreliable. The ‘Veganuary’ movement brings attention to plant-based products and encourages many people to try a vegan diet, however Beyond Meat did not capitalise on the initiative this year. Towards the end of the month, their share price had decreased by 13%.

Regardless, the future of the global plant-based protein market remains hopeful. Future Market Insights predict a CAGR of 7.2% over the next 10 years, and the trend in dietary preferences towards environmental and socially conscious food provides a strong driver for its growth. There has been an enthusiastic response from supporting companies who have recognised the changing demand. In 2020, Tesco became the first UK retailer set a sales target for plant-based meat alternatives. In partnership with WWF, Tesco committed to a 300% increase in sales by 2025, alongside putting other sustainability measures in place in the aim of halving the impact of the average UK shopping basket. This means more shelf space for the plant-based meat products.

McDonald’s, the fast-food chain, has also recognised the demand for meat alternatives. In collaboration with Beyond Meat, the McPlant burger was added to their menu in international trials, and it has now become a permeant item in the UK, with more countries to follow. Although it falls under a white label, the deal could be integral to Beyond Meat’s recovery. Piper Sandler analyst Michael Lavery believes the McPlant sales could boost revenue for Beyond Meat by $215 million annually. The menu feature, especially the heightened sales in its initial reception, will also increase the number of people experiencing a meat-mimicking plant-based burger for the first time and this could increase the customer base of the shop-bought patties. 

For the success of Beyond Meat, it is vital that it establishes itself as a market leader in the growing new market of plant-based alternative protein products. The volatile share price, surging to such high levels and then being shorted doesn’t help this long-term. It will be interesting to see if the market settles down or whether Beyond Meat continues to attract short term speculators.

Analyst: Alice Lane                                                                                     

Sector Head: Philipp Jiang

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