Beyond Meat is ditching its plant-based jerky line and planning price increases in the US market to bolster margins as part of a plan to “reorient…from a growth-at-all-costs focused operating model to one that is highly focused on sustainability and profitability,” says CEO Ethan Brown.
Beyond Meat Jerky, the first product to emerge from the firm’s ‘Planet Partnership’ joint venture with PepsiCo, is being discontinued less than two years after launch, Brown told analysts after posting a $155 million net loss on sales down 7.8% to $73.7 million in the fourth quarter of 2023.
For the full year, El Segundo, California-based Beyond Meat posted a $338.1 million net loss on sales down 18% to $343.4 million, with double-digit increases in revenues in international markets offset by double-digit declines in the US.
The plant-based jerky, which was launched into tens of thousands of stores in March 2022, initially looked promising, with Brown telling analysts in May 2022 that sales “have been a resounding success, exceeding our initial expectations.” By August, however, he conceded that velocities were “turning below initial forecast.” By the fall, Beyond Meat was clocking up under-utilization fees associated with co-manufacturing agreements for the snack, distribution of which moved from the JV to Beyond Meat late last year.
Exiting jerky will “allow focus and resources to be put against our latest product platform renovation Beyond IV [version 4 of the firm’s flagship burger featuring less sodium and sat fat] and other SKUs we believe have higher profitable growth potential,” said the firm, which enjoyed a surge in late trading on Tuesday after posting better-than-expected Q4 sales.
$1.1bn debt in convertible notes to mature in early 2027
Beyond Meat, which has been aggressively cutting costs over the past 12 months, reducing headcount and inventory and exiting co-manufacturing contracts, has $205.9 million in cash and cash equivalents on its balance sheet and debts of $1.1 billion thanks to an offering of convertible notes made in 2021 that will mature in early 2027.
CFO Lubi Kutua told analysts on the firm’s earnings call: “In 2024, we plan to bolster our liquidity and potentially restructure our balance sheet. We’re doing everything that we need to do to fix the fundamentals of the business so that we are a lower cash consumption business with a longer-term goal, obviously, of getting to sustained free cash flow positive.”
“Persistent EBITDA losses (c.$100 million) are likely to generate another year of cash burn with asset sales potentially reducing the magnitude. Set against Q4’s cash balance ($206 million) and aggressive FY24 guide, management commentary for a ‘balance sheet restructuring’ seems more likely than not and with likely materially dilutive implications for shareholders.” John Baumgartner, managing director, Mizuho Securities
“We think they are contemplating a potential restructuring of their $1billion+ in outstanding convertible senior notes to extend the maturity.” TD Cowen
Q4, 2023 by the numbers:
- Net revenue:-7.8% year over year (YoY) to $73.7 million, volumes +8%
- Net loss:$155.1 million
- Gross profit: -83.9 million. This was impacted by hefty non-cash charges relating to writing off excess and obsolete inventory such as Beyond Jerky, and accelerated depreciation on planned write-offs or disposals of fixed assets.
- US retail revenues:-22.6% YoY to $32.1 million
- US foodservice revenues: -25.9% YoY to $10.7 million
- International retail:+22.1% YoY to $13.3 million
- International foodservice:+33.7% YoY to $17.6 million
- Full year 2024 outlook: Net revenues of $315-345 million, withgross margins in the mid to high teens range vs -24.1% in 2023.
- Balance sheet: As of Dec 31, 2023, Beyond Meat’s cash and cash equivalents balance was $205.9 million and total outstanding debt was $1.1 billion. Read more HERE.
Full year 2023, by the numbers:
- Net revenue:-18% year over year (YoY) to $343.4 million
- Net loss:$338.1 million
Price increases in the US in early Q2: ‘Pricing just wasn’t an effective tool’
In the US market, discounting had not delivered the hoped-for upticks in volume, said Brown, who is changing course in 2024.
“There’s so much noise in the category and so much agitation outside the category that [reducing] pricing just wasn’t as effective a tool. We probably ended up selling a lot of our products to the same consumer at a reduced price [rather than attracting new or lapsed consumers with cheaper products].”
Price increases will be implemented early in the second quarter and should “meaningfully impact margin across the balance of the year,” said Brown.
But he cautioned: “This is not a crude application of a price increase. We have some very important partnerships and relationships where depending on the product line, there won’t be much change. But in the aggregate, based on elasticity studies we did, we’ll get a nice bump in terms of margin while still offering the consumer value.”
‘A climate of misinformation’
Asked by Bernstein analyst Alexia Howard how Beyond Meat hopes to attract new or lapsed consumers into the category “when the price gap to animal meat products is expanding because of the price increases you’re planning to take,” Brown argued that in the US, at least, price was less a barrier to purchase than negative perceptions about the health and appeal of plant-based meat.
“The biggest deterrent [to consumer adoption in the US] has been this health question,” he argued. “It’s not just the animal protein players and their lobbyists, it’s actually members of the pharmaceutical industry, which I find to be kind of disturbing, actually.
“The current climate of misinformation and efforts by incumbents including, sadly, pharmaceutical interests, to poison the plant-based meat well, push us to accelerate gains in the health profile of our product platforms.
“And so we have to right the message. We can do that by yelling from the rooftops about the benefits of our existing products, or we can just try to make them even more healthy and unassailable. So that’s what we’ve done with Beyond IV [the renovated Beyond Burger and Beyond Beef products]. And then it’s [a case of] partnering with associations and national institutions that can validate what we’re talking about.”
In a note issued Tuesday night, John Baumgartner, managing director, Mizuho Securities observed: “As Beyond Meat reduces market investments to conserve cash, the heretofore attempt to drive trial and expand among new consumers is being curtailed in hopes of increasing consumption intensity among existing consumers.
“The timing strikes us as odd, as the launch of a new and improved “Beyond IV” platform, including a healthier ingredients profile, may be the company’s most promising effort to land new consumers. Further, the attempt to gain share of existing consumers, from competitors in a declining market, seems at odds with plans for price increases and limited elasticity. ”
The Beyond IV platform
The company is betting big on its new Beyond IV burgers and beef, which are shipping this month and will start to gain broader distribution in April and May in US retail, said Brown. He noted that the new products were not only healthier, but scored better on taste, juiciness and texture than the company’s current offerings in consumer testing.
Featuring 21g protein from peas, lentils and faba beans, the new recipe includes avocado oil and has 2g saturated fat (vs 6g for standard Impossible Beef and 1g for Impossible Beef Lite) and 20% less sodium than the previous iteration, which had 5g saturated fat.
“The critics will undoubtedly continue to agitate,” said Brown. “The favorite target is sodium levels and the sleight of hand employed is to compare the Beyond Burger, which is seasoned, to an unseasoned ground beef burger. Now keep in mind that the current Beyond Burger contains 17% of the daily recommended value of sodium, which when appropriately compared to seasoned beef burgers, often means less, not more, sodium.
“Nevertheless, Beyond IV achieves a 20% reduction in sodium, with a sodium content now registering at 14% of daily values. Even if you were to have seven burgers in a single day, this would not exceed the daily recommended value for sodium. And we’re not done. As the critics position, talk, post, and lobby, we will keep chasing our own True North: that perfect build of meat from plants.”
US retail sales of plant-based meat
According to Circana data crunched by 210 Analytics, US retail sales of meat alternatives fell 11.1% to $1.048 billion in the 52 weeks ending January 28, 2024 (total US, MULO, integrated fresh). Volume sales fell 16.5%.
For context, fresh meat department dollar sales fell -0.5% over the same period with volumes down -1.5%.
