Beyond Meat

Table of Contents

Ⅰ. Introduction

Ⅱ. Environmental Analysis & Problems of Beyond Meat

III. Balanced Scorecard

1. Finance

2. Consumer

1. Market Share

1. Customer Value

3. Internal Process

4. Corporate Social Responsibility

1. V. Conclusion

1. V Reference

Ⅰ. Introduction

Beyond Meat is a first mover of plant-based meat substitutes, founded in 2009 by Ethan Brown. The company develops and manufactures a variety of protein-based food products. The vegan meat substitutes are made from mixtures of pea protein isolates, rice protein, mung bean protein, canola oil, coconut oil, and other ingredients like potato starch, apple extract, sunflower lecithin, and pomegranate powder with a range of vitamins and minerals. Their mission is to create “The Future of Protein – delicious plant-based meats.” By shifting from animal to plant-based meat, they can address four growing global issues: human health, climate change, constraints on natural resources, and animal welfare.

Ⅱ.  Environmental Analysis & Challenges

The global meat and dairy sector are currently going through an unprecedented level of competition and disruption, driven by the growth of viable plant-based alternatives across many categories. Increasing awareness year on year of “Veganuary” and the fact that major multiple retailers have rapidly expanded their shelf space and their development for new plant-based products underline the growth of the industry.

Despite the rise in the availability of plant-based alternative products, the industry is still in a relatively early stage of its lifecycle and therefore has significant room for further growth. The industry’s global reach is expected to be enhanced by new product development and rising consumer demand. The surge in the market for plant-based alternatives is expected to continue across all regions, and its value is estimated to be doubled within five years. Beyond Meat could achieve some competitive advantage as the first mover by registering the most patents and gaining loyalty from the consumers. However, the company is currently facing the biggest possible obstacle which is new and powerful competitors.

Currently, Tyson Foods is the second-largest company in the world by its meat exports. They entered plant-based food industry in 2016, after selling all the stocks that they have previously obtained from Beyond Meat. Thankfully, Tyson Foods’ focus is not on market domination, but is rather making the attempt to become a part of this movement. Tyson Foods has a competitive advantage of strong supply chain which enables them to easily expand its business. Still, considering that the company is known to have issues with product demand forecasting, which led them to have numerous lost opportunities, they may face similar problems in the new market as well. On the other hand, there is a high probability that the company will stay stable considering their unique approach to the artificial food, such as hybrid burgers. Different from other companies like Impossible Foods or Sweet Earth, Tyson Foods mixes regular meat with the artificial one, creating a new product that is not targeting vegetarian people, but rather the meat consumers.

Another major competitor that Beyond Meat needs to look out for is Sweet Earth. This is a food company that has been working in the plant-based meat industry since 2016. Their current position in the market is relatively low because they are a relatively new company. Sweet Earth is currently spending a lot in terms of research and development. Compared to Sweet Earth, Beyond Meat has been researching for at least a decade. Consequently, Sweet Earth’s meat cannot be compared with other plant-based burgers. A critic has written that Sweet Earth’s burger has a good taste, but if judging from the perspective of mimicking beef it was a fail. However, Sweet Earth still has potential in a long-term. Considering that it is hugely supported by Nestle, Sweet Earth can utilize not only one of the most developed supply chains in the world, but also utilize their huge financial resources to gain further growth.

The final major competitor of Beyond Meat is Impossible Foods. The company have been operating in the plant-based meat industry since 2011 which makes it one of the first movers. It is currently considered to be the biggest rival of Beyond meat. The major reason why some deem Impossible Food to dominate the industry is due to the quality of their food, which comes from their best real meat mimicking formula. They use a specially developed protein which resembles meat’s bleeding when cooked, which adds more textural taste quirks to the plant-based meat. However, the company faces problems as well. To start with, like Beyond Meat, Impossible Foods has a relatively weak supply chain. In addition to this, the biggest issue is the availability of Impossible Foods’ recipes which are publicly known to the world. Of course, they keep some core ingredients under lock, but the fact that the plant-based food industry is easily penetrable may exterminate any advantage they currently have.

The mixture of current environmental situation and competitors, Beyond Meat is currently facing three different challenges. First challenge is whether the company can maintain its high market share in the long run despite its unstable financial structure. The second is how the company will differentiate its products from the big competitors. The final challenge is whether the company can overcome its current high-cost, high-price structure. By analyzing and evaluating these issues through the Balanced Score Card, we will present solutions in the finance, consumer, internal business processing, and corporate social responsibility sectors.

Ⅳ. Balanced Scorecard

1. Finance

Beyond Meat had started to sell its products in April 2013 as a private company. In 2016 BM had sold several minority stakes in the company as a private equity – one of them was 5% stake acquired by Tyson Foods. Beyond Meat has held IPO on the 1st of May, 2019, with initial price of $25 per share (BYND:NASDAQ), and soared by 163% the same day – which is the best IPO performance in approximately two decades and up to 734% in July. As per December 1st, 2019, BYND trades for 82.96 per share. Despite plant foods being quite niche industry, such success shows that there is a demand and public anticipation of meat alternatives.

Nevertheless, Beyond Meat financial statements are quite clear about the struggles of the company, questioning the efficiency of the management. Since financial statements became available in 2016, after the first private equity stakes were sold, Beyond Meat showed continuous growth, especially in 2019, after IPO on the 1st of May. In fact, Sales and COGS at the end of Q3 2019 are more than two times higher than at the end of entire FY 2018. CGS to Sales ratio also improved from 1.04 in 2016 and 1.07 in 2017 to 0.81 in 2018 and 0.68 at the end of Q3 2019, which shows positive change in cost structure, but is still very high as compared to 0.25-0.40 industry average.

Gross margin has also grown from being negative in 2016 and 2017 to 18.62% in 2018 and 33.24% in 2019. That may seem as a good sign but given the expenses – not for Beyond Meat. Since 2016, net income stays negative, though showed an increase since being -22,434 in Q3 2018 to -11,970 in Q3 2019. Despite positive dynamics in COGS, expenses that can’t be outbalanced by gross profit, are a large concern for Beyond Meat.

Beyond Meat has started to sell its products in April 2013, and for innovative food industry, investment in R&D is essential. R&D expenses have grown from 5,582 in FY 2016 to 8,387 in FY 2018, and almost doubled in Q3 2019 (cumulative) to 14,661, which possibly reflects the desire to meet public anticipation after IPO and the threat of competitors, who were impressed by market demand, shown by Beyond Meat’s IPO success. In fact, Tyson Foods, meat conglomerate which held stake in Beyond Meat since 2016 as a diversification method, has sold it in April 2019, just one month before Beyond Meat IPO (3), stating that Tyson Foods is willing to enter plant foods market independently.

What is of utmost concern is the amount of debt, especially ST borrowings and interest expense, associated with it. ST borrowing grew from 0 in FY 2018 to 9,087 at the end of Q3 2019, LT debt – from 2,570 in FY 2016 to 30,792 in FY 2018, resulting in 21, 821 in Q3 2019 (cumulative). Seems that ST borrowing also spurred interest expense, given that ST cost of capital is usually larger than LT cost: interest expense in Q3 2019 has doubled to 2,329 from FY 2018’s 1,128. Possibly Beyond Meat experiences liquidity problems, which can be associated with ineffective account receivables turnover and accumulated amount of account payables. Account receivables management has been a problem for Beyond Meat since 2016, with turnover ratio of 18.41. Throughout the years, turnover has improved to 6.96 in Q3 2019, but this is still quite low for the industry. Seems that management’s inability to collect account receivables on time decreases CF and cash-on-hand, which leads to short-term borrowing, which results into higher interest rates. Vicious circle.

Also, what may have contributed to BYND liquidity problems in 2019 is sudden increase in tax (specifically, capital gain tax) due to the IPO and unexpected spike in BYND stock. By the end of Q3 2018, $3,000 in tax were paid, as compared to $21,000 by the end of Q3 2019. Analyzing the statement of cash flows, we can see that the positive CF go from financing activities only, which are issuance of stock and long-term debt. At the end of Q3 2019, NCF from operating activities were ($18,339), from investing activities – ($17,153) and $312,451 from financing activities (all in thousands).

Given that Beyond Meat is a young company in a niche market, net loss caused by high R&D, S&A and capital expenditure is not good, but relatively normal. On the other hand, there is a room for improvement. If BYND will continue to work on the cost structure (specifically, decreasing CGS – given that other expenses, like R&D, are essential for success), will tighten its grip on AR collection, perform tax optimization, reduce ST borrowing (and interest expenses associated with it) and obtain more LT debt leverage in order to increase returns – such measures may help BYND to achieve positive NI in the nearer future.

To be more specific, crowdfunding could be used to solve Beyond Meat’s high interest expenses and short-term liquidity problems. Crowdfunding is the practice of funding a project or venture by small accounts of money from numerous individuals. Beyond Meat when using crowdfunding, can emphasize its unique social characteristics, such as being a producer of plant-based meat that could be consumed by everyone such as vegetarians, animal rights activists, and environmentalists. By doing so, it would help the company to easily gain financial support from the individual investors. This is possible because funds from crowdfunding has no interest expenses, only commissions to the crowdfunding company, which would help the company to reduce their short-term debt.

From a long-term perspective, the replacement meat market is expected to further expand by 2025. Moreover, if the company can maintain high market share in its future years, the company can expect to have large sales growths in the future. As a result, if we can properly solve short-term financial problem for the company, we can also naturally expect Beyond Meat to have more positive financial situations in the long run.

2. Consumer
3. Market Share

As of June 2019, the numbers from the graph shows that Beyond Meat’s sales have increased 208% in four weeks and 107.5% in 52 weeks. These numbers clearly show that within plant-based meat market, Beyond Meat is the market leader that has the most market share. However, considering that the competitors have recently entered the market, it is important for the company to be constantly taking actions to be ahead of its competitors.

1. Customer Value

Studies from Impossible Foods show that consumers of plant-based meat are mostly from two population groups which are millennials and gen Z. Furthermore, these two demographic groups could be further categorized into three groups which are vegans, vegetarians, and flexitarians. According to Deloitte’s report on plant-based alternatives, the recent rise in plant-based meat has been largely due to the increase in vegans, vegetarians, and emergence of flexitarian consumers. The flexitarians are consumers who still consume meat and dairy products but seek to reduce the levels they consume.

Since Beyond Meats’ products are purchased by flexitarians as well, it is recommended for the company to focus on four values which those consumers would seek for when purchasing their product. These are taste, texture, health, and environment. Considering these four values and the fact that its consumers mostly coming from Gen Z and millennials, the company should focus on online promotion to specifically reach out to its main consumers. Thus, for Beyond Meat to keep in check whether their next decision helps to provide necessary value, we propose them to use value checklist and sales/ marketing & promotion costs ratio.

With the checklist, the company can make decisions that would help them to increase the value of the consumers. Moreover, the provided ratio is a simple way for the company to be in touch with how effective their marketing and promotion is in helping them to make more sales. By utilizing these two tools, the company will be able to make decisions and promotions that would help the company to constantly maintain its high market share. We expect our tools to help Beyond Meat in having 30% of the market share in 2020~2025 which currently grows at CAGR of 5.8%.

3. Internal Process

In the internal process, we suggest that a proposal to meet the consumer’s needs should be aligned with the vision of Beyond Meat. The proposal could ultimately improve the financial performance of the company. We set the following criteria for how the company will meet the needs of its consumers and at the same time lead to improved financial performance. First, the main protein that makes up the product should be price-competitive and vegetable protein produced on a large scale. Beyond meat is using Pea, Mung bean, Fava bean, Brown rice and sunflower to deliver greater or equal levels of protein compared to its animal-based counterparts. These plant-based proteins make up the biggest portion in their cost: Price of Pea starts with $700/per Ton, average price of Mung Bean is $750/per Ton, Fava bean- $650. Thus, we propose that the company would replace them with Mycoprotein in the long-term. Mycoprotein is a protein made from Fysarium venenatum, a naturally occurring fungus. Until 2019, its safety was not 100% proven, however recent studies proved that it is generally recognized as safe. Price of mycoprotein in average is $500-$600. To sum up, we propose that the company develop proteins that can be produced at lower costs, such as mycoprotein, in order to improve sales margin.

Second solution is to improve the quality of existing products. Through the Impossible Whopper example, which is released jointly by ‘Impossible Food’ and Burger King, Beyond Meat would be able to further improve its product quality. Recently, a research institution in U.S. found that those who are not vegetarians but regularly eat vegetable diets at least once a week takes up 39 percent. Moreover, 79 percent of the millennials also have similar eating habits. Beyond Meat’s high-quality vegetable meat patties and nuggets could help the flexitarians to fulfill their needs of vegetable-based meat. By improving the quality of products to have the same quality as real meat, the demand for the Beyond Meat products would increase as more people would enjoy consuming plant-based meat.

4. Corporate Social Responsibility

Unlike the traditional BSC, we replaced ‘Learning Perspective’ with CSRs which is also Beyond Meat’s corporate vision. CSR(Corporate Social Responsibility) means that a company voluntarily accepts the social and environmental concerns of its stakeholders and actively applies them to the entity’s management activities. Many consulting reports predict that plant-based meat will replace some portion of the traditional experience with meat. We would like to propose a way in which the replacement goes beyond not only the indirect effect of reducing consumption of meat, but also help the potential consumers as well. Furthermore, we suggest the company to take apart 5 percent of a company’s annual net profit and utilize it to attract some butchers into their supply chain. To further elaborate, a reduction in the size of the existing meat market would result in unemployment for butchering. If the fund is operated to help turn butchers into plant-based protein manufacturers, it will not only solve the problem of unemployment, but Beyond Meat can also create its own supply chain, enabling stable procurement of raw materials.

1. V. Conclusion

In conclusion, Beyond Meat should take all-out action to maintain its recently rising sales amid the emergence of new competitors. From a financial perspective, we should strive to secure short-term liquidity through crowdfunding, etc. In the long run, the situation for the company would naturally improve since it is in a growing market. From a customer perspective, they should focus on online promotion through clear customer targeting and creating value checklists to continuously provide value to customers. From an internal process perspective, it will also be necessary to reduce costs and consider price competitiveness through the transformation of protein, the main ingredient of the product into microprotein. Furthermore, the quality should be improved to ensure the competitiveness of products. Finally, from the CSR point of view, measures should be devised to help potential stakeholders so that they not only improve their own supply chain, but also fulfill their social responsibilities to ensure stable procurement of raw materials.

1. V Reference (APA Style)

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