Reporter | Lu Yibei
Edit | Ya Han Xiang
Wall Street and consumers are beginning to "get their heads down" to plant-based.
Beyond Meat, a plant company, disclosed its first-quarter 2022 earnings report, and for the three months ended April 2, the company recorded revenue of $109.5 million, an increase of 1.2% year-on-year; a net loss of $100.5 million, compared to a net loss of $27.27 million in the same period last year, showing an expanding trend. This is the third consecutive reporting period for the company to experience sluggish performance and more than expected losses.
"The company's weak performance stemmed from four factors: weak overall plant-based products, consumers shifting from refrigerated meat alternatives to frozen meat, higher discounts and increased competition." Beyond Meat CEO Ethan Brown said at the results meeting. The day after earnings disclosure, Beyond Meat's stock price plunged 25 percent to $20.58 after hours, falling below its 2019 public offering price of $25 for the first time. Since the beginning of this year, its stock price has fallen by more than 50%.
Wall Street reacted quickly.
Goldman Sachs adjusted its Beyond Meat price target from $40 to $14 to maintain its sell rating; JPMorgan Chase lowered its price target from $32 to $15; Barclays analyst Benjamin Theurer slashed its price target from $80 to $25 and downgraded the stock from overweight to a wait-and-see rating. The analyst said the first quarter results were "disappointing" and that the second quarter was expected to be "less optimistic."
OATLY's performance also disappointed Wall Street. OATLY's first quarter 2022 report released in early May showed revenue of $166.2 million, an increase of 18.6% year-on-year, but its consolidated loss attributable to the parent reached $110 million, an increase of 258.37% from the first quarter of 2021, and gross profit fell to 9.5%, compared with a gross margin of 29.9% for the same period in 2021.
OATLY said revenue growth was impacted by lower-than-expected production and lower-than-expected sales in Asia, while in China, the pandemic led to the closure of more than 17,000 foodservice outlets. On the other hand, the company's sales costs in Europe, the Middle East and the Americas have also increased rapidly due to rising labor costs, logistics costs, and plant expansion costs.
OATLY was listed in the U.S. in May 2021 with an opening price of $22.12 per share, and although it was not profitable, the company was valued at $13.1 billion at one point. But right now, as of May 17, OATLY's stock price has fallen 56.63% from the beginning of the year to $3.63, and its market value is hovering at $2.148 billion.
Consumer interest in plant-based foods is waning, which is a big reason for the continued losses in the performance of these two companies.
Plant-based refers to a product that replaces animal protein with plant protein and animal products with artificial plant products for environmental protection and health, and the consumption trend caused by it. At present, the globally discussed environmental health and carbon neutrality initiatives are all environmental backgrounds that promote plant-based consumption hotspots.
Plant-based meat and plant-based milk are two of the most popular tracks.
Big companies have invested heavily in these two tracks early on. Nestlé, for example, has acquired plant-based food company Sweet Earth since 2017. Nestlé's plant-based road has been 5 years, during which its brands such as Garden Gourmet, Jia Zhi Cuisine, Wunda and other brands have launched plant-based products such as hamburgers, sausages and seafood. According to the financial report, Nestlé's plant-based food sales increased by double digits in 2021, reaching a total of $860 million.
But that's not the consistent performance of companies on all plant-based tracks. Maple leaf is a canadian agricultural products company with more than 60 years of history, owning plant-based brands such as Lightlife and Field Roast. On the company's third-quarter earnings call in November 2021, its CEO Michael McCain said, "Over the past six months, unexpectedly, the growth rate of plant proteins has fallen sharply. Of course, our performance has been affected in the middle of this. But the more worrying fact is rooted in category performance, which is basically mediocre."
At least for the capital market, whether it is artificial meat or oat milk, the time for competing for it and investing feverishly may have passed – the stock price changes of Beyond Meat and OATLY are the best evidence.
The conforming plant meat concept became popular worldwide in 2019, and Beyond Meat was hot in the capital markets. In May 2019, Beyond Meat listed on the NASDAQ at $46 per share, and its stock price soared 163% on its first day, the best first-day IPO performance since the financial crisis. In just two months of listing, Beyond Meat's share price has tripled fivefold to an all-time high of $234.90.
Beyond Meat's boundless scenery also makes plant-based a popular investment track.
In the Chinese market, cutting-edge plant meat brands such as Zhou Zero, Zhen Meat, and Uneaten Da have also taken advantage of this wave of heat to obtain financing, and established meat products companies such as Twin Towers Food, Jinzi Ham, and Shuanghui Development have successively entered the market; on the market side, catering giants such as KFC, Starbucks, Pizza Hut, etc. have subsequently launched artificial meat concept products. In 2020, Beyond Meat also launched beyond pork for the Chinese market.
But this artificial meat boom began to cool down after entering 2021. According to Nielsen, retail sales of plant-based meat were broadly flat compared to the same period last year in the 52 weeks ended April 30, 2022. Market research firm IRI found that total sales of meat substitutes have fallen 5.8 percent over the past 52 weeks.
In essence, for consumers, spending more money to eat artificial meat that still cannot be realistic may not be a reasonable and worthwhile behavior. According to Nielsen, the retail price of Beyond Meat's beef products is about 125% higher than the market beef price, and even 40% higher than that of organic meat. Plant-based ground beef at Impossible Food, another American artificial meat star, is also about 100% higher than the average market beef price.
From the perspective of channels, the expansion path of artificial meat brands is also similar, generally through cooperation with catering channels to cultivate the consumer market, and then enter the supermarket channel to face C-end consumers.
But consumers also don't seem to buy it. Unilever's plant-based meat brand "Zhizhuo Butcher" launched the "True Fragrant Plant-based Castle" with Burger King at the end of 2020 and formed a package with Coke Zero, but sales after the listing were much lower than expected. In April 2021, AUD (average per store per day) sold only 3, and the product was forced to go offline after less than a quarter on the market.
On the other hand, with the intensification of market competition, artificial meat companies that have not yet established brand barriers are caught in price wars.
In 2021, the price of ordinary beef gradually fell, and Impossible Foods reduced the wholesale price of its products by 15% at one time, making the average price of its products about 16% lower than that of Beyond Meat. Beyond Meat was forced to fight to maintain its market position, followed by a 10% price cut. But this move did not bring good luck.
According to the financial report, in terms of product sales, Beyond Meat's total sales in the first quarter of 2022 increased by 12.4% compared with the same period last year, but it was largely offset by a decrease of about 10% in net income per pound. Beyond Meat said the decrease in this segment of net income was mainly due to increased trade discounts, lower EU list prices, changes in the sales mix and negative impacts on foreign exchange rates.
Credit Suisse found that in the United States, Impossible Foods is grabbing market share of Beyond Meat. JPMorgan analysts also asked at beyond Meat's performance meeting why they followed other competing brands to reduce prices. Why, in the event of a loss of gross profit, prices have been reduced to a level close to that of animal meat? JPMorgan also noted that sales increased by only 1% in the first quarter of 2022, but sales and general administrative expenses increased by 93% year-on-year.
In addition to plant meat, the seemingly red-hot plant milk track has become increasingly calm.
The successful rise of OATLY is based on its strong binding to the coffee channel. OATLY was founded as early as 1994 to focus on the production of oatmeal-based dairy products, giving people with lactose intolerance dairy freedom, but has been unknown for many years. It wasn't until 2012 that OATLY's new CEO made a reform, positioning it as a "milk replacement," marketing a "healthy, sustainable lifestyle," and aggressively making its way into channels such as Starbucks and Pacific Coffee.
But for now, the competition for oat milk has become increasingly intense. From multinational giants such as Nestle and Unilever to China's cofco, Yili, Nongfu Spring, Vitasoy, etc., they have launched oat milk products that benchmark OATLY. Even in the case of plant-based beverages, with the changing development of the coffee market, rising stars such as Fino's thick coconut milk are now hotter than oat milk.
However, the capital market still seems to have some confidence in OATLY. After the first quarterly report was disclosed, Citi analyst Wendy Nicholson lowered the company's target price for OATLY from $11 to $10 and maintained a buy rating after the first quarter earnings report. The analyst believes that many uncertainties about the timing of sales acceleration and gross margin stabilization have been reflected in the stock price.
However, neither Beyond Meat nor OATLY has adjusted its revenue forecasts for this year and continues to invest heavily in various markets.
In the Chinese market, OATLY, which is "deeply bound" to coffee, launched the "Tea Master Oat Milk" in the first quarter of this year, and cooperated with the tea brand Shuyi Roast Immortal Grass to launch a new product. The company said the market for fine tea in China is twice as large as that for specialty coffee. In addition, in the retail channel, OATLY has also launched a more portable 250ml small package of oat milk; beyond Meat, on May 16, it announced that it has established a partnership with the convenience store chain brand Lawson to launch two plant-based bento, Nametour and Bibimbap with seven kinds of seasonal vegetables, at Lawson stores in Jiangsu, Zhejiang, Shanghai and Anhui.
Continuously expanding channels is the focus of plant-based brands at present.
But whether these moves will undo Wall Street's growing patience remains unknown. Continuing to burn money without seeing significant growth is one of the important reasons why analysts have lowered their expectations. Barclays analyst Benjamin Theurer downgraded Beyond Meat for reasons such as reduced short-term visibility, rising cost pressures, and significant cash consumption.