Beyond Meat - which posted a net loss of $54.8m in the third quarter (three months to Oct 2, 2021) - notched up a 12.7% year-on-year increase in net revenues to $106.4m, with 142.5% growth in international sales partially offset by a -13.9% drop in US revenues, “primarily as a result of lower overall demand.”
Gross margins dropped from 27% in Q3 2020 to 21.6% in Q3 2021, said the California-based firm, citing increased transportation costs, increased inventory write-offs, higher warehousing costs, and increased depreciation and amortization expenses, coupled with "severe weather [which] interrupted water supplies for two weeks at our Pennsylvania production facility, as well as destroyed sizable amounts of packaging inventory at a related storage center.”
Looking ahead to the fourth quarter, the environment “continues to be affected by near-term uncertainty related to COVID-19 and its potential impact including on demand levels, labor availability and supply chain disruptions,” added the company, which expects net revenues in the range of $85-110m in Q4.
‘We believe our long-term thesis is strengthening and undeterred by current instability’
Quizzed by analysts about how to interpret the weaker performance in the US market, Brown said: “My comments are my best understanding of an environment that is characterized by rapidly changing, and we believe largely transitory dynamics. We believe our long-term thesis is strengthening and undeterred by current instability.”
US foodservice sales declined by -7.3%, while the negative impact of the Delta variant of COVID-19 “was further exacerbated by labor shortages that drove reduced operating hours and menu rationalization,” he added.
“In our largest [foodservice] chain in the US that offers drive thru, we saw a meaningful uptick in velocity in the quarter, [but] the majority of our customers today rely on in-store and in-venue consumption for sales. Accordingly, we were disproportionately impacted throughout the quarter as the Delta variant dampened consumer activity within the core of our foodservice customer base.”
McDonald’s, Pizza Hut, Panda Express: ‘I do think you're going to see a significant increase in food service’
Brown did not provide any further insight into the tie-up with McDonald's in the US, beyond confirming that the fast food giant was testing the McPlant burger (supplied by Beyond Meat) at eight US restaurants.
However, he noted that a recent test of its new plant-based chicken with Panda Express (Beyond The Original Orange Chicken) is now rolling out to 10 major markets across the US following successful trials in Southern California and New York.
Pizza Hut, meanwhile, recently started road-testing its Beyond Pepperoni pizza at 70 locations across five US markets on the heels of the permanent menu launch of a pizza featuring Beyond Meat plant-based meats in the UK in July, added Brown.
“I do think you're going to see a significant increase in foodservice… as we get into more and more foodservice accounts that are some of these large strategics.”
US retail sales -15.6% year-on-year
US retail sales, however, declined by -15.6% year-on-year, he said: “We saw a 21% year-over-year decline in velocity for the [Beyond Meat] brand in US MULO [multi-outlet- food, drug, mass, club, dollar etc] in the 12 weeks ended October 3.
"These dynamics notwithstanding, our brand velocity remains nearly three times higher than the category average on an absolute basis… and we continue to see consistent progress on important metrics such as household penetration and repeat rates. But household penetration for the category was down slightly on a sequential basis."
Asked whether increased competition from brands such as Impossible Foods - which has been aggressively pushing into retail this year - were responsible for Beyond Meat's weaker US retail sales, he said: “With increased competition over the past two years, we're seeing, as expected, some impact on market share.
"However, in looking at the Q2/Q3 SPINS market share data by product mix neutral basis, it does not reveal competition to be a significant contributor to the aforementioned deceleration.”
Bernstein: 'It seems too early to call whether this is a short-term stumble'
In a note issued on Thursday morning (Nov 11) describing Beyond Meat's gross margin numbers as a "big disappointment," analysts at Bernstein said they were downgrading Beyond Meat based on ongoing uncertainty around demand in US retail and foodservice channels, likely ongoing margin pressure from labor and supply chain issues, and escalating pea protein costs when contracts roll over.
"It seems too early to call whether this is a short-term stumble due to how Covid has affected consumer behavior or a more fundamental issue."
'Beyond Meat continues to lose share to Impossible Foods for now, but at least these share losses have begun to moderate...'
As for the competitive set, Bernstein added: "When we look at measured channel data to gauge what is happening in US Retail channels... we see that two-year CAGRs have continued to slow for the overall meat alternatives market and for Beyond and Impossible on a combined basis.
"Beyond Meat continues to lose share to Impossible Foods for now, but at least these share losses have begun to moderate now that we are lapping the major distribution gains that Impossible enjoyed over the summer of 2020... And this is even more impressive when we consider that Impossible Foods' average prices have declined far more quickly than Beyond's over the past year, but then having a competitor that is competing so aggressively on price is worrying."
Growth is decelerating in the US fresh plant-based meat category
US retail sales of refrigerated plant-based meat alternatives declined by -3.1% in Q3 2021 compared with the same period in 2020, but were still up 74% vs the same period in 2019, according to IRI data for the 13 weeks to September 26.
That said, the “gains are decelerating,” said Anne-Marie Roerink, president at 210 Analytics, in a briefing note issued last month.
“In the first quarter of 2021, gains versus 2019 were still 156.5% versus the first quarter of 2019,” said Roerink. “Growth dropped to 115.7% in the second quarter [vs 2019] and 74% in the third quarter [vs 2019].”
As for price, she said: "Prices for plant-based meat alternatives changed very little. In September, shoppers paid an average price per pound of $8.08, up just 0.2% from September 2020. The percentage of September dollars sold on promotion increased from 30.9% last year to 34.9% in September 2021 — indicating a marketing effort to further drive trial.
“Third quarter and September volume also dropped, at -3.3% and -2.9%, respectively. Much like the share of dollars sold on promotion, the share of volume sold while on sale also increased. In September 2020, 33% of plant-based meat alternative pounds were sold on promotion. In August 2021, this ratio stood at 38%.”
Retail sales of conventional meat rose 2.8% in Q3 2021 vs Q3 2020
By way of comparison, fresh [conventional] meat sales were up 2.8% in Q3 vs the previous year, but up 24.9% vs 2019. While some of this was driven by higher prices (the average price per pound in the meat department was $4.32 in September 2021, up 11.8% from September 2020), volumes were still up solidly vs 2019, said Roerink.
"While inflation certainly plays a role, the retail supply chain continues to move more pounds [of conventional meat] through the system when compared to 2019. Year-to-date, volume sales were down 7.1% compared with 2020, but still average 4.1% more than in 2019, with above average gains for processed meat, at +5%."