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Should Beyond Meat Worry That Chipotle Rejects Its Faux Burger?

By Rich Duprey – Aug 7, 2019 at 9:07PM

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It could be just a one-off event -- or the start of a deluge of restaurants that follow.

Chipotle Mexican Grill (CMG 2.09%) would seemingly be a natural partner for Beyond Meat's (BYND 9.50%) plant-based meat substitute. With abiding principles of serving "food with integrity," the Mexican food restaurant ought to have been first in line among restaurants signing up for the meat alternative that causes no harm to cows.

Yet despite the chain being an early advocate for using only humanely raised cattle for its beef, Chipotle rejected Beyond's faux meat option because it is too processed. CEO Brian Niccol told Bloomberg, "We have spoken to those folks, and unfortunately it wouldn't fit in our 'food with integrity' principles because of the processing, as I understand it, that it takes to make a plant taste like a burger."

Beyond Meat sliders

Image source: Beyond Meat.

While Niccol left the door open to revisiting the opportunity if the issue of over-processing could be sorted out, the rejection is something that should worry Beyond Meat investors as it could end up being the first of many restaurants to turn it down, and could even make those that signed on rethink their decision.

Business is booming

On the surface, it shouldn't matter to Beyond Meat that Chipotle is not signing on. It reported second-quarter earnings that saw sales to restaurants and food service outlets explode 483% higher, accounting for nearly half of total sales and promising to become the driver that leads to future growth.

Hardee's just announced it was adding the Beyond Burger to its menu, Carl's Jr. offers up the plant-based burgers, as does TGI Friday and Chipotle rival Del Taco, which uses its ground beef substitute in some of its tacos.

And when you consider that a number of other restaurants like Burger King, Cheesecake Factory, and Qdoba all use Impossible Foods' meat substitute on its menus (McDonald's uses a plant-based burger from Nestle in Europe), it seems Chipotle's holdout won't matter all that much to the future proliferation of meat substitutes in restaurants.

A different idea of natural

Beyond Meat CEO Ethan Brown suggested Chipotle's Niccol visit a beef processing plant if he's worried about how processed a product is, suggesting real beef is worse. And let's not forget that Chipotle is still on the road back from a severe backlash caused by several food-borne illness outbreaks, which could make it hard to believe rejecting Beyond Meat's beef alternative is a sound business decision to make.

The Mexican food chain needs to reassure its customers that its ingredients are wholesome, pure, and simple. Chipotle's menu has just 51 ingredients across all of the items listed; if it added Beyond Meat's beef alternative, it would cause the list to balloon by almost 40%.

Moreover, despite Beyond Meat's meatless beef often being billed as healthier, that's not always the case, because when combined with the typical ingredients on a restaurant's menu -- bun, sauces, and flavorful extras -- the plant-based alternative is often worse than the regular meat item it's substituting for.

Starting with a clean slate

Many restaurants recently went through a very rigorous and public process of "cleaning up" their menus by eliminating artificial ingredients, colors, and processed foods -- a trend that certainly bodes well for Beyond Meat, which is at least perceived as a cleaner, healthier alternative to traditional beef meals.

Consumers are showing a preference for such menus as well. Data from food-service industry consultant Technomic indicates 61% of consumers look for natural ingredients on menus, 35% want organic ingredients, and 31% seek out local ingredients. Over 40% are willing to pay up for "natural" and "clean" ingredients. When asked what they considered to be healthy, "not overly processed" was one of the key responses.

Right now, Beyond Meat, Impossible Foods, and other faux meat producers are enjoying a honeymoon due to the relative newness of their products, and the marketing around them being better for you and for the environment. As more becomes known about these products and what goes into producing them, the halo they currently wear may begin to fade.

Other restaurants like Chipotle that continue to maintain the integrity of their menus may soon agree that plant-based meat substitutes aren't nearly as clean and natural as originally thought. While a fast-food chain serving cheaper beef might not care so much, the current boom experienced by Beyond Meat won't necessarily turn into a bust, but its recent highs might be as good as it gets. 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool recommends Nestle. The Motley Fool has a disclosure policy.

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Beyond Meat Stock Quote
Beyond Meat
BYND
$15.91 (9.50%) $1.38
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Chipotle Mexican Grill, Inc.
CMG
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