It's a small start, but the announcement by McDonald's (MCD 1.46%) that it will be testing Beyond Meat (BYND 3.84%) burgers at 28 restaurants in the Province of Ontario obviously seems like a big deal for the plant-based protein producer.
If the three-month trial goes well, it's quite likely McDonald's will roll it out to the rest of its 1,400 restaurants in Canada, and there's a good chance that could serve as a gateway to seeing it introduced to the 14,000 restaurants in the U.S. That's a lot of burgers Beyond Meat would be selling.
But this may be a case of Beyond Meat getting ahead of itself. There's good reason to think this deal with the fast-food giant won't be as expansive as it looks.
McDonald's is not the fit-and-trim choice
My Motley Fool colleague Dan Kline recently argued that McDonald's new P.L.T. (for plant, lettuce, and tomato) is doomed to failure because the fast-food chain has a poor track record of introducing new, healthy menu items. He writes: "People who visit fast-food chains generally want a full-on fast-food experience. They're not looking for healthy options, because they already view the meal as an indulgence or an earned cheat."
He's right. McDonald's has a history of trying to make its menu better for you, whether it was the McLean Deluxe in the early 1990s or -- when it chased millennials looking for fresher, more wholesome ingredients -- its kale bowls and lobster rolls. Diners voted with their feet, and the chain lost a half-million customers over the past few years.
I agree with Dan: You're not going to McDonald's to get healthy food. You're looking for a good, tasty meal at an affordable price.
Not entirely a healthier alternative anyway
Which is another problem for the Beyond Burger P.L.T. It costs $6.49 Canadian, or $4.90, nearly triple the cost of a regular hamburger and even more expensive than a Big Mac.
They're also not necessarily healthier by all nutritional measures, either. A P.L.T. comes with 25 grams of fat and 920 milligrams of sodium, compared with a regular McDonald's hamburger's eight grams of fat and 510 milligrams of sodium. The P.L.T. only slightly beats out a Big Mac at 28 grams of fat and 950 milligrams of sodium, respectively.
Of course, some argue that Beyond Burger and other plant-based beef alternatives don't have to be healthier, pointing to other considerations such as environmental impact. However, there's been debate historically about environmental aspects as well, with some arguing that raising cattle is good for the environment.
Capacity will constrain a wider rollout
A more practical concern for Beyond Meat is whether it would be able to actually meet the demand from over 15,000 McDonald's restaurants in North America.
The maker of plant-based meat alternatives has experienced capacity constraints in the past and has had to invest heavily in more equipment to simply meet current demand. It's also had to find additional partners to help produce its orders.
Earlier this year, it more than tripled its manufacturing capacity to 100,000 square feet, but as CEO Ethan Brown noted on Beyond Meat's second-quarter earnings conference call, as it adds new products, it could cause shortages in existing lines.
It would undoubtedly require significantly greater capacity to meet the needs of McDonald's. When it expanded its capacity back in June, Beyond Meat's total distribution was 30,000 restaurants and retailers, meaning McDonald's alone would amount to a 50% increase in distribution points, which is well beyond its capabilities.
What's in a name?
I think it's significant that unlike Burger King's Impossible Whopper, which is made from Impossible Foods' plant-based burger, McDonald's chose to give its new sandwich a name that doesn't reference Beyond Meat. The restaurant could very well be simply gauging interest in a faux meat burger before choosing a supplier that could meet its distribution needs.
Certainly the partnership holds some potential for growth for Beyond Meat, but investors shouldn't assume that it will inevitably expand to a systemwide rollout for McDonald's.