Ever wonder exactly what's inside a Beyond Meat (NASDAQ:BYND) burger?
In this video from our YouTube channel, we go inside a Beyond Meat burger patty to explain the company's financials and the overall market for plant-based protein products.
Narrator: Hey there, I'm Fool.com's Dylan Lewis. Today we are going inside Beyond Meat and their plant-based burger patties to explain the meat alternatives market, and what the future might hold for Beyond and Impossible Foods.
Okay so earlier this week I went to the supermarket, scooped up a bunch of Beyond Meat product, and now we're in my kitchen in Washington D.C.
We're going to show you what's inside a Beyond Meat burger, but first a little background on the company
Beyond Meat was founded in 2009 by Ethan Brown, and their burgers first became widely available in 2013 -- but the flood of news about the company really only started in the lead up to its IPO in 2019.
It's been one of the hottest stocks in the market -- shares soared over 160% on their first day alone.
More on that later -- but first let's talk about Beyond's products and what's inside them.
Beyond offers the Beyond Burger, Beyond Sausage, Beyond Beef -- perfect for meatballs, and Beyond Beef crumbles -- ideal for taco nights.
The company leans on peas, mung bean, and rice to bring protein to the patties, and it's able to achieve the color and "bleeding" effect you'd expect with meat thanks to beets.
They're even able to add the "marbling" meat eaters love thanks to coconut oil and cocoa butter.
If you read the company's site, it's clear that Beyond is focused on a market Beyond just vegetarians and vegans. They want to be in the grocery baskets of meat eaters.
Looking at attitudes around vegetarianism and veganism, it's clear why.
Vegetarian and vegan options are far more available at restaurants and supermarkets now than they have been in the past, so seemingly consumer tastes are changing around meat.
What's interesting is that it isn't clear that more Americans are identifying as Vegan and Vegetarian.
In a 2018 Gallup poll of over 1,000 adults in the U.S...
- 5% considered themselves vegetarian
- 3% considered themselves vegan
Gallup has conducted this same poll several times, dating back to 1999. At every check-in, the percentages have pretty much held even.
Other polls looking to gauge the percentage of vegetarian Americans generally put the figure around 5% or so as well.
When you factor in population growth, it's likely there are more Vegans and Vegetarians in the U.S. than in the past, but as a percentage, the preferences haven't become more popular across the population.
So to make it to the big-time, Beyond and its main competitor Impossible Foods need to make meat-eaters occasionally opt for plant-based alternatives.
This is particularly true because if you look at vegetarian preferences by income bracket, a lot of non-meat eaters are probably priced out of buying Beyond and Impossible products.
In that Gallup survey, the rate of vegetarians is highest among people that make less than $30,000 per year at 9%, nearly twice the rate for the other two income brackets.
People have theorized that the rate is higher in low-income groups because meat is expensive and adds a lot to the weekly grocery bill.
And Beyond Meat products are generally more expensive than their meat counterparts:
At the grocery store near me, their 8 ounce pack of 2 patties costs $5.99. For that, you could buy two pounds of ground beef.
Right now, the production costs are too high to really make their products available to the people most likely to keep meat out of their diet.
So the BIG hope for these businesses is that more people over time will move to vegan and vegetarian diets but also that with alternatives available, frequent meat eaters might occasionally buy plant-based protein.
There are definitely reasons to think that might happen.
Increasing awareness around the impact of global meat production and consumption might be enough to push people that way.
Our global beef consumption has gotten us to the point where cows contribute about as much to near-term climate impacts as cars do.
And cattle ranching is the #1 cause of deforestation of the Amazon rainforest, and the main reason why the region is currently dealing with wildfires.
These environmental issues make a strong case for plant-based alternatives, especially when you add in animal-welfare concerns as more and more of our meat comes from factory farms.
All told, the current plant-based protein market is about $12 to $14 billion -- or less than half of what U.S. meat giant Tyson Food will make selling beef, pork and chicken in 2019.
But people have huge expectations for where it could go.
Analysts at Barclays project that the market for plant-based alternatives could reach $140 billion over the next decade -- or growing at an annual growth rate of 25% -- giving it roughly 10% share of the meat industry.
These kinds of estimates -- plus the fact that Beyond is the only pure play way to invest in meat alternatives right now -- is what's driving the ridiculous demand for shares of Beyond Meat, and why folks are eagerly waiting for Impossible Foods to IPO.
All that hype has pushed the valuation of these companies so far beyond their actual business results.
Over the last twelve months, Beyond Meat sold $165 million in meat alternatives. As of taping, the company is worth about $9 billion. So Beyond shares are trading at nearly 55 times trailing sales, and their valuation is about half of the industry that they currently own roughly 1% of.
Put another way -- this is the meat alternatives market, and this is how much Beyond Meat is currently worth, but this is how much of the market they actually do in sales.
The business has been consistently doubling revenue each year, but those kinds of nosebleed valuations are usually reserved for software companies that have businesses that can scale well and eventually generate huge profit margins in the 70-80% range. Beyond's gross margin is only around 28% right now.
To go back to our raw meat assistant here -- If this is $1 in Beyond Meat sales, this is how much is left over after you factor in the costs of actually creating the product.
But there are more expenses to account for -- the company has an R&D budget, a sales team, marketing campaigns, and all the things that go with running a business.
All told, Beyond Meat is losing money when you get to the company's bottom line. That's not rare for a young company, but it's important to understand.
Let's bring it all home while I throw these burgers on the grill.
The bet investors are making right now is that Beyond and Impossible will become the name brands of meat alternatives, and gobble up growth along the way.
Beyond and Impossible have both partnered with major chains to bring their products onto menus across the country -- this fall Subway is testing Beyond Meatballs in its marinara sub sandwich, and Dunkin Donuts offers breakfast sandwiches with Beyond sausage patties. Impossible even partnered up with Burger King to create the Impossible Whopper.
All of these agreements are huge stamps of approval, and both companies need them in order to cement themselves as the brand names.
Even over the past few months, major food players like Tyson, Nestle, and Hormel have announced that they are launching or developing plant-based products.
As more companies enter the space, price will become much more of a factor for consumers.
In my trip to Giant to pick this stuff up, I noticed another plant-based meat product, this one from Pure Farmland, a company owned by Smithfield Foods -- for the same retail price as 8 oz of Beyond Meat, they're offering 16 oz of their product.
If Beyond can become the Kleenex of meat-alternatives, consumers might be willing to pay up. But if not it could spell trouble for the businesses.
For now the frenzy of the soaring stock price and the series of nationwide partnerships has worked -- I am a hardcore meat eater and regularly buy a couple beyond patties for my backyard cookouts.
My producer, Austin Morgan is not yet a convert. We'll see how he feels after finally biting into one....
Have you had an Impossible or Beyond burger? We want to know what you think, let us know down in the comments section, and if you haven't already give us a thumbs up below and subscribe to get more stuff from The Motley Fool.