Beyond Meat (BYND 0.49%), maker of plant-based meats that feature pea protein as their main ingredient, posted outstanding sales and revenue figures with its Q4 and full-year reports on Feb. 27 – but got a stock market black eye nevertheless. Investors signaled unhappiness that sales weren't even bigger, and perhaps that there's still no major McDonald's (MCD 0.88%) deal. But while Beyond Meat may be down a little, it isn't out. It might still have the potential to turn its first-mover advantage into the same success another famously volatile company, Tesla Motors (TSLA 5.15%), enjoys.

Beyond Meat makes a first-year splash

Manufacturing several different types of what it calls "plant-based meats," Beyond Meat has achieved some notable milestones since its May 1, 2019 IPO. Already sold at 25,000 locations before its stock market entry, the company's products are now available at approximately 58,000 outlets, including both restaurants and grocery stores. Key takeaways from its recent results include a 212% year-over-year jump in quarterly revenues. Both quarterly sales and full-year revenue (of $297.9 million) beat analyst estimates by a significant margin. Its 2020 sales guidance of $490 million to $510 million also exceeds analyst projections.

Sales of its Beyond Sausage at Dunkin' Brands  (DNKN) restaurants were enough significantly boost quarterly sales for the chain, according to Dunkin's CEO during the most recent earnings call. McDonald's began testing its "PLT" (plant, lettuce, and tomato) using Beyond Meat patties, a move which Oppenheimer analyst Rupesh Parikh claimed could add $200 million to Beyond's sales. Beyond is entering the European market in February 2020 with offerings at 500 Casino Group-owned restaurants across France. Overall demand growth is high enough for Beyond to ink a multi-year deal with pea protein supplier Roquette Frères in January, a move that "significantly increases" purchases over the next three years.

A Beyond Meat burger with packaging.

Image source: Beyond Meat

The pea protein advantage

While plant-based meats existed for years before it burst on the scene, Beyond Meat may have achieved a significant first-mover strategic advantage in one crucial way: enthusiastically using pea protein rather than cheaper soy protein. This may give it the chance to emulate one of Tesla's winning strategies in the automotive market.

Despite rival automakers' electric cars now providing much the same features as Tesla vehicles, Elon Musk's company still dominates U.S. electric vehicle sales, controlling 80% of USA electric vehicle purchases in 2018, in part because it got there first and achieved name recognition as the EV leader.

Beyond Meat obviously can't claim to be the first plant-based meat maker, but it does have the opportunity to establish its credentials as the leader in healthier plant-based meats based on pea protein, not soy. Once the go-to plant protein, soy's reputation has dropped in recent years. As research by Lumina Intelligence indicates, people are now avoiding soy because of its alleged health and environmental effects. Rightly or wrongly, according to the research, many people now believe that soy:

  • lowers male testosterone levels
  • involves farming practices that cause deforestation
  • is closely associated with GMOs
  • ranks as a major allergen

Beyond Meat's pea protein meat substitutes haven't been around long enough for studies to exist showing how popular they are next to soy burgers specifically because of their plant content. But there's plenty of information about a parallel market where pea protein and soy go head to head: sports nutrition. Lumina Intelligence reveals that pea protein is present in 80% of major American protein powders, whereas soy now features in only 12%. This shows how big a practical impact the public's changing opinion of soy has had on the soy vs. pea protein market structure.

Other market research predicts worldwide pea protein sales growing at a 13% CAGR through 2025, or even a 17.4% CAGR according to some sources. Soy forecasts, contrastingly, call for a 5.2% CAGR over the same period.

Beyond Meat certainly isn't the only plant-based meat company using pea protein. However, its chief current competitor, Impossible Foods, uses a blend of soy protein and potato protein for its faux burgers, with soy as the main ingredient and potato a distant second at less than 2% by content. Kellogg's (K -0.60%) Incogmeato meat substitutes, slated to be launched in spring and summer 2020, also rely on soy. Though the company specifically uses non-GMO varieties and advertises the fact, it's still uncertain if this can overcome general bias against soy. Numerous start-up brands, such as Prime Roots, which uses Japanese koji fungus rather than soy, are very small compared to the two plant-based giants. Next to a $7.6 billion valuation for Beyond and $2 billion for Impossible, these smaller contenders won't be in a position to challenge them for some time.

Beyond Meat's focus on innovation echoes Tesla again

Tesla has built its success, in part, on never sitting still. It has pushed aggressively to improve electric vehicle technology, adding full-autonomy to its vehicles, buying up significant renewable battery companies, rapidly developing solar roofs, and partnering with other car companies, all at a breakneck pace. Beyond Meat seems similarly determined to keep up its momentum through active innovation and partnerships.

Mirroring the electric car maverick, probably unintentionally, Beyond Meat is expanding its network of partnerships rapidly, even if this is seemingly not fast enough to please everyone investing in food stocks. Even more significantly, it's pumping money into R&D and attempting to maintain its edge in rapid innovation. Research and development spending in 2019 amounted to 6.9% of net revenues, soaring to $20.7 million from $9.6 million, or more than doubling.

Just as Tesla continuously tries to improve its cars with new developments, Beyond's R&D aims at bettering its existing products in addition to creating new ones. According to founder, president, and CEO Ethan Brown during the Q4 earnings conference call, Beyond Meat's research is working on enhancing smell, taste, and texture of the plant-based meats. The R&D department is also developing meat-free analogs of poultry, pork, and beef, including plant-based steak, chicken breast, and bacon. 

Beyond's various offerings could be simply a fad destined to wither away as new brands emerge and fickle tastes change. However, it does have several key factors working in its favor: first-mover advantage (in completely avoiding soy and establishing itself as the pea protein leader from the start), a growing list of partners, vigorous R&D and innovation to drive fresh growth, and explosive sales increases providing it with the revenue needed to keep building.

Initiative counts for a lot. While nothing is certain at this point, Fools may want to watch Beyond Meat for long-term potential. Fame and brand loyalty, not to mention simply being the first to deliver a quality product on a large scale, can give long-lasting momentum beyond temporary stock market ups and downs. Considering its product, aggressive rollout, and enthusiastic reception, Beyond Meat might manage to position itself to become the Tesla of meat substitutes, with high profits and strong long-term potential.