Beyond Meat (BYND 1.90%), known for its processed meat substitutes made from pea protein, reported some impressive growth in the fourth quarter. Total revenue more than tripled to $98.5 million from the prior-year period, with sales to both retailers and restaurants up big on a year-over-year basis.
That all sounds great. But hidden behind the headline numbers was a big crack in the growth story. Compared with the third quarter, sales to retail stores were down quite a bit. There's no reason to believe sales of meat analogues are seasonal, and overall demand for the category is growing. The most logical conclusion is that competition is starting to eat into Beyond Meat's sales in the grocery aisle.
Image source: Beyond Meat.
A double-digit decline
Beyond Meat generated $40.7 million from the retail channel during the fourth quarter. That's up from just $13.6 million in the fourth quarter of 2018, the result of increased distribution over the past year.
But Beyond Meat generated $50.5 million from the retail channel in the third quarter. On a sequential basis, retail sales were down a whopping 19.5%.
There could be something going on here with the timing of orders, to be fair, but one thing that has changed in recent months has been an influx of competition. Beyond Meat is far from the only game in town for those wanting their imitation meat fix. Just a few examples: Products from Impossible Foods began hitting shelves in September, and grocery giant Kroger has been launching a full line-up of private-label plant-based products.
According to Beyond Meat CEO Ethan Brown, the company's products are easily outselling the competition. "If you think about in the refrigerated plant-based meat set in retail, we're outselling our closest competition by a factor of two," said Brown during the earnings call. But the real question is whether Beyond Meat is losing market share to those competitors. The sequential revenue performance suggests that it is.
While management claims competition isn't a problem, the company plans to ramp up marketing spending in 2020. That's one reason Beyond Meat expects its adjusted EBITDA margin to be flat from 2019.
More competition is coming
While the imitation-meat section of the meat case has already become more competitive, it will get even more crowded this year. Kroger is adding to its plant-based lineup with ground beef and burger patties, Cargill plans to launch a Beyond Meat competitor in April, and if the meat-substitute trend holds up, you can expect lots of packaged-food companies to jump into the fray.
The restaurant and food-service side of Beyond Meat's business is doing much better. Sales were $57.8 million in the fourth quarter, up 39% from the third quarter. Beyond Meat benefits from restaurants that are generally opting for a single meat-analogue option. It also benefits from the fact that its brand is better known than most of its competitors.
But the decline in sales to retail stores, and the subsequent ramping up of marketing spending, could indicate that competition is starting to have a negative effect on demand. Maybe this is just a blip. Or maybe Beyond Meat's brand doesn't mean all that much to consumers.
Whether or not you're a believer in the long-term potential of imitation meat, Beyond Meat's retail performance in the fourth quarter raises some questions about the growth story.
