Shares of plant-based meat company Beyond Meat (BYND 4.52%) went on a little roller coaster ride recently. The volatility was related to McDonald's (MCD 1.24%) new plant-based burger called the McPlant. Investors were left with conflicting information on whether Beyond Meat was partnering with it for the new menu item, sending the stock up and down in the chaos.
So why does it matter? According to one analyst, a partnership with McDonald's could annually add $300 million to Beyond Meat's top line. For perspective, the company has about $400 million in trailing-12-month revenue. Therefore, just one deal with McDonald's could nearly double Beyond Meat's revenue. That's a big deal.
The confusing launch of the McPlant
The McPlant was discussed in McDonald's investor update on Nov. 9. Ian Borden, president of its international business, said that plant-based menu items are something consumers are demanding, and that the company fully intends to meet this demand. Regarding the McPlant, he said it was merely the first bud of a blossoming plant-based menu -- one that will launch globally, be available for breakfast and supper, and span different protein categories like chicken and beef.
But Borden also said something that dashed the dreams of Beyond Meat shareholders. "McPlant is crafted exclusively for McDonald's, by McDonald's" (emphasis added). There was no mention of Beyond Meat in the presentation. In fact, his language didn't leave much wiggle room: McDonald's will make the McPlant.
Little room or not, Beyond Meat wiggled its way back into the conversation later that same day when a spokesperson said the patty was "co-created" by the two companies. Naturally, analysts wanted clarity when Beyond Meat reported earnings for the third quarter of 2020 later that afternoon. But answering questions during the conference call, CEO Ethan Brown took a softer approach. He didn't directly answer the question but rather simply said, "Our relationship with McDonald's is good."
Needless to say, if Beyond Meat partnered with McDonald's for a menu item, the deal would be huge. UBS analyst Erika Jackson reportedly believes a deal with McDonald's for one menu item in the U.S. alone could add $300 million annually to Beyond Meat's revenue. The possibilities only increase from there with multiple menu items globally.
Possible implications for Beyond Meat
While Brown didn't directly address the McPlant, his answer to analysts does provide clues if you read between the lines. Brown said, "I feel ... good about what we're contributing to the McPlant platform." In his answer, it seems clear Beyond Meat has some sort of role in helping McDonald's develop Borden's vision that extends beyond a single menu item in just the U.S.
It's possible McDonald's is going solo for the McPlant hamburger. Perhaps the fast-food giant is consulting with Beyond Meat to make sure it has a handle on producing its own plant-based beef substitute. But maybe the company is agreeing to a consulting role in exchange for securing a different future menu item. Remember: Beyond Meat already produces plant-based breakfast sausage in addition to burger patties.
Another possibility is that McDonald's is simply choosing not to co-brand the McPlant with Beyond Meat. To this point, when restaurant chains launch menu items, they've chosen to include the Beyond Meat brand in the marketing. For example, consider Yum! Brands' recent launch of Beyond Pan Pizzas at Pizza Hut.
Pizza Hut could have simply called these "vegetarian pizza options," but rather chose to co-brand with Beyond Meat. As the above picture shows, it even elected to forgo its traditional red logo for Beyond Meat's favorite shade of green.
By co-branding, Beyond Meat's exposure and brand strengthen in an increasingly crowded plant-based market. There's also benefit for Pizza Hut and other restaurant chains that co-brand: They get the credibility of an entrenched meat-substitute company like Beyond Meat.
It's possible McDonald's intends to use Beyond Meat's product to make the McPlant but doesn't feel the need to co-brand. In that scenario, the deal could still be very lucrative for Beyond Meat. After all, partnering with the largest restaurant chain in the world is almost never a bad idea.
But it could be an early sign that plant-based meat is getting commoditized. This means the value of the Beyond Meat brand could go down. Brand power is important for consumer-goods companies. It can lead to market share and pricing power when done right.
Before panicking, remember this is all conjecture at this point. We'll likely have to wait until next year sometime for better clarity on Beyond Meat's relationship to McDonald's. In the meantime, the meat-substitute company has multiple growth avenues that also provide the opportunity to at least double revenue long term, including Beyond Pork in China.