Many restaurant chains and food companies got squashed by the pandemic in 2020. But their businesses -- and their stock prices -- could be headed for a comeback this year. Beyond Meat (BYND -4.43%) was an IPO darling in 2019, but its growth was undercut as the foodservice industry slumped amid the crisis. Shake Shack (SHAK -2.76%) was also making progress until COVID-19 hit. But what investors need to think about now are their future prospects.
Modern takes on old classics
Beyond Meat, maker of plant-based patties and other meat alternatives, had a standout debut on the stock market in April 2019, gaining 250% in the first two months. Soon after, though, the stock traded down sharply, and is yet to reach its all time highs.
The company has an exciting product line and strong partnerships with retailers such as Walmart and Target. Sales were strong before the pandemic, growing 212% in 2019's fourth quarter.
Revenue slowed significantly in 2020, and it wasn't just the closures of restaurants and catering facilities that put a damper on its foodservice business. Its retail sales diminished as well. In the third quarter, revenue increased 2.7% driven by a 39% rise in retail sales. That was nothing to sneeze at, but was still a huge decline from pre-pandemic sales levels.
Shake Shack's sales weren't growing nearly as fast as Beyond Meat's before the pandemic. While the burger chain's revenue was growing by low double-digit percentages, comparable sales (what the company calls same-Shack sales) were growing at low-single-digit percentage rates.
Its store count remains fairly small, with 310 domestic locations and 120 international locations. Shake Shack typically opens 20 to 25 stores in a year, but it's expecting to ramp up that rate and add 35 to 40 company-owned stores in 2021. Management sees plenty of opportunities to expand store count and move into different formats such as food courts.
Leaving the pandemic behind
Beyond Meat is busy developing new products and partnerships to move the sales needle. It recently announced a deal with PepsiCo (PEP 0.63%) to create new plant-based snacks and beverages, and it announced a new burger recipe in November that it plans to launch early this year.
These efforts could pay off down the road. But the pandemic showed that in some ways, Beyond Meat's plant-based products are not essential purchases. The company also faces strong competition from many challengers such as Impossible Foods and The Tattooed Chef (TTCF -2.36%).
Shake Shack delivered an encouraging update in January, announcing that comps in the fourth quarter were only down 17%, a significant improvement from the 32% slump they experienced in the third quarter. And revenue in Q4 rose 4% year over year. Meanwhile, in suburban areas, same Shack sales were flat year over year.
The chain has also been improving its digital options, adding curbside pickup, drive-thru, and testing delivery in certain markets. Its digital strategy clearly wasn't fully deployed prior to the pandemic, but it has made strides: digital orders accounted for 59% of total orders in the fourth quarter.
The restaurant chain's comps growth is typically positive but low, and it's looking to harness digital capabilities and innovate its menu offerings to accelerate that growth. I like that the company is taking it slow and figuring out its next steps while it's still small enough to significantly boost sales through new store openings. And it has a strong cash position.
The better buy
Beyond Meat has demonstrated that it has many ways to keep growing. Its sales chart may not be as impressive as it was when the company was younger, but new products and partnerships -- though unpredictable -- hold the key to future gains. In addition, the company's greatest challenge is competition.
Shake Shack is also still working out how to grow. But it's made excellent progress since the early months of the pandemic, and it has the cash to keep going as it works on improving its menu and figures out how to bolster its digital sales. The market thinks so too, since the burger chain's share price surged in January. At this point, I think Shake Shack has better long term growth options than Beyond Meat.