Beyond Meat releases earnings Thursday, marking a bittersweet moment as positive expectations are shadowed by serious competition.
Beyond Meat (NASDAQ:BYND) will be announcing its Q4 2019 earnings at a time when the list of competitors is growing rapidly. The latest is Cargill, the largest private company in the U.S.
Other competitors to have joined the fray recently include Nestle, the world’s largest food conglomerate. Last year the largest U.S. meat producer Tyson Foods unveiled alternative meat products too. Others include Kellogg Company, Hormel Foods Corp and Kroger.
Besides established food giants getting into the plant-based meat space, numerous startups are fighting for market share too.
Founded in 2009, Beyond Meat has enjoyed an early-mover advantage. That though is not an enduring competitive edge.
With very little to differentiate between competing alternative meat products, the firms with the scale and financial muscle will win in the end. On this, Beyond Meat’s future could mirror that of National Beverage (NASDAQ:FIZZ) – the owner of the LaCroix sparkling water brand.
As sparkling water sales began to grow in the U.S. in 2010, FIZZ rose from a low of about $20 in May 2015 to a high of around $130 in September 2017. That’s a gain of roughly 550% in a span of a little over two years.
But when Coca-Cola, PepsiCo and Nestle expanded their efforts in the space, sales and margins of LaCroix started plunging. National Beverage also suffered from the competition presented by retailers such as Costco which introduced their own private labels. FIZZ stock plunged over 60% as a result.
Interestingly, sales of LaCroix have been falling at a time when the consumption of sparkling water in the U.S. has been consistently rising.
While Beyond Meat’s first-mover advantage has allowed it to ink numerous deals with leading restaurant chains and retailers, keeping them will be a fight in the face of increased competition. To retain market share Beyond Meat will have to accept lower margins. The alternative is losing hard-won customers. Either way, there’s nothing for investors to celebrate.
Like National Beverage, it’s not a matter of if but when Beyond Meat’s stock will go lower, perhaps even below its IPO price of $25. At its current price of slightly over $110, BYND is trading at a forward price-to-earnings ratio of 288. That’s more than 10 times the average P/E ratio of the S&P 500 index.
Wall Street is skeptical too. Out of 18 analysts covering the stock, only three have issued a Buy rating.
Foreign markets will not offer respite either. While the plant-based meats maker has distributing partners in parts of Europe and the Asia-Pacific region, the reach and scale of the new entrants will make expanding to newer overseas markets harder. Cargill, for instance, has presence in over 70 countries. Tyson Foods and Nestle boast a larger global footprint too.
When Beyond Meat finds its way into new markets, it will find hungry competitors waiting to devour it.
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