Beyond Meat’s Future Is Beyond the Kitchen

(Bloomberg Opinion) -- Beyond Meat Inc.’s Monday earnings report offered plenty for its investors to cheer. Revenue rose 250% from a year earlier to $92 million, exceeding analyst estimates. The company raised its full-year revenue outlook, and for the first time delivered positive net income.(4)

If Beyond Meat is to continue its blistering pace of growth, one thing is becoming increasingly clear: The most promising path for this pioneer in the plant-based meat business runs not through America’s home kitchens, but through its big restaurant chains.

According to recent survey research from Cowen, the majority of consumers who have tried a plant-based burger from Beyond or its primary rival, Impossible, first did so at a restaurant. (Worth noting: the study was conducted before Burger King’s nationwide rollout of its Impossible Whopper.)

It makes sense that the drive-thru window or carryout counter is seen as an inviting way to experiment with an unfamiliar product. Home cooks might not trust themselves to prepare a patty made from pea protein. And a diner might be more likely to try something different, even edgy, if it has the imprimatur of a familiar restaurant chain.

So it’s good, then, that Beyond is focused on building a roster of restaurant partners. It announced Monday that Denny’s Corp. will serve its plant-based burgers nationwide starting in 2020. Last week, the company said Dunkin’ restaurants were set to add its plant-based sausage nationwide earlier than originally planned after sales in a test market exceeded forecasts.

It is already clear from Beyond’s sales results that it is becoming a company that depends heavily on restaurants. In the first nine months of its current fiscal year, the restaurant division accounted for 48% of revenue. That’s up significantly from the previous year, when 34% of sales came from that division in the comparable nine-month period.

The good news for Beyond is that it shouldn’t have any trouble attracting interest from more restaurant partners.

It’s not just that sales of these plant-based patties often tend to be incremental to sales of traditional menu items. Cowen analysts estimate that Burger King gets a higher gross profit per transaction on orders that include an Impossible Whopper than on its average lunch or dinner order. If a similar pattern holds at other restaurant chains, you can bet franchisees will be plenty willing to get on board.

And as Beyond grows and builds a more efficient supply chain, its food costs should come down, which could eventually make the profitability profile of such orders even more favorable.

Impossible and Beyond are in something of an arms race to line up restaurant partners, and they are right to be fighting hard for that menu space.

In a year littered with initial public offering flops, the debut of Beyond has stood out, with its shares rocketing as investors see huge growth potential. At the same time, there is reason to be skeptical of Beyond’s rich valuation: Companies such as Nestle SA and Tyson Foods Inc. — industry goliaths with well-developed manufacturing capabilities and marketing firepower — are increasingly looking to get a piece of this new plant-based burger market, one geared more toward omnivores than vegetarians. One of Beyond Meat’s best tools for holding its own against that onslaught is a pack of marquee restaurant partners who can make its products a fast-food menu staple.

(1) Beyond Meat’s stock fell in late trading, though that likely reflects investor fears about what might happen to shares upon a lockup expiry on Tuesday.

To contact the author of this story: Sarah Halzack at shalzack@bloomberg.net

To contact the editor responsible for this story: Michael Newman at mnewman43@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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