Financial Realities of Plant-Based Meat Substitutes


Over the past few years trade publications have hyped plant-based alternatives to meat. As each successive press release records another QSR either trialing or offering a veggie-burger commentators extoll the virtues of sustainability, welfare and create a “feel-good” halo for the category.


Beyond Meat the putative leader in the field filed for an IPO on Monday April 22nd anticipating sale of shares valued at $183 million and raising the company to “unicorn” status with a potential valuation of $1.2 billion. As an uninformed observer it would be fair to assume that production of a plant-based burger could be effected less expensively compared to beef. The recent SEC Form S-1filing by Beyond Meat Inc. in advance of their IPO dispels this notion. For FY 2017 ending December 31st the Company generated a loss of $30.3 million on sales of $32.6 million. This might by acceptable for a potential high-tech start-up incurring high R&D expenditure in addition to organizational and preliminary costs but an analysis of the prospectus reveals a serious flaw in the vegetable-burger model.


For FY 2016 the cost of goods sold representing raw ingredients, processing and packaging amounted to $22.5 million exceeded revenue of $16.2 million by 39 percent. The cost of goods sold in FY 2017 amounted to $24.3 million or 115 percent of revenue.  For the nine months ending September 2018 Beyond Meat managed to increase revenue from $21.1 million to $56.4 million albeit by almost doubling the Selling, General and Administrative (SGA) expense category ($23.1 million) compared to the corresponding first three quarters of FY 2017 ($12.4 million). It would be expected that scale of volume and experience would have reduced the cost of the vegetable-burgers in relation to sales. For the two nine-month periods the proportion of the cost of goods sold expense category improved from 115 percent of sales through Q3 of FY 2017 to 83 percent of sales value through Q3 of FY 2018. Given R&D costs of $6.3 million, restructuring, amounting to $1.1 million and the SGA expenditure of $23.1 million the Company generated net losses of $23.4 million and $22.4 million respectively for the successive nine-month periods.  


It would appear that the high cost of manufacturing plant-based meat substitutes is disproportionate to their value in competition with ground beef. This would seriously constrain the profitability of the enterprise irrespective of scale. Perhaps this is the reason why Kleiner Perkins and two other venture capital investors with collectively 42 percent of the equity, wish to expedite an IPO to recoup their capital.  Tyson New Ventures previously held seven percent of the equity but the Company announced on April 24th that it had sold its shareholding valued at $80 million based on the proposed IPO share price. Noel White CEO of Tyson Foods obviously can read financial statements.

Beyond Meats may be a company with a great future behind it. Unless production cost can be brought into line with beef patties prospects for future positive earnings look dim. As it is the company is losing money on every patty but to quote Henry Ford they “hope to make it up on the volume”