Beyond Meat (BYND) has been the IPO darling of the year, largely as a result of its position as a proxy for what many see in consumer dining trends moving away from meat.
Yet, Beyond may not be the dominant force it's been priced to be -- if a few key competitors have anything to say about it.
The drop in the share price for the L.A.-based fake burger maker on Thursday is, of course, led by the secondary offering announcement on behalf of the company. But there is more troubling news for recent Beyond stock buyers: The progress that Impossible Foods, Nestle (NSRGY) , and former IPO-backer, Tyson Foods (TSN) , are making.
"Market share could be at risk from scaled competitors investing in meat alternatives and Impossible entering retail," Jefferies analyst Ken Grundy noted as a significant risk in a note authored earlier this summer.
That risk could be coming sooner than anticipated.
The big news this week is the FDA approval of Impossible Foods' key color additive leghemoglobin (or heme), which will allow the company to stock shelves alongside Beyond Meat later by September.
The regulator said it has cleared Impossible's use of soy product as a color additive, clearing the way for the maker of imitation meat to start selling its products in grocery stores.
"We've been engaging with the FDA for half a decade to ensure that we are completely compliant with all food-safety regulations -- for the Impossible Burger and for future products and sales channels," Impossible Foods Chief Legal Officer Dana Wagner said in the announcement.
"We have deep respect for the FDA as champion of U.S. food safety, and we've always gone above and beyond to comply with every food-safety regulation and to provide maximum transparency about our ingredients so that our customers can have 100% confidence in our product."
The ingredient, which is a secret to Impossible's meatier taste, was approved for human consumption last year. However, the approval as a color additive allows for the patties to be sold in grocery stores "raw," making the vegan section alongside Beyond Meat just a bit more crowded.
That is not to mention the partnerships the company has with Restaurant Brands (QSR) at Burger King, hawking the Impossible Burger nationwide at this point. The partnership keeps up with Beyond Meat's partnership with Dunkin' Brands (DNKN) and intensifies that retail and restaurant race.
Still, Beyond Meat may have the edge in terms of additive-conscious consumers, as Impossible's science intensive approach also means it cannot attach a "No GMO" -- or no genetically modified organism -- sticker to its products.
"The Impossible Burger has GMOs and, in the end, that could be a non-starter," Jim Cramer commented in a column earlier this summer. "Remember these ersatz burgers appeal to much more than just the vegan/vegetarian crowd, but the overlap between plant-based burger eaters and anti-gmo'ers has got to be pretty heavy."
Beyond's Ethan Brown has been hitting this point hard in recent months, hammering home the fact that consumers do not want GMOs.
"We haven't taken shortcuts. We've avoided GMOs. We have downplayed soy and emphasized other ingredients, because we know what the consumer wants," he explained earlier this year. "As you see, some of these larger companies come in, they're going to be disciplined about what ingredients they're using. As they become more disciplined about those ingredients, they're going to learn this is very, very hard to build products with the level of ingredient integrity that we have."
Taking on Tyson
While Impossible Foods may be the flashiest competitor entering the vegan and vegetarian aisle to do battle with Beyond Meat, the bigger companies that Brown mentions could be bigger threats.
Tyson is a particularly interesting challenger, as it actually exited a nearly 7% stake in the company to pursue its own offering of plant-based meat alternatives, meaning it got a good look at Beyond Meat and believes it can do better.
Its recently announced rival to Beyond Meat, called "Raised & Rooted," will target both plant-based meats and "blended" products that reduce calorie count by combining both animal and plant proteins to keep a meaty taste.
"Today's consumers are seeking more protein options, so we're creating new products for the growing number of people open to flexible diets that include both meat and plant-based protein," said Noel White, president and CEO of Tyson Foods. "We remain firmly committed to our growing traditional meat business and expect to be a market leader in alternative protein, which is experiencing double-digit growth and could someday be a billion-dollar business for our company."
With the company expected to report earnings on Monday, further details on the progress of its efforts in alternative proteins could be crucial both to its results, and the trend in Beyond Meat.
Other Options Overseas
According to FactSet, Beyond Meat currently generates 100% of its revenue domestically.
Still, CEO Ethan Brown has his sights on expansion as the company recently announced it is available in 51 countries across the globe, inking partnerships with many European supermarket chains.
"At Beyond Meat, we have made meaningful investments to build a revolutionary business as we expand in the U.S. and multiple markets internationally," he told analysts on Monday. "While this approach requires strong investment in the short-term, we believe it creates the foundation for us to leverage and scale in the medium to long-term. We believe Beyond Meat is well positioned for growth in the U.S. and internationally."
However, the largest roadblock looming over a European market for Beyond, according to Brown, is Swiss behemoth Nestle.
The company is planning the pending launch of its "Awesome Burger" in the fall through its Sweet Earth brand, which it acquired two years ago. The burger will be available on grocery store shelves in the coming months.
Nestle seems fixed on cornering its home continent's market with its own efforts that have garnered endorsement from McDonald's (MCD) locations in the region and could shut Beyond out from another partnership boost internationally.
"These new burgers don't compromise on flavor, texture and cooking experience. They underline Nestlé's increased focus on tasty, authentic plant-based food," Wayne England, head of the food business at the conglomerate said earlier this year of the plant protein effort. "We believe this trend is here to stay, as consumers look at different ways to enjoy and balance their protein intake and lower the environmental footprint of their diets."
Aside from taste and production however, both Nestle and Tyson pose larger risks based on their balance sheets.
Simply put, these companies make money. They can continue to invest in these efforts and potentially prolong Beyond's path to profitability.
What this means for a cult stock and arguably a cult consumer product like Beyond will remain to be seen, but they are certainly risks worth keeping in mind as shares swing violently in this early stage.