Beyond Meat's (BYND) improbable run post-IPO has been noticed by major competitors eager to take a bite out of the massive addressable market.
Shares of the fake beef purveyor plummeted nearly 20% after Tuesday's open, erasing a large degree of gains garnered after a solid earnings release on Thursday evening. While the valuation concerns on Wall Street appear to be prescient, the push of larger scale competitors such as Nestle (NSRGY) and Tyson Foods (TSN) as well as promising private peers like Impossible Foods could be a larger long-term risk.
"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.
He reasoned that share growth could be sustainable if the company can maintain market share at about 17%, while the plant-based protein continues to grow at around a 20% annual clip. However, both are significant variables, with the former running into that competition roadblock.
The competition from Swiss behemoth Nestle is particularly notable as it puts a break on potential growth beyond the U.S. and into Europe, a key idea for bullish investors eyeing the trend of plant-based food demand on the continent.
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.
"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. "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."
Likewise, Tyson is a challenger in the U.S. market as it actually exited a nearly 7% stake in the company in order to pursue its own offering of plant-based meat alternatives.
However, one of the largest threats may be the plucky upstart Impossible Foods, maker of the Impossible Burger being offered at Restaurant Brands' (QSR) Burger King. In fact, Jim Cramer has already declared its product superior to the Beyond Burger.
The Impossible Burger also has a key differentiator in the heme molecule, which is reportedly the secret to its taste that many report as closer to actual meat.
While the meatier taste may put off vegans and vegetarians not looking for a substitute that tastes too much like the real thing, it could be a key to swaying consumers simply sampling meat alternatives. As neither offering is "healthy" per se, this demographic could be the most pertinent to target.
Still, Beyond Meat's management remains confident in its ability to compete and actually noted the influx of major firms into the vegetarian food stuffs space as something that underlines their optimism.
"In some sense, competitors coming in validates the direction that we're headed. But as you look at what we do versus what some of the larger, more established food companies will do, we have a singular focus, and we've had that focus for a decade," CEO Ethan Brown told analysts during the company's first earnings call.
He added that the increased competition should only serve as a motivating factor for the company to remain ahead of the consumer curve. Further, Brown suggested the large market should make it comfortable enough for multiple firms to succeed as consumer appetites shift.
However, Brown was adamant that the Beyond brand will remain the top of the heap given its laser-like focus on consumer interests and its avoidance of the pitfalls that have hampered key competitors.
"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. "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."
Whether consumers remain loyal to the brand as alternatives to the meat alternative appear en masse remains to be seen. For now, the market seems to be quite full of Beyond Meat. No seconds for now, thank you.
