Artwork by Rachel Tong

COVID-19 and a Global Recession

Over the last decade, numerous institutions have attempted to use the global economy to act as a buffer for global economic shocks instead of exaggerating the effects of these disasters. Historically, we have seen five major stock market crashes over the century with the most recent being the Global Financial Crisis of 2008. However, the global Covid-19 pandemic is testing the resiliency of markets as world leaders scramble to minimize the impacts of the virus on the economy. On the close of Thursday, March 12th, 2020, the S&P 500 fell 19.80%; a relatively small dip in comparison with the Tech Bubble of 2000 (-49.1%) or the Global Financial Crisis of 2008 (-56.8%).

However, it seems as though the food and beverage industry may suffer smaller long-term consequences  in comparison to other industries such as travel, consumer goods, or shipping companies. Amongst those taking a hit is plant-based meat alternative company Beyond Meat. Founded in 2009, Beyond Meat aims to address issues of human health, climate change, constraints on natural resources, and animal welfare. The plant-based product first entered the market in 2012 and formed perhaps its most notable major partnership with A&W in the summer of 2018. Since then, it has exploded into over 58,000 retail and food service outlets across the globe. 

In the last month amongst Covid-19 concerns, the Beyond Meat stock has plunged by 37.14%, leaving investors highly uncertain about the future. Other notable leaders in the plant-based meat alternatives market taking a hit include Nestlé (-11.02%), Hormel Foods (-12.72%), and Tyson Foods (-34.78%). All three corporations are direct competitors to Beyond Meat after launching their own plant-based burgers, meatballs, and chicken nuggets in 2019. This industry-wide decline comes from deteriorating supply chain management, loss of human capital due to illness and preventative measures, and reductions in consumer spending as people brace for a potential recession. It is evident that everyone is taking a hit, but who is experiencing fundamental losses that will impair long-run future earnings?

Designed by Emily Nold. Source: Yahoo Finance

A Changing Competitive Landscape

Distinguished analysts from both Oppenheimer and J.P. Morgan maintained a hold rating for the BYND stock, with a $115.25 average price target. This news comes after estimated 2020 earnings per share of $0.32 for Beyond Meat, in comparison with $4.85, $1.80, and $6.32 for Nestlé, Hormel Foods, and Tyson Foods respectively. While Beyond Meat’s aforementioned competitors enjoy revenue streams from a variety of different product lines, they are all new entrants into the plant-based meat industry and desperate to grow their market share.

Since 2009, Beyond Meat has relied on strong company fundamentals and a first-mover advantage to grow into the powerhouse they are today. More than their sought-after product, a large portion of their success is attributed to strong management and their agile business strategy that allows them to rapidly adjust to changing market conditions. The first ever product launch for Beyond Meat was Beyond Chicken Strips in 2012. Despite investments from tech-giants Bill Gates and Biz Stone, the product was not well received by consumers. Instead of continuing to invest in R&D or promotional efforts, Beyond Meat instead pulled the product from the market and pivoted the company’s resources towards the creation of the renowned Beyond Burger. Since then, Beyond Meat has enjoyed strong financial performance, and became profitable in Q3 of 2019.

So, what can investors of Beyond Meat expect amidst a global financial crisis? Despite a stock bounce on Friday, March 13th, 2019, history indicates that stocks will continue to pummel before the markets reflect a risk-adjusted price. John Authers, senior editor at Bloomberg, draws comparisons between the Covid-19 crisis, the Black Monday crash of October 1987, and the Lehman Brothers bankruptcy of 2008. He stresses that when influential players scramble to minimize losses and sell assets, the entire market experiences violent and swift descents in global stock prices. This causes a ripple effect of panic amongst investors, and can indicate continual future declines long after government-catalyzed bounces -(Authers, 2020). 

As Authers suggests, if historical market shocks from 1987 and 2008 are indicators of what is to come, it seems unlikely for the market to recover within the next year. Thus, until the markets can re-adjust to changing economic conditions, it is in some respects a war of attrition to see which firms can remain afloat.

Designed by Emily Nold. Source: Statista

What Does the Future Hold for Beyond Meat? 

Unlike many of Beyond Meat’s competitors in the plant-based meat industry, Beyond Meat has already achieved economies of scale which will prove useful as the world braces for a potential recession. Many smaller corporations and new entrants may struggle to turn a profit due to high start-up costs. In fact, the Covid-19 shock may act as a barrier to entry by reducing market attractiveness for not only the plant-based alternative space but all industries. This can hurt not only consumers, but also the environment as plant-based alternatives produce considerably less carbon emissions than animal products. Regardless, Beyond Meat may be better equipped to rebound through tough times than new competitors.

However, CFRA Equity Analyst Arun Sundaram predicts that Beyond Meat will lose its market share to food giants entering the industry due to their “vast global footprint and embedded relationships throughout the supply chain” (Garcia, 2019). Beyond Meat has limited resources with a market valuation of $4.5 billion in comparison to food powerhouses Nestlé ($272.18B), Hormel Foods ($22.8B), and Tyson Foods ($19.17B). Sundaram also notes that plant-based meat alternatives are viewed by consumers as a “discretionary item” due to their high prices, and it is likely that the “alternative meat industry could face high volatility during an economic slowdown” (Garcia, 2019).

In fact, Oliver Garret from Forbes magazine states that “Beyond Sausage, another one of [Beyond Meat’s] products, sells for around $10.30 per pound. That’s 70% more than what pork sausage sells for.” Studies conducted by the Boston Consulting Group found that 73% of surveyed consumers stated that they will only purchase necessity goods during periods of economic crisis. This, in combination with the Covid-19 global pandemic, results in consumers stockpiling enormous quantities of canned goods and household staples such as rice, pasta, and bread. Beyond Meat’s target market is the meat-eating population that wants to improve their environmental footprint. However, it seems highly unlikely that consumers will pay a premium for plant-based meat alternatives during these trying circumstances. If consumers do decide to purchase plant-based alternatives, it is possible that they will gravitate towards more affordable products offered by Beyond Meat’s competitors due to low switching costs.‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎

Regardless, there is still great uncertainty about the future of both Beyond Meat and the industry as a whole. While it is possible that Beyond Meat can leverage its strong management, substantial market share, and brand recognition to endure through economic volatility, they may fall short to their competitors with vast supply chains that can mitigate challenges generated by the Covid-19 pandemic. Although they may suffer short-run losses due to decreased sales and supply chain disruptions, it seems unlikely that the Covid-19 pandemic will be the final blow to knock Beyond Meat into bankruptcy. In fact, UBS projects that the plant-based meat industry will explode from $4.6 billion in 2018 to a conservative $85 billion by 2030. Once markets reflect risk-adjusted prices and consumer spending increases, the Covid-19 pandemic may be beneficial to Beyond Meat in the long run due to reduced new-entrants into the highly competitive industry, resulting in a larger market share and greater profits for shareholders.

As we look towards the future, it is expected that the first to reflect risk-adjusted prices will be Fortune 500 companies as they eventually trend bullish. Soon after, Beyond Meat’s share price will follow suit. While no one knows what to expect for the future, one thing is certain—Beyond Meat will continue to be a company to watch for in the future.

Personally, I hope the Covid-19 pandemic does not influence the long-run competitive landscape of the plant-based meat industry – and I suspect it won’t. While carbon emissions have been temporarily reduced due to travel bans and self-isolation, the battle with climate change is far from over. Despite consumers (especially youth) preaching about climate action, numerous studies have shown that the environmental impact of their purchasing decisions does not generally influence their shopping decisions. Therefore, it is essential that the industry continues to innovate and push the boundaries of plant-based foods in order to convince consumers to give up their favourite burger or chicken strips. Whether or not the Covid-19 pandemic makes a financial impact on the company’s bottom line is still uncertain, but as a loyal Beyond Meat consumer, it has an impact on me.