Beyond Meat’s DTC Problem
November 9th was a tough day for Beyond Meat’s share price. Yesterday morning McDonald’s announced their own line of meatless patties, the McPlant, that it plans to rollout to their locations in the near future. While Twitter had a lot to say about the creativity of the “McBranding” (or the lack thereof) of the new burger, Wall Street downed the Beyond Meat stock by 6% before midday. This prompted a Beyond Meat spokesperson to state that the McPlant had been co-developed by Beyond Meat helping it recover 4% before the markets closed. After the markets closed things got worse as Beyond Meat reported it’s 3rd Quarter Results showcasing a loss of -$0.31 that missed Wall Street estimates of $0.05 by $0.36 causing the stock to crater 22% as of pre-market trading on the 10th. One slide stood out particularly as being troubling to many investors:
Even though Gross Margin Dollars are up nearly 50% ($66 Million 2019 YTD vs. $97 Million 2020 YTD), SG&A nearly doubled from $51 Million to $101 Million. Notes in the right hand column do point this out and attempt to explain the discrepancy: “Operating expenses were higher primarily due to Company’s effort to support long-term growth” One of these initiatives was the introduction of a DTC shop on their website where customers can buy product from them directly. It’s clear why they might have found this to be a good idea at the time as On-Premise sales of their product dwindled in the face of COVID restrictions on customer’s ability to eat out tanking demand of this channel and forcing them to repackage items which accounted for a loss of nearly $6.6 million. Upon a closer look the execution of their site might need to be rethought.
Beyond Meat has bundled a number of their products together into 6 bundles in order to get to basket sizes that are potentially profitable for them to ship directly to customers. However, they are missing a core fundamental of bundling - it should provide the goods at some reduction of price or at the bare minimum the same price that consumers see at their store of choice. Beyond Meat is widely distributed in US Retail Outlets - according to their investor presentation as of September 2020 they are available in more than 28,000 retail outlets in the US alone, including most of the major supermarkets - Walmart, Costco, Kroger, Albertston’s.
When brands reach this level of distribution consumers create a price perception of the available items - for example most of you could come up with a price point of a 12 pack of Coca Cola and moreover could tell me what a good price for it would be. This would beg the question as to why the price points for the bundles available on their DTC shop do not take this into consideration. All of the bundles total prices are significantly higher than cost of the individual items available at the grocery stores that they have touted. For example they have 6-1 lb Beef packages for $71.99. A quick Google Search yields Whole Foods price of $8.99 for an individual 1 lb pack. 6 packages on Whole Foods x Retail Price of $8.99 = Total Whole Foods Price of $53.94 - more than $18 lower than the Beyond Meat website. Even though shipping is included in the Beyond Meat Shop’s price of $71.99 that still leaves a pretty significant difference between buying the item these two channels - not to mention Whole Foods is not known to be easy on the consumer’s wallet, after all that’s why they tout the Whole Paycheck moniker. 5 of the 6 of bundles available on Beyond Meat’s site can be purchased at average savings of $14 per bundle compared to Whole Foods. The only one that can be purchased at a discount is the last bundle of 2 - 20ct patties - but Walmart does offer this item and the cost of 2 of these packages are $8 cheaper at Walmart.
Price differences of this magnitude are enough to turn off even the least price sensitive consumers especially in a category where a high price points comparable to the real thing has historically been the achilles heel of growth. This begs the question if the capital investment needed to standup and run this channel is really the right move for Beyond Meat right now?
