Beyond Meat’s problems: tired sausages, growing losses and mounting debt

company Beyond Meat (Beyond Meat) moved last month to new offices in an area of ​​28,000 square meters in the Los Angeles area, at the same time that it fired about a fifth of its employees – the second round of layoffs this year.

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A day later, at an all-employee meeting, Ethan Brown, the company’s CEO and founder, assured them that a more focused version of the plant-based food company he founded would thrive. He compared Beyond to the Starbucks Corporation, and to Martin Cooper, the inventor of the cell phone, and said people were thinking of them too to fail.

“The road will rarely be smooth and straight,” Brown wrote in an email to company employees about the layoffs.

In May 2019, Biond carried out one of the most successful IPOs of a large company in more than 20 years, according to Dealogic data. The company was able to convince musician Snoop Dogg and movie star Leonardo DiCaprio to promote it, and signed agreements with major restaurants and supermarket chains that boosted its valuation to more than $10 billion later that year.

Sales are falling and other manufacturers are taking over

Since then, the company has been losing money and accumulating debt. It fired a series of executives, including the chief operating officer, who was arrested in September after being accused of biting someone on the nose. U.S. sales of plant-based meat substitutes are declining, and other artificial meat manufacturers are taking over market share. Biond’s stock has fallen 83% in the past 12 months.

The company is headed by Brown, who left a career in alternative energy and founded Beyond in 2009 in a commercial kitchen in Maryland. Brown, 51, is credited with helping expand the market for meat substitutes with his plant-based hot dogs and burgers that are made to look, cook and taste like the real thing.

But several current and former employees say Brown also struggles to prioritize and manage the growth of Beyond’s operations — and he frequently “shifts gears” in ways that leave staff at the company confused and frustrated.

Braun’s drive to release new products on accelerated schedules led to missed deadlines, disappointed customers and waste of packaging materials and components, as can be learned from internal company documents, e-mail messages and current and former company employees. A new product turned out to be an embarrassing failure, with the vegetarian sausages becoming limp inside the packages on store shelves.

Seth Goldman, chairman of Beyond’s board, said there can be a tension between passionate founders and trying to build a business at scale. Beyond had to build technology, supply chains and other components from scratch as it grew in about ten years to a business of more than $400 million. , Goldman noted. “Inevitably there is an element of chaos,” he said, adding that he supports Brown.

The company operates out of a strategic vision for three years, and an annual plan that places high priority on projects with customers and partners, said Beyond spokeswoman Shira Zakai. These projects support rapid innovation at Beyond, which is inspired by a model used by technology companies, she said.

“Our pace and innovation are not suitable for everyone”

In the past year, Zakai said that Biond tested, or introduced to the market, nine products in restaurants in 18 countries, and began offering six new products in stores in the US.

“The pace and intensity of our innovation is not for everyone,” she said. “But it does bring extraordinary results, and we believe that over time their impact on the world will be great and the return for our investors strong.”

Several current and former Beyond executives and employees, including Chief Innovation Officer Dariush Ajami and Chief Operating Officer Jonathan Nelson, said Brown is an open-minded leader who sets clear plans for the company. Garrett Morgan, Beyond’s director of global strategy, said Brown embodies a strategic vision in a practical worldview.

Plans are subject to change, and Beyond works to be flexible, Morgan said, but the company operates according to clear priorities even as it responds to changes in market conditions and other dynamics.

Brown said Biond and other alternative meat companies face challenges competing against cheaper real meat at a time of inflation and consumer uncertainty about the health benefits of products that many see as highly processed foods.

When he founded the company, Brown bought a license to use a process developed by researchers at the University of Missouri that incorporated plant proteins into a molecular structure similar to animal muscle. Biond’s patties are made by extracting protein from yellow lentils and other sources and mixing it with ingredients such as canola oil, potato starch and beet juice, to produce burgers that look like ground beef.

Aiming for carnivores, not necessarily vegans or vegetarians, Biond launched its burger at the meat stand at Whole Foods Market in 2016. The hamburgers, vivacious on a pan like a meatball, bought themselves a permanent place on the container shelves. Along with the products of competitor Impossible Foods, the veggie burger business in the US has undergone a transformation.

Investors poured money into Beyond, and the company’s annual sales more than quintupled between 2016 and 2018, to $88 million.

“Eitan didn’t want to hear opposing opinions”

Tim Geistlinger, former vice president of research and development at Beyond, who left the company in 2016, said that the enthusiasm about the company’s rapid growth came alongside an evolving set of priorities, because Beyond wanted to capture customers such as fast food chains, which company executives called “whales.”

Braun wanted to move forward as quickly as possible and worry about the details later, a typical characteristic of startup founders, Geistlinger said. That passion has made Brown one of the most successful public representatives promoting plant-based proteins, Geistlinger said. Still, before he left the company, he advised it to bring in more experienced leaders to manage the growth in activity. “Opposing Ethan was very difficult,” Geistlinger said. “He didn’t want to hear opposing opinions.” However, he praised Brown for his attempt to disrupt the global meat industry.

With the board’s backing, Biond worked to create new products and quickly increase production capacity when interest in the field was hot, said Goldman, who was a co-founder of Honest Tea, a company acquired by the Coca-Cola Company. Goldman has been advising Brown for years.

Sales increased – costs and debt even more

Beyond’s sales increased by 56% to $465 million between 2019 and 2021. The company’s costs and debt grew even faster.

Spending related to research and development more than tripled during this period, and capital expenditures more than quintupled. In January 2021, the company that once occupied less than 280 square meters of lab space in El Segundo, California, signed a 12-year contract valued at more than $150 million to build a campus roughly 100 times larger.

The campus is to have interior living walls, a fitness center and “futuristic research incubators,” according to a press release announcing the project. On a visit to the actual site last month, plastic sheeting was still hanging from the ceilings, and price tags were attached to the lab chairs.

The number of full-time and contract workers at Beyond increased roughly tenfold between the end of 2016 and the end of 2021, according to company reports. Its production capacity increased in 2021 by about 30% when Biond acquired active production plants in the Netherlands and China.

Beyond’s losses grew from $12 million to $182 million, and the company’s debt climbed to $1.1 billion between 2019 and 2021. The company’s losses in the nine months ended October 1 were $299 million, and its debt load did not change.

As Brown put the company’s growth into turbo mode, a chasm opened up between the team responsible for developing new products and the team that should find methods to produce them on a large scale, current and former employees say.

Innovative products, made in small batches by hand in Biond’s research labs, would often get Brown and other top executives to commit to customers even before the company figured out how to produce those foods on a large scale in factories, employees said. At times, Biond purchased equipment worth millions of dollars, which it ended up not using.

Ajami, Biond’s director of innovation, said the company’s employees work closely together to develop products that have never been produced before. “It takes a lot of thinking outside the box, a lot of collaboration and holding hands, you know, to get from one step to another,” he said.

Meat substitute product of Beyond Meat / Photo: Reuters, Richard B. Levine

The failed incarnations of the Kabanos

Biond’s Cabanos, which was launched last spring in a joint initiative with the PepsiCo company, reached industrial production in a circuitous and expensive way, after Biond had difficulty re-creating an experimental version from the laboratory in large-scale production plants, according to current and former company employees, as can be read in the company’s e-mail messages. At first, the Cabanas had to be manufactured in factories in several countries, which increased the cost of production and reduced profit margins.

Biond said on the November earnings call that the Cabanos project reduced the company’s earnings by $6 million last quarter, after third-party production capacity was not used at full capacity or was canceled.

The rush to get to market hurt the company’s first product, which resembles a chicken fillet, which hit the shelves last year, current and former company employees said. Biond ran into difficulties producing the fillet, and shortly before the product was supposed to reach the supermarket shelves, it turned to third-party manufacturers. When the details of the nutritional values, such as the amount of protein and saturated fat in the product, were not determined, Biond printed several versions of the stickers, and threw away the ones it did not use, employees and company e-mails said.

The 2020 launch of a new version of the hot dogs was a failure, because not enough testing was done. The appearance of the loose hot dogs put off customers, and some disliked the new taste and texture, prompting Biond to pull them from shelves, company e-mails said, and current and former employees said.

Brown’s desire to bring products to market and close deals with restaurant chains often outweighed the commitment to being profitable in the short term, according to those employees.

Beyond’s expansion into Europe has come with costly problems, according to company documents and employees, who said the hamburgers and hot dogs spoiled in stores because refrigerators in Europe run at a slightly colder temperature than refrigerators in the US. Shelf life is too limited and “we face a lot of write-offs and waste handling costs from The retailers – on some items even at the level of 20%-35% in the calculation of total sales,” reads one of the company’s documents.

In order to help build its operations, Biond announced last December that it had hired two veterans of the meat industry, CEOs from Tyson Foods. Both left Biond by the end of October. Doug Ramsey, Biond’s director of operations, reportedly left shortly after he was arrested for biting someone , and threatened to kill him in a fight outside a football game in Arkansas. Before that, he worked to integrate the company’s marketing and innovation teams, employees said. Bernie Adcock was a supply chain manager at Beyond, until he left for a senior position at chicken giant Pilgrim’s Pride Corp. Ramsey and Adcock did not respond to requests for comment.

As Brown works to refocus the 13-year-old company he founded, it also faces another challenge: inflation.

A sharp increase in the sales of the competitor Impossible

Sales of meat substitutes in general in U.S. stores are on the decline, and sales of Biond products are falling at an even faster rate. In the 12 weeks ended Oct. 8, Biond’s sales fell 21% compared to the same period last year, according to NielsenIQ data. The total decrease in the category in which Biond operates was 8%.

During the same period, the sales of the competitor Impossible increased by 49%, at the same time as the introduction of new products and the expansion of the presence in the stores, said the analyst Robert Moscow of Credit Suisse. Impossible attributes its growth to product quality and increased store sales.

By contrast, Biond has slowed or halted production at some plants in places like Pennsylvania, former employees said, and Brown said on a November earnings call that Biond is working to reorganize its production. The company announced that it has significantly reduced its expenses and is targeting “operations with positive cash flow” by the second half of 2023.

After the latest wave of layoffs, the company announced it will stop sending samples to potential buyers and influencers for at least two to three weeks because the people who ran that activity are no longer employed, an internal company email said.

Biond is asking employees to choose cheap hotels on work trips and will serve more of its products, including the Cabanas, as snacks in the offices.

In the November earnings call, Brown outlined a plan to stabilize the company’s business, including a focus on core products, such as hot dogs and plant-based hamburgers. This is a change of direction, Brown said, from the “growth above all” model.

The article is Hebrew

Tags: Meats problems tired sausages growing losses mounting debt

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