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Beyond Meat soars on big Walmart deal

Baird Senior Research Analyst Ben Kallo joins The Final Round panel to discuss Beyond Meat’s Walmart expansion to more than 2,400 stores and what this means for the plant-based company.

Video Transcript

- Welcome back to The Final Round. Well one stock taking off today, bucking the downward trend that we saw in the broader market is Beyond Meat. Shares closing up over 9%. Now the move comes after it expanded its partnership with the Walmart.

It'll bring Beyond Meat products to about 2,400 stores. And joining us now, for more on us than, on the phone we have Ben Kallo. He's a Baird senior research analyst. And Ben, you have an outperformed rating on the stock. The street, obviously excited about this expanded partnership, with shares jumping over 9% today. What do you think of it in the news, just in terms of what this means for its future growth, and also how it stocks up with some of its competitors out there, like Impossible?

BEN KALLO: Sure. I think it's, and thanks for having me on. You know, I think that this is part of its strategy of expanding in several different ways. And in expanding retail partnerships, definitely one of them.

So this Walmart news, they talked about a little bit on their conference call. But with the formal announcement today, obviously shows you the growth that they can get in many different ways. So expanding retail locations as well as their-- their service partners. And then as they move internationally too.

- And then going off of that, just in terms of the balance here that we could see. Because retail and restaurant are both very important parts of this business. And their grocery sales numbers their last quarter nearly tripled in the second quarter. Of course that comes with COVID closing restaurants. But in terms of their strategy going forward, where you see the balance here Beyond Meat, between exposure to restaurants, and then comparing that to exposure to retail?

BEN KALLO: Yeah, sure. So you know, we model it so we see the growth coming really from the retail segment. But also from international food service expansion and that international retail expansion too. And I think one of the things that I think is important to focus on is that there's several different ways for growth.

So you know, adding more Walmart's. And so they're less than a quarter penetrating, you know, after this announcement at Walmart. That's one way. Adding new products. So we saw them release the Beyond meatballs. So that's their eighth product out there on shelves.

Increasing the shelf space. So those products across the retail space. And then deepening the relationships with their food service partners. So, you know, at more locations across the United States and across the globe. And then adding those new-- those new food service relationships.

So there's several different ways for their growth here. And then we really look at it as, not a plant based or meat alternative market. But you know, we look at the overall market size for the protein market. And you're talking $1.5 trillion market. And $270 billion in the US annually.

So a big market, and you know, we have them doing $500 million of revenue this year, growing to just under $2 billion in 2023. So really, a drop in the bucket on that $1.3 to $1.5 trillion market.

RICK NEWMAN: Hey, Ben. Rick Newman here. Can you describe what's going on in the pricing environment? We've got Beyond Meat and it's, the other plant based food companies. I mean, they're definitely starting to scale, which ought to be bringing those prices down. And then we've had a lot of volatility with meat. So if you're somebody who's actually shopping a little bit on price, what seems more favorable at the moment?

BEN KALLO: Well, meat seems-- is still, you know, priced at a discount to meat alternatives. And it's about a 20% discount. Now as Beyond continues to scale, they're going to give that back to the consumer. So we don't really show margin expansion, because they will continue to expand their addressable market by lowering price.

I was just in a Morton Williams here in New York City. And Beyond had probably seven products in two different locations. So freezer aisle, as well as the meat aisle. Impossible had just the Impossible-- one product available.

And they're-- I think they're going with the strategy of trying to undercut Beyond. So they were selling for $1 less a package than the-- than Beyond is. But really, to be honest, it's got the scale. I think the partnerships, which they can also leverage in one important way, I think, is from a marketing aspect. Where you have their service partners as well as the retail partners out there, you know, shouldering a lot of that marketing burden for them.

- Hey, Ben. [INAUDIBLE] here. What about Beyond Meat's recent direct to consumer initiatives? Launching a website, so customers can buy directly from the company. How big of an opportunity do you see this for the company going forward?

BEN KALLO: I think it is-- I think it's a big opportunity that's not included in our model, and I don't think other models that I've seen out there. And so, you know, it's all additive. I think that one of the things we saw, and to the earlier question about, you know, the pivot into more retail because of COVID. I think that they handled that very successfully, and sped up their process of expanding it to retail. And so this could be another way for-- another growth avenue that players, layers on top of the ones that I talked about before.

MYLES UDLAND: Hey, Ben. It's Myles here in Manhattan. About 40 minutes away from my own trip to Morton Williams. I got to ask you. I got to ask you about the 30 day challenge. I guess, when you think about Beyond's products right now, and you think about trying to eat Beyond products each day for the next 30. Which areas are most exciting to you, in terms of making foods you would have maybe made with, you know, a pork or beef or chicken in the past? That you think Beyond will pour over well too.

BEN KALLO: Yeah. So it wasn't my idea, but it is a great way for us to learn more about the product and be knowledgeable when we speak to investors. So it's been good. We're on day two here. So far I've used the breakfast products and then also the patty as well.

So I do think that, you know, if I tried to do this with other brands, I'd be limited. Because, we do have seven different options, eight different options, if you could find the meatballs out there. And so that makes it a bit easier. I think one thing we've noticed so far is that, you know, anytime you start doing something like this, you're watching more of what you take in. And so that's an important part-- an important benefit of the whole process here. But we're excited about the challenge.

- Maybe everyone will shed a few pounds, I guess. You never know. But Ben Kallo, it's only day two. So we have 20 more-- 28 more days to go. We wish you all the best.

BEN KALLO: All right. We look forward to talking to you at the end.

- Sounds good. All right. Ben, we'll talk--

BEN KALLO: All right. Take care y'all.

- Baird senior research analyst.