Tag Archives: meatless products


FOLLOW THE MONEY with Roger Lipton, reprint from 2-15-21 edition of RESTAURANT FINANCE MONITOR  

Roger Lipton is writing a regular column for the monthly publication of the “must read” Restaurant Finance Monitor – provided below:


The answer is: not by much and not for long. It is naïve to think that the consumers’ pandemic induced financial trauma, just as with our parents after the 1930s depression, will not lead to a downward adjustment in longer term spending patterns. Surveyors at the NY Fed found that 2/3 of the 2020 stimulus went into savings or debt paydown. According to economist, (the best) David Rosenberg, bank credit to individuals is down more than 3% from a year ago, which hardly ever happens, and credit card balances are down 10%.  The household savings rate, as a percentage of discretionary income, spiked from 7% pre-pandemic to over 30% in late March and April. It is now running about 13%. Rosenberg says that if it settles at 10%, up from the 7% norm, that 3 point difference would trim retail sales in general by 10% and slice a full point off aggregate consumer demand in the future. Some restaurant segments will obviously be affected more than others, but this may be one reason that, even with the first new stimulus checks in the mail, BOGO and $1 menu items are being promoted again. There will likely be a short term relief driven uptick in consumer spending as vaccines and herd immunity take hold, but strong sales comparisons compared to a year ago should not distract us from longer term concerns.


Meatless burgers and other proteins went mainstream about 20 months ago. Several suppliers, most prominently Beyond Meats (BYND), received enormous publicity and many restaurant chains spent a great deal of money introducing new burgers, sausage and chicken substitutes. BYND came public at $25/share in May, ’19, and ran to $230 in just a few months (almost as good as Gamestop recently). BYND settled down and traded in a broad range between $75 and $150/share until just recently when deals with Taco Bell and Pepsico were announced. All you need to know these days, about the importance of meatless products to the restaurant industry, is that everyone is developing natural, not “meatless”, chicken sandwiches (thank you, Popeye’s, for leading the way). On our website 18 months ago, relative to the meatless craze, we suggested “this too shall pass”. This is not to say that a market does not exist for meatless proteins. It’s just that no particular restaurant will have an edge and there will be plenty of competition among manufacturers. The bright side is that the cost/unit is coming down as production ramps up, so restaurants do not need to price the product at a premium. Fundamentals aside, BYND trades, on February 8th, at $168/share with an $10.6 billion market value, at almost 13x ’22 SALES and over 200x ’22 estimated EPS. The music is playing so the dance continues.


A predictable question at every restaurant conference workshop is “how big do I have to be to attract private equity capital?” The panelists representing the various private equity firms dutifully describe the need for (1) well regarded management (2) excellent unit level economics (3) a concept proven in various markets (4) a well positioned concept, these days such as fast casual, rather than big box entertainment (5) a store level EBITDA of 20% of sales, amounting to at least $5M systemwide. On the other hand, my response would be: “It is not about size. Beauty is in the eye of the beholder “. Capital can be raised, perhaps not from Roark or L Catterton who are looking for “size” these days, but there are plenty of smaller private equity firms that can be seduced by a proven operator with a couple of units that are doing very well. I have suggested that, a while back Norman Brinker could have raised money with a concept alone, just as today’s “Norman”,  namely Danny Meyer. Enter the world of SPACs, where over ONE HUNDRED BILLION has been raised in the last thirteen months. BurgerFi (BFI) has been brought public. FAST is recapitalizing Tilman Fertitta’s empire. Tastemaker (TMKRU) is searching for an attractive restaurant chain, and Danny Meyer has just filed to raise $250M. It is not even necessary to have a specific concept in mind these days. The “beauty” of the sponsor is adequate. According to the release, Meyer’s SPAC, USHG Acquisition Corp. “plans to target ‘culture driven businesses……focus on industries including technology, e-commerce, food & beverage, health and retail and consumer goods.’ Relative to the current SPAC craze: this, too, shall pass, but, in the meantime, buckle up!


We are literally following the money by tracking insider buying. There are lots of reason for insiders to sell: portfolio diversification, taxes, kids’ education, divorce, etc. I knew a publicly held restaurant CEO who told me “the only reason I keep working is to afford a third divorce.” On the other hand, insider buying has only one objective and that is to profit from a rise in the stock. Over the last six months, among all the publicly held restaurant companies, I found the following: At Carrol’s (TAST) insiders bought 56,300 shares at $5.25 in November. At Del Taco (TACO) insiders bought about 130k shares in July-August and another 130k shares in October, all at about $7.50. At Potbelly (PBPB) insiders bought 150k shares at about $4.00 in August. At One Hospitality (STKS) insiders bought 15k shares at $2.98 in November. Perhaps the largest insider buying, relative to the capitalization, was at Good Times Restaurants (GTIM) where insiders bought 65k shares at $1.50/sh in Aug-Sep and another 80k shares at $2.25-$2.50/sh in December.  As of February 8th, the first four are up 33%, 31%, 37% and 35%, respectively, and (GTIM) is up about 90%. History has shown that, while nobody knows the company better than the insiders, the timing can be suspect. That’s true, but not lately, and insider buying remains a good starting point for further research.





You’ve all been reading about meatless products for about eighteen months now, though it seems longer. Eleven million shares of Beyond Meat (BYND) was sold to the public on 5/1/2019 at $25.00/share and 3.74M shares was sold a scant three months later (7/31/2019) at $160.0o0 per share We’ve written two articles, on June 4, 2019 and January 7, 2020. The stock, BYND, ran from $25.00 to about $240.00 in the first three months of public ownership, then declined back to about $75.00 by January, 2020, traded lower yet to about $50.00 by March, 2020, has risen since to about $180.00 today. We will come back to the stock price, and its relationship to sales and earnings at the end of this article.

Our Conclusion on June 4, 2019 was:

“The unanswered question is: how large is the demand, at restaurants, for a product that costs more, has the same calorie count and fat content, has a lot more sodium (which creates high blood pressure), but has no cholesterol and contains useful elements such as Thiamin (which helps with nerve, muscle and heart function), B12 (helps with fatigue) and Zinc (for prostate health)?

We do not expect the introduction of meatless products to restaurant menus to improve sales in any meaningful way. The new meatless products taste fine, by all reports, but we haven’t heard anyone say that they taste “better”, and help to justify a higher price. The long term health benefits as described just above are too subtle for most restaurant customers to care much about. Just look at the size, and the nutritional values, of the portions at Cheesecake Factory, Cracker Barrel, and almost everyone else. This, too, in terms of stock market excitement and restaurant industry focus, shall pass.”

Our updated conclusion on January 7, 2020 was:

“Meatless products will have the greatest impact in the burger business, because that’s what the consuming public, especially at lunch, orders the most frequently, and beef has more cholesterol and fat, depending on the cut, than pork, chicken, or fish. Still, no chain will have an edge, because an entry will be everywhere. The producers, Beyond Meat, Impossible Burgers, and the rest, will sell quite a bit of product but at lower margins than they now predict because they, too, will be competing for market share.

“We think the quantity of product converted from “natural” to “processed” will be far less with the pork, chicken or fish versions. The presumed health benefits of switching will not be as pronounced as with beef . Maybe we are not sufficiently enlightened, but we don’t believe that environmental concerns relative to production of beef, pork, chicken, or fish, are broad enough to be material to this equation.

We are particularly struck by the talk of a “meatless” sausage product. The lyrics from the broadway show “Hamilton” come to mind  (and you  must see the showif you haven’t) :

No one really knows how the game is played, the art of the trade, how the sausage gets made. We just assume that it happens, but no one else is in the room where it happens.”

I didn’t want to know how the “natural” sausage gets made, and I want to know even less about the “processed” version.

We continue to think that, over perhaps a couple of years, the excitement will abate. Those restaurants and food markets that have sufficient customers that care will have some meatless offerings. No particular company will have a serious edge, however, so sales will not be materially higher than they would have otherwise been, nor will profit margins. The producers of the meatless products will also be in a competitive situation, competing for market share, and with profit margins lower than they, or their investors, would have hoped. The equity in Beyond Meats (publicly held), Impossible Foods (privately held) and others will reflect much more conservative valuations than is currently the case.”

We leave it to our friend, Michael Halen, senior Consumer Products and Restaurant analyst at Bloomberg Intelligence, and contributing analyst, Matthew Moros, to update the situation.

“The pandemic has led U.S. restaurant consumers to seek convenience and familiarity, causing consumer motivation for plant-based meat to wane. The products have lost their novelty, in our view, and the price tag will limit sales at quick-service chains including Burger King, Del Taco, Dunkin’, KFC and Tim Hortons.

Burger King may have to boost marketing spending to increase plant-based burger sales in 2021, but we think it may be better served using advertising funds to support other products and day parts. Data from predictive-analytics company Cognovi Labs show consumer motivation trending lower before the pandemic as the Impossible Whopper lost its novelty. Management cut back on marketing amid Covid-19 and customer awareness plummeted. Just 2.2% of Burger King Twitter conversations this year were about plant-based meat, down from 7.6% in 2019. More marketing spending could boost results, but we’re concerned about adoption of the product by the chain’s low and middle-income consumers. We think the chain’s marketing budget should focus on protecting its breakfast market share from gains by Wendy’s and McDonald’s.”

Starbucks’ Sausage Has Greater Potential

“Starbucks’ Impossible sausage sandwich may have greater long-term sales potential than Burger King’s Impossible Whopper, in our view, as its U.S. customers skew more urban and affluent. According to a survey done by Revenue Management Solutions, respondents who have eaten plant-based meats more than once are more likely to have a household income greater than $100,000 and reside in urban areas. Customer adoption of plant-based milks may also boost plantbased meat sales. Still, awareness of Starbucks’ June launch is low, according to Cognovi, making it unlikely to boost sales. Just 0.1% of all Twitter conversations about Starbucks this year have been about plant-based meat.

“Cognovi, an AI and behavioral-science company, analyzes social-media conversations to form insights on customer behavior and future traffic and sales.”

Price Tag Hurts Fast Food Sales of Plant-Based Meat

“Plant-based meat resonates with consumers who aim to preserve the environment, yet we think the price tag may hinder repeat purchases at quick-service chains including Del Taco, Dunkin’, KFC and Tim Hortons. According to a survey by Revenue Management Solutions (RMS), only 24% of households are willing to spend more on plant-based meats and 49% think they’re too expensive. Low- and middle-income fast-food consumers are less likely to pay for these products, in our view, limiting them to a “veto vote” option until the price drops. Shake Shack doesn’t sell plant-based meat, but its millennial, urban and affluent customers may be more willing to pay more for the product.”


Demand Shifts to Retail From Restaurants

“Demand for plant-based meat alternatives is elevated, though the bulk of sales have shifted to retail outlets. A range of retailers — from Costco, Walmart, Target and Kroger to hard discounters Aldi and Lidl — are carrying products from Beyond Meat, Impossible Foods, Tyson and others. Alternative-meat sales are up 53.6% vs. a year ago on a rolling 52-week basis, according to IRI data, with volume 44.3% higher. This performance comes on the heels of rampant pre-coronavirus advertising campaigns run by restaurants that created interest in the products. As Covid-19 social distancing pushed households to prepare more meals at home, these products have been incorporated into an increasing number of shopping baskets, particularly as the price gap to traditional proteins has shrunk.”


Our reservations presented back in January, 2020, and June, 2019 seem to have been largely borne out. The public seems resistant to paying a premium for the meatless products. The initial enthusiasm, stoked by a great deal of advertising, has mostly abated. Even at Starbucks, where the relatively affluent customer resides, awareness is very low. Advertising funds are now being redirected back to core products. Consumption of meatless products has shifted sharply to “retail” outlets such as Costco, Walmart, Target and Kroger, and there is substantial competition for market share (which will affect profit margins for all) between Beyond Meat, Impossible Foods, Tyson and others. While manufacturing scale can offset that price competition, the result in terms of profit margins remains to be seen.

Lastly, in terms of stock valuation, the market capitalization today is $11.5 billion. Sales have risen rapidly and earnings are starting to follow:

Below is the table, from Bloomberg, LP, showing the progress of both.

$11.5 billion is 24 times 2020 estimated sales and 15 times 2021 estimated sales. It is also 1800 times 2020 EPS and 290 times 2020 EPS.

We will leave it to rationalize that 15 times 2021 sales is conservative because it is less than the value currently accorded to other high growth companies. We are not short BYND, and are unlikely to do so, because one never knows how high is high. While not prepared to bet against BYND (in a momentum driven, zero interest rate environment), we consider that, if one believes in the long term attractiveness of a situation like this, there will, at some point, be a more compelling entry point.

Roger  Lipton