The last time I wrote about Beyond Meat (BYND - Free Report) was a month or so back. At the time, I talked about short-term pains, which would be uncertainties and tensions related to the coronavirus pandemic that could not only impact its business in the Americas and Europe but also potentially disrupt its expansion in Asia.
The long-term story, which hasn’t changed a bit, was all about its being an important play in an emerging trend toward healthier food that’s also chemical-GMO-hormone free, is kinder on animals while also doing something for the environment. That’s almost too good to be true.
But today, I want to say that the current story is changing too. China, for one, is coming out of the woods. I know, we’ve been saying for a couple of weeks already that its factories are limping back to normal. But it was this story about its “wet markets” getting back into operation that really had me sitting up.
Not only are we still in the midst of the coronavirus attack, but our economics are totally out of whack. And here is China, back to selling its bats, pangolins and dogs for human consumption. For those who are unaware, the coronavirus is thought to have mutated from bats to pangolins, and from there on to humans.
"Everyone here believes the outbreak is over and there's nothing to worry about anymore. It's just a foreign problem now as far as they are concerned," says a China-based journalist as quoted by Washington Examiner.
It doesn’t matter at all that scientists, medical experts and animal rights activists are trying to get these markets banned. China seems to have gone deaf.
China: HUGE Opportunity for Beyond Meat
Meat Lovers: China is second only to the U.S. in meat consumption, as appears in a Jan 10, 2020 USDA report. Not only that, but swine flu-related destruction of livestock pushed some pork consumption into beef and chicken. But Chinese love pork the most and although these other meats are kind of filling the gap, pork remains in demand. But shortage in supply is pushing up pork prices, so it’s becoming less affordable. This also potentially creates a market for fake pork, which wouldn’t be price competitive in a normal market.
Fake Meat Tradition: It’s worth noting that the vegan meat segment in China is just as developed as the meat segment. Good Food Institute estimates that this market grew 14.2% in 2018 to $910 million, which is bigger than the $684 million that the U.S. reached albeit at the higher growth rate of 23%.
The Chinese have produced and eaten various forms of vegan meats for centuries. Its association with vegetarian alternatives stems from its Buddhist past. With around 20%of the population still estimated to be Buddhist, vegetarian/vegan alternatives to meat are very much part of the cuisine.
The average Chinese doesn’t substitute vegan for meat however, but often combines them in a happy co-existence. The depth in cuisine makes it a more challenging market on the one hand, but potentially one from which the company could learn.
From what I understood of Beyond’s founder-CEO Ethan Brown’s words, the company intends to be tightly focused on a small niche, which could be just the right strategy for a complex market, at least to begin with. And it’s really heartening to know that prospective customers flocked to Beyond Meat’s trade show at around this time last year, indicating a high level of interest. Beyond is playing this really close to the vest, so we just don’t know much about its product plans. They should however include fake pork, all things considered.
A Timely Entry: China is also a big producer and consumer of soy-based products and doesn’t have the hangups about soy that the rest of the world seems to have. They also seem to have a different genetic framework that makes it easier for them to absorb soy. Since Beyond’s products are soy-free, the marketing strategy here needs attention. Still, an early launch is likely to be beneficial because U.S. competitor Impossible Foods needs government approval for its “heme” ingredient that’s made from genetically modified yeast among other things. If Beyond’s factory gets cranking this year, it could capture some mind share.
Chinese Government Should Be Supportive: China needs to import a good amount of meat to cater to domestic needs despite being a huge meat producer. Meat production is resource intensive and requires utmost care to maintain livestock. It’s also something that your production lines can’t crank up.
In contrast, China already makes most of the world’s soy protein isolate, textured soy proteins and protein concentrate. It’s also growing into a major producer of pea protein (ResearchAndMarkets estimates the market to grow at a CAGR of 9.6% from 2018 to 2023 with Shandong Jianyuan Group and Yantai Oriental Protein Tech Co being the largest producers and many smaller players entering the market).
Pea protein is what Beyond Meat uses. So if we take this comment of its CEO: “This is a time of hyper growth. I’ve ruled out nothing. We’re looking at potentially acquisitions in the supply chain or adjacencies” and put it in the context of China, it isn’t unreasonable to think that it’s looking at acquisitions/JVs in the region (or perhaps it has already signed these to secure pea protein supply).
For the Chinese government, it makes a lot of sense to boost its fake meat production. For one, there’s scope for considerable domestic consumption, which could lower reliance on meat/fake meat imports. For another, it could open up a big export market as the world embraces the new trend. Food tech is something China is already looking at. It has started investing in a small way in things like cell-based meat, fermentation technology and machine learning for new edible plant discovery. So a big factory for the purpose is something China would welcome.
Looking at the domestic market at this time, we may think that we’re sinking into a bottomless pit. But the thing is, China is recovering fast, so shares of companies like Beyond Meat that are playing in line with the Chinese government’s needs and getting ready for a mega launch there are things you should probably buy while you can.
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