McDonald’s (NYSE:MCD) announced on Nov. 9 that it would test the McPlant plant-based burger in 2021 in select U.S. markets. Nowhere in the announcement was any mention of Beyond Meat (NASDAQ:BYND), which helped in its early development. Investors freaked out, knocking Beyond Meat stock for a 17% decline in its share price.
After the announcement, Beyond Meat tried to calm investors.
“Beyond Meat and McDonald’s co-created the plant-based patty which will be available as part of their McPlant platform,” a Beyond Meat spokesperson told Yahoo Finance.
However, McDonald’s did little to back its one-time development partner.
“As we have worked to better understand customer demand, some markets around the world have tested plant-based products. Informed by those learnings, we have created a delicious burger that will be the first menu option in a plant-based platform we are calling McPlant,” McDonald’s International President Ian Borden stated. “McPlant is crafted exclusively for McDonald’s, by McDonald’s.”
Not a peep about Beyond Meat.
Why the Cold Shoulder?
In the days since McDonald’s announcement, the media have speculated about what went down between the Golden Arches and the creator of meatless alternatives that put the relationship on the rocks.
Dr. Sylvain Charlebois, a professor at Dalhousie University in Nova Scotia and the Scientific Director of the school’s Agri-Food Analytics Lab, has a good idea.
“Its ‘better than beef’ rhetoric has simply hurt the brand and the category. In lieu of positioning the product as unique, or an alternative, Beyond Meat has become its own worst enemy by encouraging consumers to ditch meat,” Charlebois recently stated in FoodCanada.
“The reality is that most Canadians still enjoy traditional animal proteins. It is very much a part of our heritage. Expecting Canadians to replace one with the other was unreasonable, and still is.”
The professor points out that although McDonald’s might want to get in on the growing plant-based food action, it also has an obligation to beef farmers who supply it with millions of beef patties each year.
“It’s all about playing nice with farmers, and there’s nothing wrong with that. But for Beyond Meat, it is clear that they no longer have McDonald’s as an ally. As such, the company may need to refine its value proposition to consumers,” Charlebois says.
“Plant-based menus are about more choice, not about undermining the hard work of farmers who have provided us with quality meat products for decades.”
The reality is that McDonald’s, with more than 38,000 locations worldwide, is as much a logistics and supply chain company as it is a restaurant operator.
The Divorce and Beyond Meat Stock
McDonald’s will take its McPlant burger, rejig its kitchens to ensure the meatless burgers are kept separate from the meat variety, and then plug in millions of sales across its vast network just as it did with all-day breakfast.
When McDonald’s commits to something, it goes all in. McDonald’s shareholders ought to be very happy. Beyond Meat shareholders, not so much.
Brought in to help McDonald’s develop a plant-based burger, Beyond Meat chief executive officer Ethan Brown and his team must have said or done something that scared away the Golden Arches.
“McDonald’s has never been keen on licensing fees; the soda dispenser is one of the few places in the company where one finds brand names. Beyond Meat, meanwhile, is getting one in four revenue dollars, from Dunkin’ and other resellers stocking its products,” Bloomberg contributor Kyle Stock stated recently.
We [investors] might never know why McDonald’s ditched its development partner.
It could be as simple as McDonald’s management doesn’t believe Beyond Meat has the supply chain and production capacity to handle its needs. It could be that it didn’t want to share revenues on this particular product line. It could even be that the corporate cultures clashed.
If you own Beyond Meat stock, I would be wondering whether this situation was a one-off or the sign of growing pains to come.
The Bottom Line
In August — the last time I wrote about BYND — I didn’t see a problem with readers buying Beyond Meat stock at prices around $125. Except for a surge in early October, its shares have basically gone sideways in the three months since.
If pressed, I would have said it’s still a long-term buy until this McDonald’s dust-up.
However, until the company can provide a reasonable explanation of how the relationship with McDonald’s blew up in its face, I’d be cautious about buying its stock at current prices.
For margin-of-safety reasons, I’d wait until BYND trades below $100.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.