McDonald's (NYSE: MCD) is testing Beyond Meat's (NASDAQ: BYND) burgers in its stores in a limited capacity. So far according to UBS (NYSE: UBS), McDonald's is selling around a hundred Beyond Meat burgers a day in more crowded locations.
UBS' Math
Based on these figures, UBS estimates that McDonald's will sell 250 million Beyond Meat burgers annually when it rolls them out to all of its 14,000 locations. Further, it believes that this will result in an additional revenue of nearly $325 million. Although, UBS cautions that McDonald's may eventually develop its plant-based product rather than be reliant on Beyond Meat.
McDonald's introduction of Beyond Meat's vegan meat substitute follows the item being introduced in several locations nation-wide including Dunkin Brands (NYSE: DNKN), Subway, and Carl Jr's. Other companies like Burger King (NYSE: QSR) and Wendy's (NYSE: WEN) are experimenting with other offerings.
For Beyond Meat, it gets half of its revenue from grocery stores and the other half from restaurants. Being featured at McDonald's also has the potential to increase demand in grocery stores from satisfied customers.
Passing Fad or New Reality
Questions remain whether these plant-based products are a fad or whether they will become a core part of the menu. The popularity of veganism, or omitting all animal-based food products from one's diet, is certainly on the rise. Currently, only 0.5% of the U.S. population is vegan. However, it's growing in popularity with increased concerns about the treatment of animals and the environmental effects of eating meat.
If the population consuming less meat continues to grow in popularity, then it seems likely that these products will be as ubiquitous as chicken or beef on menus. It's interesting to note that Beyond Meat's stock is priced as if its products will be a hit. It remains very expensive despite dropping almost 70% since August of last year.
The company sports a price to sales ratio of nearly 20 and is currently unprofitable. It's priced like a cutting-edge technology company, yet it's gross margin is 32%. Although Beyond Meat does have the first-mover advantage in the alternative meat space, several well-funded competitors are entering the space. Companies will be fighting viciously for market share and building brand loyalty or a sustainable moat seems unlikely.