Beyond Meat's chicken came first, and it was a failure. Wall Street and investors don't care

Key Points
  • Beyond Meat quietly discontinued its frozen chicken strips earlier this year.
  • Beyond Chicken Strips were the company's first product.
  • Wall Street expects the plant-based protein company, which reports earnings on Monday, to focus much more on its fresh food, including the Beyond Burger patties.
Ethan Brown, founder and CEO of Beyond Meat, prepares to ring the opening bell to celebrate his company's IPO at the Nasdaq Market site in New York, May 2, 2019.
Brendan McDermid | Reuters

Which came first? When it comes to Beyond Meat, it was the chicken.

But it didn't last.

A suspicious shortage in grocery stores earlier this year was followed by an FAQ page from the lab-based food company in mid-April stating, "Unfortunately, our Chicken Strips weren't delivering the same plant-based meat experience as some of our more popular products."

There was no vegan trumpeter playing "Taps," and it is easy to forget that the frozen chicken product was what brought Beyond Meat to life.

The chicken was developed over the course of 20 years by University of Missouri professors Harold Huff and Fu-Hung Hsieh, according to the Columbia Missourian. The formula — which includes soy powder, gluten-free flour, carrot fiber and other ingredients — is mixed and sent through an extruding machine (picture the hair on your childhood Play-Doh toy) to create a finished product with a similar taste and texture to chicken.

Beyond Meat founder and CEO Ethan Brown was so impressed with the pair's work that he decided to license the formula from them. The company launched Beyond Chicken Strips in 2012, and by 2013 the product could be found in Whole Foods stores across the nation.

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Bill Gates was a believer

The strips were quickly championed by a few high-profile individuals, such as Bill Gates and Twitter co-founder Biz Stone, both of whom invested in the company.

"I was surprised to learn that there wasn't an ounce of real chicken [in] it," Gates, who has invested in multiple alternative protein start-ups through his personal investing firm Cascade Investment, wrote in a blog post. "The 'meat' was made entirely of plants. And yet, I couldn't tell the difference."

However, the public proved much more challenging to impress. Many outside the "meat-craving vegan" circle were lukewarm in their response. Beyond Meat's decision to discontinue the chicken strips, a product with a modest yet passionate following, came after a growing number of reviews saying the product's likeness to real chicken was tolerable, at best.

"The thick strands ... didn't precisely resemble chicken strips, and when I tasted them unadulterated I found it bland, unexciting and not very chicken-like," former New York Times food columnist Mark Bittman wrote in a review.

Rachel Tepper, associate food editor for The Huffington Post, wrote in her assessment that although the flavor wasn't "altogether unappealing," the product struck her as strange for a different reason.

"Their appearance and texture come close to that of real chicken, but HuffPost editors detected something off," she said. "Several, both vegetarian and otherwise, mentioned a sensation akin to the 'uncanny valley' phenomenon most often used to describe robots that look too human, such to the extent that they're off-putting."

The problem was exacerbated by the release of the Beyond Burger, which many agreed pulled off the "meatless meat" trick more convincingly.

It's a company that's in the very early stages of developing meat alternatives in all kinds of segments of the market. Not every single one of them is going to get it exactly right the first time.
Robert Moskow
Credit Suisse analyst

The company came to acknowledge that its lab-based chicken approach was not up to par with its fresh patties and other fresh alternative protein products, where growth has been booming as a long line of national restaurant chains line up to add these items to their menus.

And given the success Beyond Meat has experienced since its initial public offering, the failure has been met with a shrug from Wall Street and investors.

Beyond Chicken Strips were the company's first major product misstep, and its continued success since its IPO tells the market something about the fresh versus frozen future of the plant-based protein business.

The company has kept relatively quiet about the product since its demise, dedicating only a single sentence to it in its first earnings report to the subject. Beyond Meat CFO Mark Nelson stated the discontinuation caused Beyond Meat's frozen product revenue to decline by 5% last quarter, a relatively small amount considering 90% of Beyond Meat's revenue is generated through its fresh products.

Beyond Meat, which is expected to report its second earnings on Monday, did not respond to a request for comment.

Beyond Meat's stock has skyrocketed more than 855% since its May IPO, with Wall Street still very optimistic about the future growth potential of the company. Its shares continued to rise into earnings, posting its best week ever last week, notching a 35% gain, but shares fell Monday morning by as much as 7%. It went public at $25. It now has a higher market valuation than established food companies in the S&P 500, such as Campbell's Soup and J.M. Smucker.

"The frozen chicken strips are immaterial to the growth of the business," said Robert Moskow, packaged-foods equity research analyst at Credit Suisse. "The reason that consumers are excited about the product, and the reason that investors are excited, is that their technology in fresh meat is just vastly better than what's on the market historically for meat alternatives."

Tyson Foods to start selling plant-based chicken nuggets
Tyson Foods to start selling plant-based chicken nuggets

Moskow is predicting Beyond Meat will continue to focus more on their fresh products than their frozen products, since he believes consumers have a perception that frozen foods are not as good. The company's slip-up in developing the chicken also does not mean Beyond Meat will slow down in entering new markets in the future.

Reports last week indicated that Beyond Meat may next develop a meatless bacon.

"It's a company that's in the very early stages of developing meat alternatives in all kinds of segments of the market," Moskow said.

Others are planning a processed, plant-based chicken product. Tyson Foods recently announced its own line of plant-based chicken nuggets, and KFC has shown interest in entering the space as well. Beyond Meat has also promised to relaunch the chicken strips in the future with an updated formula.

"Not every single one of them is going to get it exactly right the first time," Moskow said. "And what I think is differentiated about [Beyond Meat] is that they've invested very heavily in science and technology so that they can keep improving what they already have."