🧠 A Mega-Trend (That’s a Mega-Loser)

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Last year, global sales of plant-based meat rose 31% to more than $10 billion, according to Statista. Over the next five years, that figure is expected to triple.

This is a clearly a mega-trend in the making.

There should be obvious investing winners from it, right?

Not exactly.

Yes, with every mega-trend, there will be winners. But it’s not always the companies — or its investors — that benefit the most.

In the case of plant-based meat, consumers and society are most likely to reap the bulk of the rewards.

That’s because we don’t see any discernable moat — or sustainable competitive advantage — for the largest players.

Take Beyond Meat as an example. While it shot out of the cannon years ago, scores of rivals like Tyson Foods, Kraft, and Conagra have started offering plant-based meats of their own at cheaper prices.

When that happens, gross margins — the price a burger sells for minus what it cost to make — contract.

Look at Beyond Meat’s gross margins recently:

  • 2019: 33.5% gross margin
  • 2020: 30.0% gross margin
  • 2021: 25.2% gross margin

And if you think that trend is ugly, consider this: gross margins are -6.2% in 2022!

That’s right, the company has been forced to slash prices so much it is losing money with each sale.

This is why moats matter so much.

Before you run out an invest in the next mega-trend, ask yourself: what’s this company’s moat?

Without that moat protecting profits, it’s just a matter of time before competitors show up to drive down prices. And when that happens, it is consumers — not investors — that stand to benefit the most.

– Brian Feroldi, Brian Stoffel & Brian Withers

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June 6th 2020

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