Beyond Meat (NASDAQ: BYND) has a significant problem. OK, so their recent results were less appalling than earlier ones, they were able to raise more capital so there's that, But they've got a basic and significant problem that they're just not - at least as yet - able to solve. Which is that they've not got that thing which Warren Buffett insists is so important, a moat.
To explain Warren Buffett's idea - it's the centre of what he's willing to buy at Berkshire Hathaway. He wants a business which has a moat around its revenues, market position and therefore profits. Capitalists love profits, obviously. And when we're investing we do too. Capitalists therefore hate competition because that's what destroys profits - someone else coming and doing the same thing at a slightly lower price. For us as consumers that's great, we love it. Just not as investors. So, Buffett looks for those businesses which have some protection against competition. That moat.
So, what is Beyond Meat's problem? What's the moat?
Beyond Meat share price from NASDAQOK, so think through the basic business idea. Lots of vegetarians, vegans, who still like the taste, but not the idea, of meat. OK, seems fair enough, we can all see that happening in the society around us. So, we'll make something like meat out of plants. Also seems fair enough, Certainly, it's something that modern chemistry can do.
But that's exactly the problem. If that's something that can be done. Also, Beyond Meat proves that people want to buy it. So, what's to stop other people doing the same? And that is what has happened. A new company trying to charge premium prices is continually being undercut by larger but also no name and no premium price producers.
There's simply no moat around the business, even if it is possible to make it successful in the first place. We regard the false meat market as very similar to the cannabis market in this sense. If it works then it will be large scale and low margin companies that dominate it. Those dreams of premium brands gaining premium margins just doesn't seem to work to us - where's the moat?
