Beyond Meat, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Beyond Meat second quarter 2020 earnings conference call and webcast. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one of your telephones. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today. Luby Couture, VP of Investor Relations.

You may begin. Thank you.

Good afternoon and welcome to Beyond Me's second quarter 2020 earnings conference call and webcast. On today's call are Ethan Brown, Founder, President and Chief Executive Officer, and Mark Nelson, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's second quarter earnings press release and investor presentation filed today after market close. These documents are available on the investor relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented on today's call is unaudited, and during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31st, 2019, filed with the Securities and Exchange Commission on March 19th, 2020. The company's quarterly report on Form 10-Q for the quarter ended June 27, 2020, to be filed with the SEC and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to adjusted EBITDA, adjusted gross profit, and adjusted net income or loss, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of adjusted EBITDA, adjusted gross profit, and adjusted net income or loss to their most comparable measures prepared in accordance with GAAP. And now I'd like to turn the call over to Ethan Brown, Chief Executive Officer of BeyondMe.

Thank you, Louis, and good afternoon, everyone. I'm pleased to discuss our second quarter financial results with you today as we achieve record net revenues of $113 million, our first ever quarter in excess of $100 million, despite a challenging macroeconomic environment brought on by the global coronavirus pandemic. I am proud of our management team's ability to pivot so as to remain on our steep growth trajectory. Much of this activity involved quickly reorienting the business from a COVID-19-impacted food sector to retail grocery. Recall that at the beginning of the year, the split between our retail and food service business was approximately 50-50. And as we report today, the balance was 88 retail, 12 food service in the second quarter of 2020. Adapting to such a dramatic change in mix over a short period of time was no small feat. Led by the shift in consumer behavior toward retail, the team repurposed assets and repacked and rerouted inventory to this sector. As a result, we were able to demonstrate extraordinary year-over-year gains, even as food service demand rapidly deteriorated. Across our U.S. and international markets, retail net revenues increased 192% year-over-year, driven by expansion in total distribution points, higher sales velocity at existing outlets, and new product introductions. In the U.S., our expansion to club stores, including most recently Sam's Clubs and BJ's Wholesale, added to existing retail tailwinds. Further, we continued our expansion in the convenience store channel, where our breakfast sausage product recently became available in 650 Wawa locations and will expand into Wawa's remaining 220 stores as of next week. And as velocities grow across our grocery channel, we continue to gain important new distribution. For example, in September, Walmart will be expanding its distribution of Beyond Burger to more than 2,400 stores, while bringing our breakfast sausage patties to over 2,200 stores. Each of these wins advance our goal of making Beyond Meat products more easily accessible to consumers across the nation. We are now in approximately 112,000 retail and food service outlets globally. up 18,000 just since the end of March, with roughly half of that coming from our international retail outlets. Our products are now available in 84 countries outside the U.S., up from 51 a year ago. Looking at consumer takeaway in U.S. retail, according to SPIN's data, for total U.S. multi-outlet natural and specialty channels for the 12-week period ended June 14, 2020, Sales of Beyond Meat products were up 121% year-over-year with a velocity growth of 88%, contributing to a 550 basis point increase in market share, while the plant-based meat category as a whole was up 57% year-over-year. During this period, like the period before, and in fact year-to-date, Beyond Meat continued to own the top four best-selling SKUs in all plant-based meat and outpaced its closest competitor in terms of year-over-year sales growth, by a factor of nearly four times. We continue to see these strong consumer trend takeaways with only a limited number of skews available in retail, fueling continued optimism as we accelerate our pace of new product introduction through the newly formed Center for Commercialization. In what may be the most meaningful combination of metrics for our growth story, we are fortunate to be in a position where three critically important consumer trends are concurrently increasing. One, more households are buying our products. Two, even as the number of households grow, the average spend per household on Beyond Meat products is increasing. And three, more consumers who try our products are buying them again. That is, our repeat rates are rising. According to SPIN's IRI panel data, U.S. household penetration for the Beyond Meat brand increased to 4.9% as of June 2020 compared to 3.5% in January of this year, a nearly 40% increase over just five months. On a year-over-year basis, Beyond Meat's U.S. household penetration has more than doubled from 2% as of June 2019, adding approximately 3.7 million buyers, as estimated by SPIN's IRI. This increase in household penetration has occurred in conjunction with extremely favorable trends, a 36% increase in buyer rates, a 23% increase in purchase frequency, and a strong increase in repeat rates from approximately 45% in January to nearly 50% in June. This repeat rate should be compared to what generally constitutes success in the retail CPG sector, which is typically anywhere from 30% to 40%. As we continue to expand our retail presence in the international arena, we will look to share insights with you on the performance of our international retail business where available. Turning to our food service business, as expected, we experienced a challenging operating environment in the second quarter due to COVID-19-related restaurant closures, scaled-back operations, and delays further beyond meat tests and our launches among our food service customers. Overall, net revenue across our U.S. international food service business decreased 59% year-over-year during the second quarter. Despite the ongoing challenges facing food service businesses, there are several positive takeaways we can glean from the quarter. First and foremost, I want to recognize the determination and focus of our food service teams to continue to demonstrate in the face of formidable headwinds. We focused on what matters so much in business, true partnership, and simply asked and sought to understand how we could best serve our customers during this period of uncertainty. We remained and continue to remain in close contact with our food service partners and have with some orchestrated tests and launches, even as COVID-19 casts a continued cloud over the sector. Our intention remains to make it clear that Beyond Meat is determined to be a true long-term partner to each of our food service customers, irrespective of any particular economic cycle. To this end, we offered aggressive promotional programs to many of our food service partners, helping them to offer our plant-based meat options to consumers at reduced price points. I remain encouraged by the long-term strength of the food service business for our company and see some very nascent positive trends. First, we saw small but nonetheless steady sequential improvement in our food service sales as the quarter progressed and with each successive month. Second, during the quarter, we were able to increase our total food service distribution points globally by approximately 8,000 outlets, or a 16% sequential increase. And third, our relative performance in U.S. food service, as implied by NPD data, continues to show favorable overall trends for Beyond Meat versus our peers. We were pleased to secure several new food service opportunities, including the addition of the Beyond Sausage Wake-Up Wrap at Dunkin', introduction of a limited-time Beyond Spicy Barbecue Cheeseburger at Carl's Jr. and Hardee's locations nationwide, three new Beyond Epic Burrito items at Del Taco, the introduction of Beyond Meat Coastal Med Bowl at Luna Grill locations in Southern California, a limited-time offer of the Beyond Sausage Spicy Sunrise Egg Sandwich at Einstein Brothers in Denver, Colorado, a pizza offering featuring Beyond Meat at Papa John's nationwide in Costa Rica, and a limited-time test of a new pizza offering at select pizza locations in Puerto Rico. In addition, and particularly noteworthy as it relates to continued advancement of our poultry platform, we recently initiated a limited-time promotion of Beyond Fried Chicken with KFC in Southern California. KFC Beyond Fried Chicken was available in more than 50 restaurants throughout Southern California in a six- or 12-piece combo meal for planned orders. One month, a sneak peak. The product sold out in half that time in Los Angeles, with San Diego not far behind. This test followed successful consumer responses in Atlanta, where Beyond Fried Chicken debuted at a single location in August of 2019 and sold out in less than five hours. An expanded market test in February 2020 in the Nashville and Charlotte markets, which also received a very positive consumer response. We are fortunate to partner with such an iconic brand as KFC and couldn't be more pleased with its initial positive results. These numerous examples of food service trials and expanded menu offerings are illustrative of how restaurants and consumers alike are integrating the Beyond Meat brand into their menus and lives, respectively. More generally, according to NTD U.S. Food Service data for the quarter ended June 2020, which tracks broad line distribution and generally excludes major quick-serve restaurants, Beyond Meat fare is significantly better than the broader plant-based meat category in the food service sector. But brand sales actually up 35% year-over-year versus a 23% decline for the overall category. Although this data reflects only broad-line distribution, it is a relative performance of Beyond Meat versus its peers that is both informative and encouraging. The year-over-year increase in MPD was driven by sales of our ground beef and dinner sausage products, both of which were new entrants in the marketplace in the year-ago period. Within MPD, Beyond Meat remained the number one branded offering in terms of dollar sales and also led all other top ten brands in the category in terms of year-over-year sales growth in the second quarter. To sum up on food service, as expected, we felt the negative impact of COVID-19 in our sales to these customers, as so many dealt with closures and or significant complexity and deterioration of business. However, as noted, we are also seeing some positive signs that bode well for post-COVID resumption of our growth in this critically important channel. We see no fundamental issues related to our food service business itself or our strategy that would reclude us from returning to a strong growth trajectory once some level of normalcy returns. For the remainder of the year, however, we do anticipate that U.S. food service demand will remain soft relative to a year ago, given the return of high rates of COVID-19 infections across many parts of our country, including here in Los Angeles. Similar to our strong pivot from food service to retail, we asked ourselves how to best utilize our international plans and presence to continue growth in the midst of the pandemic. In this context, we have not cut international spending and, in fact, accelerated international activities. We've shared with you previously that China, and more broadly Asia, represents a critical part of our long-term strategy. To this end, though it is still early days, we are pleased to see the Beyond Meat brand beginning to gain traction in this important region. During Q2, in collaboration with Yum! China, we launched a limited-time offer across KFC, Pizza Hut, and Taco Bell restaurants. In addition, recent wins at retail include our availability at 50 fresh hippo stores, which are part of the Alibaba Group in Shanghai, with a plan to expand into 48 more in September, and our availability in Metro China with Beyond Meat products sold at select Shanghai locations. As we announced previously, we entered into a distribution agreement with Sonotis in China, and we look forward to their help in increasing our availability throughout the retail and food service sectors. In South America, we entered Brazil with a Beyond Burger, dinner sausage, and ground beef products to be sold at 19 St. Mark's locations across Sao Paulo. In Canada, we introduced our latest iteration of Beyond Burger with availability at major grocery stores nationwide. This product is made in Canada through our partnership with our local manufacturer in Quebec, enabling us to better serve the Canadian market, reduce the environmental footprint of our shipping and logistics activities, and support jobs within this important market. We did not allow the pandemic to slow or deter our infrastructure expansion activities. This includes facilities acquisitions and development in the EU and Asia, respectively. In June, we acquired a manufacturing facility in Enschede, Netherlands, to support EU extrusion operations. This facility worked in tandem with our Zandbergen co-manufacturing facility. to allow for end-to-end production of the on-meat products in the EU, resulting in greater efficiencies and, again, lowering our company's environmental footprint while creating jobs in the communities that we serve. Our new facility will not only bring production closer to the European consumer, but will also allow us to leverage local supply chains, improving our cost structure. We expect this new production facility to be operational by the end of 2020. In Asia, our goal of establishing a production footprint before the end of 2020 remains on track. and we are building out a strong local team in the region. As I've said before, we believe the magnitude of the opportunity in Asia merits significant investment, and we will continue to proceed with a sense of urgency appropriate for the challenge and opportunity alike. Our continued focus on investment and expansion throughout the quarter clearly demonstrates our unwavering commitment to long-term growth. This orientation also runs throughout the offensive measures we instituted in response to COVID-19, As a reminder, our offensive measures fell into two activity sets. One, repurposing, where we sought to pivot resources away from COVID-19-impacted business segments. And two, rerouting, where we aim to meet consumers where they are in this unstable COVID-19 economy. Under these two broad themes, we developed value packs for retailers, offered promotional and reduced pricing at retail to encourage greater consumer trial during a period of higher beef prices, switched food service production lines over to retail products, repacked food service inventory for retail sale, supported our QSR and food service partners with incremental programs, and continue to invest in what our brand stands for by providing free product to first responders and those in need. Many of these efforts, like the COVID-19 crisis itself, continue, and I'm proud to report that early indications suggest each have been highly effective. Taking our retail value packs, for example, despite being introduced at the tail end of the second quarter, the Cookout Classic value pack contributed 16 points of year-to-year volume growth to our U.S. retail business and has been very positively received by retailers across the board. As you will recall, our intention with value packs was to increase accessibility and reduce the pricing delta between our burgers and conventional beef equivalents. With an MSRP of $15.99 per pack and a per-pound price of $6.40, this value offering puts us at roughly a 20% premium against the recent USDA retail average for beef patties, bringing us substantially closer than the 2X premium associated with our Beyond Burger 2-pack. As Mark will discuss in greater detail, we encourage considerable cost of goods sold and thereby gross margin impact associated with repacking food service inventory into Value Pack but drove trial, advanced pricing and accessibility goals, and brought new consumers into the brand, providing a wider base from which to continue to grow. This limited-time offering points to the potential to unlock much broader adoption of Beyond Meat products over time as we travel a downward cost curve toward pricing parity with animal protein over the next several years. Throughout the balance of the year, we will continue to invest in existing and new markets with a focus on the US, Canada, the EU, and Asia. Domestic and global production infrastructure, additional innovation capabilities and talent, new product offerings, increased consumer engagement, and being the best partner we can possibly be to our customers. The magnitude of this opportunity, where we stand at its base, and the value we know we can build, deserves nothing less. Before closing, I want to turn back to our Feed a Million Plus pledge, which aims to provide more than one million Beyond Burgers and nourishing meals at no cost to frontline health care workers and communities in need. We launched this initiative in early April with our Beyond Meat employees and community ambassadors and advocates, and I'm pleased to report the program provided over five million Beyond Burgers and nourishing meals through donations to organizations such as Feeding America, Food Bank for New York City, the Food Bank for Central and Northeast Missouri, DC Central Kitchen, Houston Food Bank, Second Harvest Canada, and more. Given the enormous need, particularly during COVID-19, we feel strongly as part of our brand ethos to be of service when we can. We are also honored to join in partnership with Chris Paul, Dwayne Wade, and Carmelo Anthony in support of the Social Change Fund to address racial inequalities in nutrition access and health outcomes in America. We remain dedicated to serving broader social goals using what's on the center of the plate as a critical starting point. At Beyond Meat, we have made commitments to fight disparities in the black and brown communities through initiatives tied to health and education equity. Within this context, the Social Change Fund at Beyond Meat share the goal of creating lasting, systemic change for black and brown communities across America. Lastly, on previous calls, we promise you'll see us tell our story on health, ingredients, and process with content across television, digital, and print media. Today I'm proud to announce that our brand anthem, and What If We All Go Beyond campaign, officially launched yesterday. I encourage you all to watch it. This brand anthem speaks to who we are, the simplicity of our process of converting plant protein to meat, and our commitment to clean, non-GMO ingredients. With that, I'd like to now turn the call to Mark Nelson, our Chief Financial Officer, who will walk us through the second quarter financial results in detail.

Thank you, Ethan, and good afternoon, everyone. We are extremely pleased with our second quarter financial results as we achieved record net revenues and solid underlying performance despite a difficult operating environment due to the COVID-19 pandemic. Even as we made meaningful tactical adjustments in response to the sudden shift in consumer behavior, we continue to push forward with our aggressive agenda to drive long-term growth and international expansion. I'd like to echo Ethan's acknowledgement of the hard work and relentless focus exhibited by each of our team members throughout the organization. We are grateful for their extraordinary efforts during this period of high uncertainty, without which our exceptional second quarter results would not have been possible. Now turning to our financial performance, as Ethan indicated, net revenues in the quarter were 113.3 million, up 69% compared to the second quarter of last year. Growth in net revenues for the second quarter of 2020 was primarily driven by an increase in volume sold, partially offset by lower net price per pound, as we implemented our strategy to offer more aggressive pricing and promotional programs amid temporary dislocations in the animal protein market. In aggregate, Although our Q2 net price per pound of $5.69 was down only 3% year over year and 2% sequentially, this number was heavily influenced by the significant mix shift from food service towards retail sales channels that we experienced. As a reminder, our retail products generally have a higher net selling price per pound versus our food service products. Growth in volume sold was driven by continued expansion in the number of distribution points, both domestically and abroad, as we grew our total global outlets from 94,000 at the end of Q1 to 112,000 in Q2, or a 19% increase, as well as higher sales velocities at existing retail outlets and, to a lesser extent, contribution from new products. Taking a closer look at our distribution channels, retail net revenues increased 192% while food service net revenues decreased 59% versus the second quarter of 2019. In retail, our recent expansion into club stores continues to drive exceptional growth along with strong distribution gains in international markets and increased sales velocities across the remainder of our retail footprint. In food service, while we were still able to grow our total distribution points, we saw a significant deterioration in demand due to COVID-19. As Ethan mentioned, within food service, independent or smaller chain regional restaurants generally fared worse than larger chain QSR customers. Although we saw improvement in our food service business as the quarter progressed, demand remains weak relative to year-ago levels. Sales to international customers across retail and food service channels represented 15% of net revenues during the quarter, compared to 30% in the year-ago period. Gross profit during the quarter was $33.7 million, or 29.7% of net revenues, compared to $22.7 million, or 33.8% of net revenues, in the second quarter of 2019. Included in cost of goods sold during the quarter was $5.9 million of expenses related to product repacking activities due to COVID-19. As mentioned earlier, we experienced a sudden and significant shift in demand from our food service to our retail business, prompting our decision to convert a meaningful portion of our food service inventory into retail product items. To provide some context on what this undertaking entailed, These activities primarily involved costs associated with retrieving finished goods products from third-party storage facilities, transporting them to our own and our co-manufacturing partners' facilities for repacking, direct labor and tolling fee costs associated with the physical repacking itself, installing new retail packaging, as well as disposal of the original food service packaging and transportation back to our warehousing facilities. In addition, we incurred costs associated with the write-off of unrecoverable portions of the original inventory items. Following the rebalancing of our finished goods inventory through these efforts, we do not anticipate a need for further repacking activity going forward. Given the cumulative total of these repacking activities attributed to COVID-19, we determined that it was sufficiently material and appropriate to disclose our underlying operating results, excluding the impact of these activities, to facilitate a clearer understanding and year-over-year comparability of our performance during the quarter. On that basis, our adjusted gross profit, which excludes $5.9 million of the repacking expenses, was $39.6 million, or 34.9 percent of net revenues, during the second quarter of 2020. As compared to our prior year gross margin of 33.8%, the 110 basis point increase on an adjusted basis was primarily driven by direct materials and packaging input cost savings, direct labor efficiencies, and an increase in the volume of products sold versus the prior year period, partially offset by incremental investments in trade promotional activities. Operating expenses totaled 41.8 million or 36.9% of net revenues in the second quarter of 2020. That's compared to 20.6 million or 30.6% of net revenues in the year-ago period. In Q2 2020, operating expenses included 1.6 million in product donation costs associated with our COVID-19 frontline relief campaign. In addition, the year-over-year increase in operating expenses also reflect increased headcount to support the company's long-term growth, higher share-based compensation expense, increases in the company's marketing initiatives, continued investments in innovation, investments in our international expansion activities, and higher restructuring expenses. Net loss during the second quarter of 2020 was 10.2 million or 16 cents per common share, as compared to net loss of 9.4 million or 24 cents per common share in the second quarter last year. Adjusted net loss, which excludes 7.5 million in costs directly attributed to COVID-19, specifically $5.9 million in product repackaging activities and $1.6 million in product donation costs, as well as $1.5 million in early debt extinguishment costs associated with the company's refinanced credit facilities, was $1.2 million, or a loss of $0.02 per common share, during the second quarter of 2020, compared to adjusted net income of $2.3 million or five cents per diluted common share in the prior year period, which excludes remeasurement of warrant liability costs. As I mentioned previously, and reflecting the long-term mindset Ethan emphasized, we continue to invest in strategic initiatives to support our long-term growth, even as we made short-term tactical adjustments in response to COVID-19. These long-term initiatives included investments in our international expansion efforts as well as new hires to enhance our capabilities in key areas. And this spending represented roughly a $0.03 per share sequential reduction in APS in the second quarter of 2020. Adjusted EBITDA was $11.7 million or 10.3% of net revenues in the second quarter of 2020 compared to adjusted EBITDA of 6.9 million or 10.2% of net revenues in the year-ago period. We note that in Q2 2020, adjusted EBITDA also excludes the expenses defined earlier attributed to COVID-19, totaling 7.5 million, in addition to the customary add-backs we have historically included in adjusted EBITDA. Now looking at our balance sheet and cash flow highlights, the company's cash and cash equivalent balance was $222.3 million, and total debt outstanding was $50 million as of June 27, 2020. We saw a significant increase in our inventory balance to $143 million versus $120.7 million at the end of Q1, driven by an increase in raw materials, specifically our core protein inputs, as partially offset by a reduction of our finished goods and work in progress inventory levels during the quarter. With respect to pea protein, given the nature of our contractual commitments, our volume deliveries are front-loaded during the year in anticipation of higher demand levels during the summer growing season. Given that we dialed back our production in response to COVID-19 and to reduce our existing finished good inventory levels, we have seen an increase in our pea protein stocks. However, as our fee protein raw materials have a shelf life of approximately two years, we see minimal risk of obsolescence at this time. For the six months ended June 27, 2020, net cash used in operating activities was 44.3 million compared to 22.4 million for the prior year period. The increase in cash used in operating activities was primarily due to working capital usage and more specifically to our inventory investments as previously discussed. Capital expenditures totaled $26 million for the six months ended June 27, 2020, compared to $7.5 million for the prior year period. The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities, related to our capacity expansion initiatives. Finally, with respect to our 2020 outlook, as noted in today's press release, given the ongoing uncertainty regarding the ultimate duration, magnitude, and effects of the COVID-19 pandemic on our business and those of our customers, our 2020 guidance remains suspended. We will periodically reevaluate our ability to provide clearer visibility into our near-term outlook. However, at this time, we do expect COVID-19 to continue to impact our business operating environment, at least through the balance of the year. With that, I'll now turn the call back over to Ethan.

Thank you, Mark. In closing, we are very proud of our results for the second quarter of 2020, and while we acknowledge the road ahead may present additional challenges and uncertainty due to the COVID-19 pandemic, We hope that we've conveyed the deep sense of optimism that pervades beyond meat. We're just scratching the surface of what we continue to view as an immense global opportunity, and I have every confidence in our team's ability to adapt to challenges and continue to push forward with our aggressive growth agenda. At this point, I'd like to turn the call over to the operator for your questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And in the interest of time, we do ask that you please limit yourself to one question and one follow-up. And our first question comes from Ken Goldman from J.P. Morgan. Your line is open. Please check that your line is not on mute, sir. And we will move to a secondary line. Mr. Goldman, again, your line is open.

There we go. Can you hear me now?

Yes, we can. Hey, Ken, how are you doing?

Good. How are you? I'm not sure what happened there. Usually it's my fault, but not this time. Your growth in the U.S., Ethan, it was a lot better than what scanner data might have suggested. Are there any maybe shipment timing issues we should be aware of that either boosted or affected your shipments during the quarter? Just thinking about how we should, you know, model the third quarter a little bit.

Yeah, so we did have this tremendous growth in U.S. retail activity. And the thing that was most stunning to me was around this shift that the team was able to accomplish from roughly a 50-50 food service to retail activity. distribution in the beginning of the year to this 88% retail, 12% food service, and to move all the lines and the products over that way. Some of the things that really did help to drive this extraordinary result for the second quarter that may not be fully captured in the data is Costco, for example. We've done tremendously well in that platform. I can't share their internal data, but it's something that we are very proud of here in terms of where we rank in terms of total frozen goods at Costco. So it's elements like that that aren't always captured in the data. But overall, it's this extremely strong set of trends that we continue to face across retail today with the number one selling refrigerated plant-based meat over the 12-week period and at 6.14% And we're seeing this 195% increase in domestic retail sales. It's really driven around increased velocity as well with 88% increase in retail velocity. And we're still in that really sweet spot that is so enviable in terms of where a brand wants to be. In our household penetration, this really surprised me. It grew 40% from January through to June to reach about 5% of U.S. households. But even as more households were coming into the brand – On average, each household is also buying more, right? So you get those two trends coming together. You get an increase in frequency. We have about a 23% increase in purchase frequency as well. So all of that drives this tremendous growth we saw and the increase in market share, I think, at about 550 basis points. So overall, I felt very good about the performance in retail and the ability to pivot into that, and I think the numbers represent that.

So that's all helpful, but let me circle back to the – question, which is, is inventory at retail, as far as you know, at the levels that you want it to be, or is there a potential for shipments to maybe trail consumption a little bit in the third quarter?

No, I don't see that. I don't see that at all. I mean, I think we're very comfortable where they are. And again, I look to the uptake that we're seeing in Costco and in some of these you know, SAMs and VJs, et cetera, that are driving a lot of growth. So, no, we feel pretty comfortable where we are.

Okay. I'll let it go there. Thanks so much. Sure.

Thank you. Our next question comes from Robert Moscow from Credit Police. Your line is open.

Hi. Thank you. The retail sales growth was phenomenal. It was better than I thought it would be, but But the food service decline was also bigger than I expected, down 60%. You know, most of the restaurant chains that are reporting numbers are reporting better results than that. And in particular, the QSRs are reporting better results and maybe even better exit rates. So I guess I'm a little surprised to see it kind of lagging the restaurant sector. And I wanted to know, are you seeing anything within the those chains that indicate that maybe consumers are just buying their old favorites during this timeframe. They're going to trusted products. Is trial a little bit lower than normal just because of the pandemic? And then when do we think we can get it back to normal again?

Sure. So, no, very, very good set of questions. Our story in food service is really around the split in our customers between QSRs and then the smaller independents. And so as you'd expect, the larger QSRs, some of them are doing quite well, particularly those with drive-thru. But it's those smaller either regional chains that don't have drive-thrus or the mom-and-pops that are struggling so much. And if you look at our overall distribution, Our mix of large strategics to others is really about 30% strategic and about 70% smaller accounts. And so that was in the fourth quarter of 2019. So we have a lot of exposure to those smaller accounts. Now, as that sector has become more destabilized, the shift has occurred where we're now about 42% strategic and about 58% smaller accounts. So that revenue change that's occurring is predominantly being driven by that decline in the smaller account business that we've done so well in. Independent accounts fell about 60%, while Sputnik's declined for us about roughly 40%. So it's a dynamic that is particularly hard-hitting for small business owners, and we certainly are experiencing that as they struggle to keep their stores open under these closer conditions. So We do expect and we're seeing some decent signs that we have reason to be hopeful in terms of general uptick month over month in food service, but it's too early to tell when there will be a full resumption of sales in the category.

I guess the follow-up there, Ethan, is are your sales at these customers weaker than theirs? than their overall sales? Like, are you keeping track of that?

Yeah, no. In fact, we do have some data just around the plant-based sector. So we actually, in the NPV data, which is the broad-line data set, which excludes large quick-serve restaurants and generally deals with the cash and carry and smaller accounts, our sales are actually up in that smaller category, 35% year-over-year. versus I think it's about a 20%, 23% decline in the overall category. So, no, we're not seeing that we are facing a disproportionate level of deterioration relative to other products in those restaurants. It has to do with restaurants being sort of open or closed because of the conditions that they're under. Okay.

Thank you.

Thank you. Our next question comes from Ben Thur from Barclays. Your line is open.

Good afternoon, Ethan, Mark. Thank you very much for taking my question. Why don't you shift a little gears into the international market, actually, and if you could talk a little bit about the dynamic there, similar along the lines within your exposure on food service, and if you could share maybe a little bit of the breakdown, large box versus the smaller independent QSRs, if that's similar as it is in the U.S.? ? And then on the international retail piece, which clearly gained traction during the quarter, but if you could elaborate a little bit on the more recent strategic initiatives and maybe new outlets you've been winning within retail on the international side.

Sure, sure. So all very good questions. Let me just tackle the one around international food service. So the breakout there, It's really about roughly 30%, 35% strategics, and then the balance being these other smaller accounts. So, again, similar kind of distribution to what I just talked about. But we are very optimistic about the growth of both retail and food service internationally. And that optimism is stemming from some considerable proof points. You know, we've done well with Starbucks in China. They have over 3,000 stores there in the Good Good campaign, what they call the Good Good campaign. And they're promoting our products now as permanent items, not as an LTO. So we feel really good about that. And we're always looking at pricing in these international markets. As you know, we set a goal to have production up and running in China by the end of the year. And we do plan to accomplish that and with that be able to bring lower pricing into that market. We had a great test with KFC, Pizza Hut, and Taco Bell in China. So I was extremely pleased to see that. And I think we can expect some more activity there, although I can't make any promises or provide details. We're also beginning to work with local Chinese QSRs, which is a new set of business for us and something that we're going to, I think, continue to see growth around And I know that people are familiar with our work with Synodus, which is a distributor that we use in China, and that makes our product accessible to casual dining and to hotels, et cetera, as well as extending into retail, such as Metro and City Super and Costco, et cetera, in China. So very, very significant growth and activity for us in China. We have a small team. now in Shanghai, led by a very capable leader out of Yang China. And so a lot of expectation there. If you look at in Europe, we also see good growth in the European market. We've got a lot of – I know your question is more on the food service side, but we did pick up a lot of wins in retail in Europe. And while we don't have SPINS data or things like that, what I can talk about a little bit is the fact that stores that are introducing our products, let's say a year ago, six months ago, three months ago, are already starting to expand, whether it's in number of stores or pick up additional items. So our retail sales internationally continue to rise significantly. I think we're up 167%. So things like Metro Germany began and then expanded into other EU countries. And, of course, in China, as I just mentioned, Costco Spain had really good success and expanded into the U.K., France, and Ireland. You know, Sobeys in Canada continued to add new items, Loblaws, et cetera. So you're seeing all of these examples of where they're having great success with products coming off the shelf beyond serving them very well. and wanting to expand, you know, examples in Sweden and Denmark, et cetera. So we have a lot of – we put a lot of emphasis on two things this quarter. One is to effect this pivot from food service to retail. And I just want to commend the team on this. It's not a small exercise when it's physical goods to make a change like that over a quarter. And so you have to put yourself in the shoes of the men and women that are working for us in our facilities. where we had 50% of our infrastructure set up for a sector that essentially disappeared. We were then able to transition those lines directly over to retail, as well as repack all those products in a very, very short period of time. So that was the first real point of focus. Second was the pandemic is not equally distributed across the globe. Some economies are recovering more quickly, right? And so we went to China with expectation that the recovery there was going to be quicker. That was correct. And we are doing well there as a result. Parts of Europe the same. So we'll continue to find growth where it exists, and we'll continue to pivot our company to take advantage of that, even at the expense of incurring some year-term costs. We're at such a point in our growth today that it's very important that we continue to gain market share. So that's been our primary focus. Hope that captured some of your questions. Happy to take a follow-on.

I've actually captured all of it, including my follow-on, so I'll leave it here. And thank you very much. Congrats on the results. Okay, great. Thank you very much.

Appreciate it.

Thank you. Our next question comes from Alexia Howard from Bernstein. Your line is open.

Good evening, everyone. Hi, guys. Can you hear me?

Hi there. How are you? How are you doing? Yes. How are you doing?

Perfect. I'm good. So can I ask about the share trends, particularly on the fresh patio side? Obviously you've had a major competitor come into the market, and as I look at the share trends coming down and the sales growth slowing, I guess my question is I know you can't give us guidance for the first quarter, but can you give us any pointers about how we should think about the first quarter as that dynamic plays out? Obviously, there's still rapid growth elsewhere as we've seen in the gap between measured channel data and what you reported this time, but I'm just wondering whether there's any sort of heads up that we need to be aware of as those share trends balance out. Thank you.

Sure. No, thank you. So just on the main point, we continue to grow faster than the category by a large measure, continue to lead the category in terms of the top four selling items in groceries. So I think we feel really good about that. You know, in this economy in general and free enterprise economy, it would be incredibly unusual to not have, you know, competitors come in at a $1.5 trillion opportunity. So like I said over the last several quarters and before, we have, you know, no surprise at this. And we continue to compete extremely well, as the numbers that I've shared indicate. So I think if someone were to try to build the case that Beyond is somehow suffering as a result of competition, the numbers just don't support it in any shape or form. We see no overall decline in Beyond Meat sales across the chains, or maybe an exception, one or two small chains. But overall, extremely strong, continued growth, continued increases across both Mulu and Natural Channels and all retailers. And I think this really speaks to the strength of our brand. You know, it's a very competitive environment. We have large incumbents coming in. We have upstarts as well that are making noise in the media and coming into the market. But we continue to outperform and lead the sector in growth and grow, as I mentioned, more quickly than the sector. You know, competition is a natural part of being in business, and we feel really good about how we're doing against competitors around the market. I think the numbers bear that out.

Great. Thank you very much. In the interest of time, I'll talk it on. Thank you.

Thank you so much.

Thank you. Our next question comes from Rupesh Parikh from Oppenheimer. Your line is open.

Good afternoon. Thanks for taking my question. So I have two related questions on the U.S. retail segment. So in the club channel, as you look at Costco, BJ's, Sam's Club, do those outlets plan to keep your product year-round? And then also, as you look at the Cookout Classic that I think you debuted at some of the discounters, it sounds like that's more temporary. So is that more just a Q2 benefit, or do you see that benefiting future quarters as well?

Yeah, so as you know, Costco will move things in and out, but we have no in any way indication from them. I just had a good call with their CEO the other day that they're not anything but just absolutely thrilled with our performance. So if I had to guess, and this is not anything that I've been told, but if I had to guess, you'll see more of Beyond and Costco rather than less, Sam's BJ's, et cetera. We're doing extremely well in those formats. On the value packs, that is something that I personally am very proud of and care a lot about. It's part of this five-year goal that we set about 18, 19 months ago to be able to underprice animal protein in at least one category. And I think we're well on our way to that and hopefully be able to do it in more than one category in terms of beef, pork, and poultry. And something really interesting happened, right, over this quarter. So we saw an opportunity. with beef prices being much higher than they typically have been in recent years. And we have a product in the two-pack that is about 2x that of beef prices. Within a single quarter, we'll be able to bring that price delta down to 20% premium. And this is – think about how small our company is. We're talking about we just registered our first quarter of over $100 million in sales. And, again, we're getting help from the beef industry because of the higher prices, but we're within 20% of the cost of conventional beef patties. So you can see, I think, very clearly that we're going to be able to underprice animal protein within that three-and-a-half-year window that we've set for ourselves. And the value pack speaks to that. Now, we've sold probably about 70,000 cases of that product in great distribution, Walmart, Target, Kroger, Harris Teeter, Publix, Wegmans, et cetera. stop and shop. But we weren't able to get that to the market until about the last two or three weeks of the quarter. But even so, that led to about 16 points of our year-over-year domestic retail growth. So it's a very promising start. I wouldn't say it's a short-term item. I mean, that particular item is a limited-time offer, but that idea is one that we'll have longstanding here at Beyond Meat. We will make this product accessible to people at the price point that they can afford and And the Cookout Classic Pack is a step in that direction. So very pleased with its initial introduction and its initial sales and expect to see it continue to grow. Great. Thank you.

Thank you. Our next question comes from Michael Lavery from Piper Sandler. Your line is open.

Good afternoon. Thank you. If you look at the international sales and just see what looks like a sharper deceleration in food service than in the U.S. And it's a little hard to know the number of outlets just with Canada shifting, I think, you know, into the international segment from how you've shown the outlet totals before. But is there – if we look at the number of outlets, it looks like a sharp acceleration of maybe 300 percent, but then the declines obviously on the sales. Clearly, there's some pressure from closures and COVID, but I guess is there a different dynamic we should expect in terms of sales per store? And then also maybe are some of those authorized but haven't shipped in product yet?

So this is on the international front or in general?

On international, I mean, I guess anywhere in particular, but I mean, anywhere in general, but in particular, it looks like on international products, the outlet growth is far ahead of what you are seeing on the sales side. And I just want to understand how to reconcile that. Yes.

Yeah, absolutely. So we did have that disproportionate food service to retail distribution internationally. And, you know, obviously COVID has dramatically impacted the food service sector. So I would say that really is the driving factor behind that. That said, We've really been able to make up some ground on the retail side internationally, and that was our focus as the food service sector started to decline. But it really did – it comes down to that. We had a very disproportionate percentage of our sales going into food service internationally as we started international growth. We expect that to normalize a little bit. as we continue to pick up retail and as the international food service sector comes back into a healthy mix. I think the mix now is about 43% food service, 57% retail, roughly. But that reflects a pretty significant decline. In 2019, we're about 84% food service. So those numbers, I think, tell the story.

I guess I just want to maybe... look at it maybe at the same thing a little bit differently. I think it says 47,000 outlets retail and food service internationally. You know, one queue obviously may have had a little bit of tail end of the quarter pressure on food service from COVID. Going all the way back to a year, the numbers are so small, it's a little bit tricky. But if you look at some of the three queue to two queue progression, that number international outlets is up almost 300%. But the sales have declined in food service around 40%, where on the U.S. side, it's more like 14. A little bit of a weird sequential comparison, not from the previous quarter, but I guess I'm just trying to make sure I understand the outlet number correctly. Are a lot of those ones that maybe have been authorized, like, say, you know, Starbucks China or something, where you're not, you know, it's going to be a phasing launch that you're not having those sales yet? Is that part of how to reconcile that gap?

Yes. Yeah, two things. One is the general instability in the food service sector, and then two, a lot of these wins are extremely new, right? They're nascent, so you'll start to see them materialize. Starbucks is a terrific example. I doubt that's registering much right now, but it's at 3,000 stores, and it will.

Okay, that's helpful. And just a quick follow-up on the frozen value launch. Have you found any change? From consumer perception, you know, having had the refrigerated launch initially, does this – does it confuse the consumer any? Do you have any sense of how that response has gone? It sounds like the sales are really good. Is it incremental consumers? Is it the same one who knows it from the refrigerated case? Do you have a read on any of that?

Yes. It's too early for us to tell, but we haven't seen, you know, any significant decline at all. In fact, you know, our two-pack sales continue to increase. in general, so it doesn't seem to be harming those. You know, I think we tried – at one point we were going to put it in a sleeve, put the product in a sleeve to mimic the exact appearance that frozen beef patties have in the frozen meat section. And so I think, you know, it's our hope that consumers will think about the two products in the same way they would think about fresh beef patties and frozen meat. Patty, so we can get back to you maybe next quarter if there's any observations around particular consumer trends, but we're very much hoping to mimic the same sense that you get from the fresh beef versus frozen. Okay, perfect. Thank you very much.

Thank you. And we'll take our last caller from Brian Salane from Bank of America. The line is open.

Hey, good afternoon, everyone. Hey, Brian. Hi there. Ethan, just a question. I guess in the U.S., as we're thinking about just the dynamic between retail and food service, I guess just two questions related to it. One is, in parts of the country, just where you've seen restaurants reopening, Has that at all had any impact on retail growth? And then second, I guess, you know, this is obviously very unanticipated, right, in terms of the pivot to retail. And I guess my question is just how incremental can this be over time, right? Now you've got a much bigger retail business than you had anticipated a year ago. As food service begins to come back, you know, do you expect that these retail gains are going to be, sort of sticky and, you know, essentially you've accelerated the retail growth while you're still building the food service business. So you may end up being further ahead on your curve than you originally thought.

You know, look, it's a great question and set up for an answer that I think is very sincere, which is absolutely. I think that you're seeing a maturing of our brand, not in the sense of slowing down, but in the positive sense in that we're starting to get recognition within mainstream consumers in America. An example yesterday, the ad that we released I think is extremely well received, has been very well received. The household penetration numbers, the increasing buying rates per household, all these things I don't think are temporary. And so What we know is that we're going to be back in food service. We'll be back, I think, in a big way when it gets back up and started again. And I don't expect that we'll give back all the retail. So, yes, I'm very optimistic that we'll be able to continue the growth in retail that this has allowed. It's been an enormous trial program for us, and that was one of the reasons that I wanted to get the value back out. we had an opportunity for consumers to go to the store to seek out our products and enjoy them. And when you do try them, you tend to like them, as our repeat rates suggest. And so we're not stopping here. We have eight items in retail. The incumbent in the meat all set, which we don't pay that much attention to, but just as an example, has 23 SKUs, right? So there's a huge opportunity to proliferate across the and you look at the meat industry and the diversity there of cuts and products. So we have a lot of room to grow in the existing doors that we're in. And then you take, give just an example, we're launching new products. I mean, the pandemic is a very serious thing, but we're not going to stop innovating. So we have our breakfast sausage patties are launching in over 2,000 Walmart stores, 20 super target stores in September. We're expanding distribution of these sausage products into Publix for both the sausage SKUs, breakfast sausage. Doing really well, by the way, with that product. In Whole Foods, it's one of the top five-ranked breakfast SKUs for the eight weeks ending 6-20. So really good progress in new products that we're launching. Then we did Beyond Meatballs that are coming out. Great acceptance, looking for early shipment in September. Retailers like Whole Foods and Kroger, et cetera. So we'll continue to see great pickup of our retail items. So my hope is that we'll take the momentum that we've been able to achieve by shifting dramatically from this 50-50 split to what is today 88-12, which is remarkable, and then take back the food service losses that we had and turn those into very significant gains. You know, the partnerships we have, we haven't talked about much on this call, But if you look at, you know, KFC here in Los Angeles, 50-store launch, Los Angeles, Southern California, San Diego, et cetera, you know, here we had to rush the second weekend as a family to go get the nuggets because we were aware that they were running out. And they, in fact, ran out within two weeks here in Los Angeles. It was scheduled for a month. So we're continuing to see when we do these launches really good results, and we have great partners. I mean, look what Duncan just did. Dave Hoffman has been keeping close touch on these things and shared with me that the wrap they're doing that they introduced recently is doing really well. So whether it's Pizza Hut or all these different brands that we're so fortunate to be involved in, They're not going to just go away, right? We are building long-term relationships and trying to be of service to them during a very difficult period. The expectation that we'll be able to serve them as the economy gets back to normal here, which it will. We've been through these things before as a country and as a globe, and things will be back to normal, and I expect to see Beyond Meat growing really strongly throughout the next several quarters. Great. Thanks, Ethan. Yep.

Thank you. And that does conclude our question and answer session for today's conference. And I'll just turn the conference back over to Ethan Brown for any closing remarks.

I just wanted to thank folks for calling in, and I think the main message is to be safe and take care of one another. It's a difficult period, and it's time to just be a little extra careful with everybody. Let's just try to get through this. I'm very hopeful that we're going to emerge from this stronger as an economy and country, and, you know, looking forward to that and wishing you all well as we continue to manage the pandemic. Take care. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.