Welcome to the Beyond Meat, Inc. 2021 Second Quarter Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded.
I would now like to turn the call over to Luby Petula, VP of P and A and Investor Relations. Please go ahead.
Thank you. Good afternoon, and welcome. Joining me on today's call are Ethan Brown, Founder, President and Chief Executive Officer And Phil Hardin, Chief Financial Officer and Treasurer. By now, everyone should have access to the company's 2nd quarter earnings press release These documents are available on the Investor Relations section of Beyond Meat's website atwww.beyondmeet.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. Forward looking statements in the earnings release That we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. Please refer to today's press release, the company's annual report on Form 10 ks for the fiscal year ended December 31, 2020, The company's quarterly report on Form 10 Q for the quarter ended July 3, 2021, 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 also note that on today's call, management will refer to adjusted EBITDA, Adjusted gross profit and adjusted net loss, which are non GAAP financial measures.
While we believe 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 or the investor presentation for a reconciliation of With EBITDA, adjusted gross profit and adjusted net loss to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.
Thank you, Luby, and good afternoon, everyone. Before diving into our Q2 business highlights, let me begin by welcoming our new Chief Financial Phil Hardin to his first Beyond Meat earnings call. Phil officially joined Beyond Meat a little over 3 weeks ago And is already proving himself to be a valuable addition to our team. Phil brings with him a wealth of finance leadership experience 1 of the world's largest e commerce and technology companies, which not so long ago set out on an ambitious journey to transform the way consumers shop. In many ways, our objectives are just as ambitious as is a requirement that we maintain a long term focus While making investments today for tomorrow's growth, we are fortunate to leverage Phil's deep experience as we embark on this next leg of Beyond Meat's story.
I'm personally very pleased to have Phil with us and hope he will join me in welcoming him. For Q2 2021 results, We generated record net revenues of $149,000,000 which came in toward the top of our guidance range for the quarter And represented a 32% increase year over year. I am proud of this result as we cycled our previous best ever quarter in terms of sales, One where the defining feature was COVID induced stockpiling as stay at home orders proliferated across the U. S. And globe.
In foodservice, net revenues were up 2 18% year over year and 61% sequentially, driven by reopenings within the sector. Here in the U. S, foodservice net revenues were up 2 69% year over year, Internationally, we saw an increase of 172%. We continue to hold the number one brand position in terms of dollar share according to NPD data for Q2, 2021. Sales of Beyond Meat Products were up 95% year over year in the quarter In NPD tracked channels, in line with the overall category during the same period, this year over year increase Reflect solid gains and signs of recovery among independent operators, including restaurants, bars and pubs, Lodging venues and small regional QSR chains among other segments.
We continue to expect year over year growth within our foodservice business in the near term, albeit at a more moderate rate as we lap tougher year ago comps and expect pipeline restocking to subside. In addition, general near term concerns around rising COVID-nineteen infection rates could also have a dampening effect on food service demand. We did see a significant reduction in distribution at Dunkin' Brands as they rationalize their menu. We remain engaged with Dunkin' around future innovation and collaborations and are in distribution throughout their Western U. S.
Stores. I should note that our breakfast sausage patty continues to do extremely well in other U. S. Venues such as Pete's and Phil's Coffee among others. In International Foodservice, the 172% increase in net revenue Was driven mainly by broad reopening of economic activity in several markets, and we expect solid year over year growth in this portion of our business in the near term, barring a significant recurrence of COVID-nineteen related dynamics.
Finally, oddly as it relates to foodservice,
We are looking forward to the excitement
activity with our large strategic QSRs. As before, I should note that we supply at the request of these partners and the timing of planned tests and launches could shift based on various considerations, including a resurgence of COVID-nineteen or other events. Shifting to retail, we saw a year over year increase in net revenues of 6%. This moderate increase The decline in U. S.
Retail revenues of 14% as we cycled Q2 2020's record retail revenues, which as you will recall, were fueled by consumer stockpiling at the onset of the pandemic. This comparison notwithstanding, Our key brand metrics of household penetration, buyer rates, purchase frequency and repeat rates remain robust. We saw continued advancement in our household penetration, which increased 80 basis points sequentially and 120 basis points on a year over year basis to 6.2%, according to SPINS IRI consumer panel data for the 52 week period And on a year over year basis, our buyer rate increased 12%, Purchase frequency was up 9%, and our repeat rate increased 5% versus a year ago to 51%. In addition to these strong brand metrics, Beyond Meat's unaided brand awareness in the U. S.
Increased to its highest level of 26% According to July 2021 survey data, it remains the highest such level among all major plant based meat brands by a healthy margin. We continue to hold the number one product position and 4 of the top 6 products in our category according to SPINS data for U. S. Multi outlet And natural and specialty camps for the 12 week period ended June 13, 2021. Total distribution points for the Beyond Meat brand or TDPs increased 55% year over year, driven by growth in total outlets as well as the introduction of new products, including Beyond Meatballs and Beyond Breakfast Sausage Links according to Spin's data from Yulo and Natural Specialty Channels for the same period.
This solid increase in TDPs, which we believe bodes well for the long term growth prospects of our brand, Does, however, exert near term downward pressure on velocity measured in dollars per GDP to the tune of 35% year over year. Overall, looking to consumer takeaway across Mueller during the same 12 week period and reflecting the cycling of Q2 2020 Sales of Viomi products were down 4% year over year, slightly outperforming the category, which was down 4.4% and contributing to a 10 basis point year over year increase in market share for the brand. In international retail, We maintained our strong sales growth momentum with net revenues up 198% year over year as we continue to drive increased distribution both in terms of footprint and average items per outlet. This growth occurred across a backdrop where similar to the U. S, Globally, the industry was down as it cycled Q2 2020's stockpiling.
We believe our progress internationally will accelerate And broaden as we implement investments, including the continued scaling of our EU and China operations that will enable capacity expansion, cost optimization And increased consumer engagement. During the quarter, we launched Beyond Meatballs in Europe for the first time, Beginning with major retailers in the Netherlands and Switzerland, marking the 4th Beyond Meat retail product offering available in Europe today. We also launched meatballs in Australia for the first time as well as secure distribution of our burger at Woolworths, one of Australia's largest retailers, further demonstrating our commitment to expanding the availability and breadth of our product offerings across all of our key geographic regions. Overall, Our distribution footprint in international retail saw strong growth of approximately 5,000 stores or a 21% increase sequentially, driven mainly by expansion in Canada, Germany, Australia, Austria and the UK. Let me now provide a brief update on some recent product highlights and key strategic initiatives.
As you recall, At the end of the Q1, we announced the launch of the latest iteration of our Beyond Burger, the 3.0. Early feedback on the new burger has been very positive with The product even earning People Magazine's Best Plant Based Burger Award and being featured as such on Good Morning America just over a month ago. It remains too early to draw any definitive conclusions about the incrementality of Beyond Burger 3.0 versus 2.0. However, we expect that similar to the transition from 1.0 to 2.0, this new and improved burger will welcome more consumers to our brand. As I alluded to in my remarks about the sequential uptick of our household penetration, we may already be benefiting from the switch.
As you know, we believe that tasting is believing and to that end, we've recently launched our biggest product sampling campaign ever in partnership with key retail customers. We will also be activating further sampling opportunities via food trucks in various cities across the U. S. Just as noteworthy, we recently launched Beyond Chicken Tenders, marketing return under our poultry platform. As with the Beyond Burger 3.0, Beyond Chicken Tenders are gaining strong recognition.
For example, the product won the prestigious 2021 Fabbie Award By the National Restaurant Association, right out of the gate. Apart from their great taste, Beyond Chicken tenders boast 40% less saturated fat in a leading foodservice chicken tender, 14 grams of protein per serving, have no cholesterol, And of course, are made with no GMOs, antibiotics or hormones. The ONTU contenders are currently available at more than 400 restaurants nationwide, We intend to expand distribution throughout the balance of the year. Separately under our poultry platform, we announced limited time offerings at 2 fantastic partners, Namely Panda Express here in the U. S.
And A and W in Canada. For Panda Express, we co developed a delicious plant based take on Panda's signature orange chicken dish Dubbed beyond the original orange chicken. The offering, which became available at 13 locations in Southern California and New York, It's a plant based version of Panda's most popular menu item and has been met with enthusiastic consumer response, making Beyond the Original Orange Chicken 1 of Panda's most successful regional launches to date. And in another new product from our poultry platform, at A and W, We launched Beyond Meat Nuggets nationwide across Canada. Beyond Meat and A and W first partnered in 2018 to introduce the Beyond Burger To Canadian consumers, and we are thrilled to be bringing more innovation to market with this important partner.
While these LTOs and limited distribution rollouts are just the beginning of our reentry into poultry, we're truly humbled by the overwhelmingly positive feedback Our Beyond Chicken products are generating, and we are expanding our production capabilities under this product platform as quickly as possible. I'd like to now turn to our progress in China and the EU. First, in China, we continue to ramp up volume at our We are currently validating our extrusion capacity, which will enable full end to end production capabilities in China. We look forward to driving growth in this key market as we scale our Yaxing operation So as to enable locally produced Beyond Meat products that are tailored to the Chinese palate, are available at a competitive price and are made from locally sourced inputs. Our Q2 commercial highlights from China include the launch of a plant based spicy beef wrap at KFC China In over 2,600 stores in 28 cities on a limited time basis, as well as the launch of our new e commerce platform on jd.com, China's largest online and overall retailer.
This new presence on jd.com unlocks distribution in roughly 300 cities throughout China It provides an unrivaled nationwide fulfillment network with same or next day delivery to a population of over 1,000,000,000 people. Our jd.com launch marks the first time our Beyond Pork product is widely accessible to consumers across China, and we anticipate adding more Beyond Meat products to the platform in the future. Turning to Europe, we have completed the construction phase Our new facility in the Netherlands. We continue to produce proprietary dry blends there and in the final stages of validating our highest throughput lines yet. These tests are expected to be completed over the coming weeks, and we will be transferring learnings from these higher volume lines to our production sites in the U.
S. And China as part of our global cost down effort. Commercial highlights in the EU include several key retail distribution wins across Germany, the Netherlands and Switzerland among others. In addition, in July, following successful trial last November, Pizza Hut UK added Beyond Meat as a permanent menu item at all delivery locations across the UK. Before closing my remarks, I'd like to revisit the 3 pillars of our long term growth, taste, health and cost.
As I've noted, it is my belief that it will be a rare consumer who rejects a product that is truly indistinguishable from healthier than and below the price of its animal protein equivalent. We are making sizable investments today to realize this outcome. These investments, which are occurring across the U. S, EU and China are vitally important to accessing the full potential of our total addressable market And establishing Beyond Meat as the global protein company of tomorrow. We are investing in all Sentry aspects of our platforms and products, including flavor, aroma, appearance and texture, or F.
A. A. T, for short, with the goal of collapsing the differences between our products These investments generate near term wins such as the Beyond Burger 3.0 and our award winning Beyond Chicken Tenders among others, while enabling through the application of state of the art equipment and best in class scientific and engineering talent, future products in the U. S, EU and China, alongside our other markets that bring us closer and closer to that true north of an indistinguishable build. And to bring these advances to the consumer, we are investing at a healthy pace in the commercialization of products and platforms for our QSR partners and for retail markets.
We continue to invest in the nutrition of our products as well as educating the consumer around the health benefits of going beyond. Our work with Stanford School of Medicine, a 5 year program designed to generate clinically and statistically significant data Relating to the health impacts of different protein choices, including our products, is an important part of this initiative. And finally, as I referenced earlier in my remarks, we are actively investing in our global cost down program. Most notably today, we are putting in place infrastructure and equipment to drive scale and efficiency gains, and in the case of EU and China, access local supply chains. Though I am pleased with our Q2 results, particularly the recovery in foodservice and expansion in international retail as we enjoyed some respite from COVID, It is our progress against these long term growth pillars of taste, health and cost that continues to hold our focus.
With that, I will turn it over to Phil to walk us through our Q2 financial results in a bit more detail.
Thank you, Ethan, for the warm welcome and good afternoon, everyone. Let me begin by saying that I'm excited to join the Beyond Meat team at this moment in the company's history. Although there is plenty of hard work ahead of us, I believe that Beyond Meat is uniquely positioned to fulfill its long term mission of changing the way we deliver protein To the center of consumers' place, benefiting human health, our global climate and animal welfare. As the team is fond of saying internally, tasting is believing. And after having the privilege of sampling some of our innovation team's newest prototypes, I'm convinced that we have an opportunity to capture the appetites of meat eaters around the globe.
Capitalizing on this opportunity will require long term focus And investment in our global innovation and production capabilities, our marketing efforts, IT infrastructure and human capital. I view my role as helping the company to do that in Structured and fiscally responsible way, bringing operational discipline and analytical rigor and ensuring that we simultaneously address the needs of our growing global organization while being disciplined stewards of our shareholders' capital. I'm excited to embark on this journey, and I look forward to getting to know each of you better along the way. With that, let me now dive into our Q2 financial results. As a reminder, Q2, 2021 ended on July 3rd, which is later than in previous years, such as Q2 2020, which ended on June 27.
The later Q2 calendar more of the high sales volume days leading up to the July 4 holiday in the U. S. In prior years, these days would have been included in Q3. We achieved net revenues of $149,400,000 in the Q2 of 2021, representing an increase of 31.8% compared to the 2nd Quarter of 2020. Growth in net revenues was primarily driven by a 2 18% year over year increase in sales to foodservice customers, reflecting further recovery from COVID-nineteen, which significantly depressed demand levels in the foodservice channel a year ago.
Total retail net revenues increased 6% in the Q2 of 2021 compared to the year ago period, primarily due to increased sales among international customers, partially offset by lower U. S. Retail channel sales compared to the year ago period. In the U. S, our continued growth in total distribution and later calendar was not enough to offset the steep year over year comp resulting from consumer stockpiling behavior in Q2 2020.
Across all channels, net revenue per pound was 5.69 in the Q2 of 2021, which was flat on a year over year basis. Taking a closer look at our distribution channels. In retail, across the U. S. And international, our volume of products sold increased 9% year over year, driven by international.
Net revenue per pound for total retail was lower by approximately 3% year over year, primarily reflecting increased trade discounts in the U. S, partially offset by product mix shift. In foodservice, total volume of products sold increased 172% year over year, while net revenue per pound was up 17% year over year. The strong growth in volume primarily reflects broad reopening of economic activity, both in the U. S.
And in certain international markets, and a loosening of operating capacity restrictions across foodservice channels. As we look to Q3 2021, we expect our rate of volume growth in foodservice channels to moderate in Q3 relative to Q2. This expectation is driven by a tougher year over year comp, what we suspect was a tailwind in Q2 attributable to pipeline refill And some recent loss of distribution in our foodservice business. In addition, we believe it's prudent to call out that due to recent increases in COVID-nineteen infection rates stemming from the Delta variant, We're seeing some early signs of a return to a more cautionary stance across certain parts of the foodservice sector. Moving down the P and L to gross profit.
Gross profit during Q2 2021 was $47,400,000 or 31.7 percent of net revenues as compared to 33,700,000 dollars or 29.7 percent of net revenues in Q2 of 2020. In Q2 2020, adjusted gross profit, Which excludes $5,900,000 of costs associated with product repacking activities driven by the onset of COVID-nineteen was $39,600,000 or 34.9 percent of net revenues. We incurred no such costs in Q2 2021, So our gross margin and adjusted gross margin for Q2 2021 are the same at 31.7%. The year over year decrease in adjusted gross margin was primarily driven by higher fixed overhead cost per unit, higher transportation costs And higher depreciation and amortization expense, which reduced gross margin by approximately 170 basis points, 160 basis points and 100 basis points, respectively. With regard to fixed overhead and depreciation expenses, these increases are not unexpected are being driven by our capacity expansion initiatives ahead of our anticipated future growth.
Although such initiatives do put pressure on our margins in the near term, We maintain that in light of what we view as our long term opportunity and considering the caliber and scale of retail and foodservice partners we seek to grow with, these strategic decisions are required. Turning to OpEx. Total operating expenses were approximately $66,000,000 or 44.2 percent of net revenues in the Q2 of 2021 as compared to $41,800,000 or 36.9 percent of net revenues in the year ago period. The year over year increase in operating expenses primarily reflects growth in overall headcount levels to support our innovation, Operations and marketing capabilities as well as our international expansion, increased marketing expenses, higher production trial activities And increased outbound freight costs, which are included in selling expenses. Net loss in the Q2 of 2021 was $19,700,000 Or $0.31 per common share as compared to net loss of $10,200,000 or $0.16 per common share.
Adjusted EBITDA was a loss of $2,200,000 or negative 1.5 percent of net revenues in the Q2 2021 compared to adjusted EBITDA of $11,700,000 or 10.3 percent of net revenue in Q2 2020. Turning to our balance sheet and cash flow highlights. Our cash and cash equivalents balance was approximately 1,000,000,000 Dollars and total debt outstanding was approximately $1,100,000,000 as of July 3, 2021. For the 6 months ended July 3, 2021, net cash used in operating activities was $120,400,000 compared to $44,300,000 in the year ago period. Capital expenditures totaled $51,400,000 for the 6 months ended July 3, 2021, compared to $26,000,000 for the year ago period.
The increase in capital expenditures was primarily driven by continued investments in production equipment and facilities related to capacity expansion initiatives in the U. S, China and the EU. Finally, let me provide some commentary about our near term outlook. As I alluded to earlier, there continues to be uncertainty, particularly in food service channels related to the COVID-nineteen infection rates and the Delta variant, as well as reimplementation of safety measures in certain jurisdictions And potential impact on customer demand levels. Although we generally expect to see continued year over year growth in our foodservice business for the balance of the year, albeit at a more moderate pace than what we saw in Q2 for reasons I outlined earlier.
This outlook assumes reasonable containment of COVID-nineteen infection rates, In keeping with the more limited guidance we reinstituted last quarter, For the Q3 of 2021, we expect net revenues to be in the range of $120,000,000 to $140,000,000 representing a year over year increase of 27% to 48% compared to the Q3 of 2020. Embedded in this guidance are a number of factors that are affecting our typical seasonality between our 2nd and third quarters. These include: 1st, And anticipated sequential moderation in foodservice shipments following some pipeline restocking activity, particularly in June. 2nd, relative to a year ago, we had 5 fewer shipping days in Q3 ahead of the July 4th holiday, which is obviously one of our key promotional periods during the summer grilling season. 3rd, we've had some loss of distribution in our foodservice channels in both our U.
S. And international businesses, And some foodservice venues are finding it difficult to operate at full capacity, also due to near term labor challenges. And lastly, 4th, We believe some added caution is warranted given the recent uptick in COVID-nineteen infection rates due to the Delta variant and increased uncertainty associated with that. Although not yet at a level that is causing major concern, we have seen a few early signs of customers reinstituting more restrictive measures and signaling a more cautionary disposition. In terms of profitability, as Ethan stated, we are continuing to invest in support of our long term growth strategy, Which includes investing in capacity, including internationally, investing in additional talent and organizational capabilities, investing in marketing spend and we're maintaining a robust
And our
Hi, thanks for the question. I wanted to know if you could give a little more clarity on what you mean by some customers signaling more cautionary Dispositions and cautionary measures. Does that also mean that they might be delaying Test programs in the QSR channel and pushing those out a little bit later?
Yes. Thank you, Rob, for the question and good to connect. So I think what we're seeing on the foodservice side There are 2 things going on. One is, there is a labor shortage that has impacted at least one of our launches and has postponed it till The first part of next year. And then second, we are seeing just general conservatism.
If you think about some of the particularly independent operators and folks like that that came out of what we thought was the sort of final phase of COVID. They stock up on product and then there's this delta variant that comes in, which requires them to be a little bit less confident about their outlook. So they're being more conservative in orders is what we're seeing. And so those two effects, the impact of labor and then the continued bit of Cloudiness about the Delta variant, I think, is creating a little bit of a drag on foodservice at the moment. And so for us, I think the main characteristic of the Q3 and our guidance is simply lack of visibility.
And so that's why we wanted to be Offering this new range.
Yes. Okay. That makes sense. And the second part of my question, International Retail, like I really don't know how to forecast it. It's actually a lot higher than I thought it would be.
Is this a new run rate at $28,000,000 per quarter? Because it's look, it's a lot higher than it was last year. It's a lot higher than it was Q1. And So how would you describe the real run rate for that segment?
Yes. I mean, I personally am really excited about International retail, I mean, the growth we saw was strong. I think we were up 198% Year over year added about 5,000 stores in Germany, Switzerland, Australia, etcetera. I don't know. I think there's a similar sense of lack of visibility in international retail, as I just spoke about, In the sense that we're seeing things like demos and promotions, particularly in Europe, to be pushed out Or canceled, because of the uncertainty around the Delta variant.
And hopefully, that's a very temporary thing and that's Obviously, optimistic view on it and the one that we hold, but wanted to be again a little bit conservative because of that. So I wouldn't To suggest that's going to be the case in Q3 in terms of a run rate, but I do think, the overall long term very, very promising for us. Okay.
So you think it's possible that some of these retailers might have pulled forward inventory or conducted a lot of activity in 2Q and Maybe we're going to be a little more cautious until Delta passes. Is that fair?
I think that caution is probably right. Yes. Yes. I'm not sure about the earlier behavior, but certainly the question. Okay.
All right. Thanks. I'll pass along.
Thank you.
And our next question is from the line of Alexia Howard With Bernstein, please proceed with your question.
Good evening, everyone.
Hey, Alexia.
Hi, there. So can I ask about the market share trends, because they've obviously deteriorated somewhat, as we've all noticed in the Nielsen data? But I guess My first question is, what proportion of your U. S. Retail business is actually captured by what we see in Nielsen or IRI Versus what you're seeing in spins and other non measured channels like Costco.
So just want to get a sense about how much are we missing that you guys are getting. And then secondly, obviously, with the share trends deteriorating, We know we're lapping a big ramp up in distribution from a key competitor that happened last summer. Do you anticipate those share
I'll answer the first part of that and then turn it over to Louis on the second for Phil. If you look at so we had this kind of peak of activity in retail in the Q2 of 2020 as consumers were stockpiling. And then if you take a step back from that and begin to look at our share trends from, let's say, November to now, We have had a very steady upward trajectory on that. So I think we're 21.1% or something like And so 8 consecutive 4 week periods of increase. So I feel pretty good about where we're headed on market share.
And we obviously do a lot of analysis around the impact of competition on the brand. And we actually are doing quite well in that regard. We're finding that our brand has maintained the vast majority of our buyers. And these buyers, as I've noted in the comments earlier, in terms of household penetration, buyer rates, frequency rates, etcetera, They are buying more on a per household basis. And so Overall, those trends are strong.
And then if you look at we obviously give some share up to competitors, but we're gaining more from the balance of competitors. And so on a net basis, that's why you see that increase occurring. So Overall, it's hard to compare against that Q2 2020 comp. But if you look at the trends, once that normalize, we continue to gain market share.
Hey, Alexia, this is Luby. So on the second part of your question, in terms of how much is the SCANA data of our U. S. Retail sales. So we subscribe to the SPINS IRI data.
And I know On The Street, you guys are probably looking at either IRI or Nielsen. What I can say is for the data set that we subscribe to, it's Probably representative of around 70% or so of our U. S. Retail business. The Large pieces that are not captured in there that make up that 30% would obviously be certain club stores.
And then to a lesser extent, there There's some things like certain naturalspecialty stores and a much lesser extent things like Our DTC, right, that direct to consumer, which rolls up into retail as well. But I would say roughly 70% or so is representative of our U. S. Retail
Okay. Thank you very much. I'll pass it on.
Alexia, if you do see one of the things that I found actually encouraging About the our market share activity is the sheer amount of money that is being spent marketing around this category and by Competitors. And yet, we still have this 8 week or 8 consecutive 4 week periods where our market share is increasing. And we still hold the number of position and we still hold 4 of the top 6 products in retail. So overall, I think, in a competitive environment Where there's a lot of marketing going on, we're benefiting from the impact of that marketing in a sense that it's bringing more consumers to the market. As long as our repeat rates keep going up, we're obviously going to benefit from that as more consumers come in and try it and then stick with our brands.
So It's a competitive space, but one where we're doing pretty well.
Thank you very much.
And our next question is from the line of Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks. Good evening, everyone.
Hey, there.
Hi. So, I guess My first question is thinking about the production side and the cost environment and Appreciating that there's a lot of moving parts in terms of your unit costs, at the moment, but hoping you can maybe just help us think about The inflationary environment you might be seeing in terms of freight, logistics, packaging, raw materials, Fixed cost leverage, and how those are playing out? And on the fixed cost point, just How do we think about layering in some of the new production capacity in China and Europe, both in the second quarter and into the back half of the year?
Hi, this is Bill. I'll take that one. So as we said in our remarks, The primary drivers of our gross margin deterioration adjusted gross margin deterioration We're really around fixed overhead, transportation and depreciation and amortization. And so As we said in the remarks, really the fixed capacity piece, we're expecting, we're well aware of, And we are seeing some increases in, as you pointed out, transportation. Transportation is driven by kind of 2 factors.
The first is what is the raw cost of the truck and the second is how are you running your network. And so both of those contributed. On the ingredients side, the materials didn't actually provide a major impact Our gross margin, we are seeing some increases of price, but there are other factors that drive the total cost in the gross margin calculation. And so They're kind of this quarter, we're offsetting. So that's where we are on those.
In terms of the fixed Cost leverage, obviously, we're investing to generate more capacity. We are in the process of bringing on capacity in both China and Europe. And so Yes, we will start we're already incurring some costs there and we'll start incurring some more as more equipment comes online.
But it also gives us
the ability to manufacture close to our customers to create products in the local countries, which we're very excited about. And so We're eager to make those investments and grow those new markets in international.
And if I could just follow-up on that and it ties into kind of Rob's question earlier. I mean, does having the local production capacity, Do you think that unlocks some more significant both retail and foodservice opportunities in those regions? And Any framing on how quickly that is? And I'm just trying to get a sense of having what that does to your sales potential over the course of the next 6 to 12 months or is it going to be a bit not as significant of a ramp?
I think it's incredibly important in the international market for us to get this end to end production fully up and scaled. And so we had We made the announcement about being under operation at our Yijing facility and now taking that to another level where we're going to actually be doing the full process there Instead of just finished goods and the entire reason that we're investing so much right now in both the EU and in China is To get to that local production to access local supply chains, and as well to begin to tailor our products to the local pallet. So we've almost been able to be Successful in international markets without having the right pricing in place and with having products that while good were not tailored to those particular markets. So I view the work we're doing today in Yaxing and Shanghai and in the Netherlands as step function change that will allow us To offer products at a much more competitive price that are tailored to the local consumer using local supply chains. And it's not just the access to local supply chain.
We've also taken the opportunity as we're building a new production to build much Higher efficiency lines. So you'll have those two benefits coming together in those locations that allow us to offer Lower cost structure and then lower pricing to the consumer is absolutely essential. If you look at where we are, for example, on menu in China, It's way too expensive. And it's a strength of our brand and the quality of our products that allow us to play at that level. But as I've always said, our goal is To be able to ultimately under price animal protein, getting access to local protein supply chain in China, as an example, is a really important piece, as well as in the EU.
So overall, yes, it's going to be a pretty big benefit to us. In terms of when we'll start to see that come on, I can probably give you more color on our next call on that, because it's very much in motion right now.
Okay. That's all really helpful. I'll pass it on. Thanks.
Thank you.
And our next question comes from the line of Brian Spillane with Bank of America. Please go ahead with your question.
Hey, good afternoon, everyone.
Hey there.
Hey, I have two questions. One is just a follow-up Ethan To Alexia's question or your comments or response to Alexia's question, you mentioned that with competitors spending money in marketing, I guess, in the U. S, It's actually helping stimulate the category. So I guess it kind of raises the question, is it make you think more about maybe spending more in marketing and advertising? As a category leader, it's kind of like when Coke spends, they drive the soft drink category.
If you were to spend more, would it Actually drive the category? And I have a follow-up.
Did our marketing team get a hold of you? That's a planted question. Yes. And you know my whole thing with that with marketing. I mean, I think it's incredibly important.
We love to I mean, our story is so strong in the sense that when people start using our product, they do See the impact, they see it in their health and they see it in the kind of impact they can have on these issues they care about and then of course the taste. And so It's easy to market this product and we need to then think about how do we amplify those messages. And so all the work we're doing with ambassadors and athletes things like that is really important. But when's the right time to really start doing that at a national stage, doing the national ads on TV and other pieces? And we haven't yet taken that step.
You've seen billboards out there. You've seen a ton of social media. You've seen some limited TV buys. But there is another step up that we can take and we're very close to that. It has to do with gaining distribution in some of our larger quick serve restaurant partners And things of that as well as just getting COVID completely behind us.
But yes, you will see us spend more marketing and we've got a great story to tell us we're going to get out there and do it.
Okay, great. That makes sense. And then just as a follow-up, we've gotten this we've had this question a few times over the course of the year and it relates to just getting the Price or the cost of the product down to parity with animal protein. And so I guess a couple of questions around that. One Is that both true for retail and foodservice?
So like your landed cost in the foodservice operators as well as What the consumer sees on the shelf and retail? And then I guess the second part of that is just assuming that that's still the ambition. Does the cost down program when it's completed sort of get you to the point where you can be at price parity and still achieve kind of the mid-30s gross margin objectives that you've had over or aspiration that you've had over a long period of time?
Yes, great question. So I think on the first one, what we publicly committed to is to within now 3 years, or a little less, To be able to underprice animal protein in at least one category. And I think we're on our way to that for sure. And that will materialize in both the retail and foodservice So we're going to do some fun things actually later this year, potentially in retail, just kind of Doing some messaging and some marketing around that. But it's going to be different for each Forms of poultry is harder, has a much harder target.
But beef is probably the one you'll see us do it in first. And on the margin itself, I'll probably let Luby and Phil answer that. But I think in general, it's a little bit too early to tell, Just because there's so many factors, but this program is well underway now and it's actually exciting. We've got a ton of folks in here working on it. It has to do with these large Efficiency lines and gains in throughput as well as negotiating through our supply chain as well as some reformulation, some local So it's a big effort here.
It's one I think that is really necessary to unlock the TAM here and give us the type of growth In the out years that we expect, and again, it gets back to these 3 flywheels or levers of get the taste so it's indistinguishable, Get the sensory experience in entirety, whether it's the appearance, the aroma, the texture, get that all right. 2nd, Make sure the consumer understands it's healthier for them. So that's all the work we're doing at Stanford is better than 3rd, as I've just talked about. Get this cost down. I think it becomes a rare consumer that rejects
And our next question comes from the line of Ken Goldman from JPMorgan. Please go ahead.
Hi, thanks. I just wanted a quick clarification. If 3Q 2021 has 5 fewer shipping days leading up to July 4th Than it did a year ago. I haven't checked the dates on this yet, but is the implication that 2Q 2021 had 5 more shipping days leading up to July 4? And if that's the case, how much did that help retail sales in the quarter?
Or maybe I'm misunderstanding that whole thing?
Yes, this is Phil. I'll take that one. So, first of all, it's more about the timing of when the quarter fell. So it's not a different number of days overall. But obviously, the lead up to the 4th is a pretty heavy grilling and heavy promotional period.
And so it's just heavier volume that fell into Q2 this year versus prior years. So it's not an actual number of days in Q2. It would be different than the number of days in Q1. In terms of the size, a very rough way to look at it. Sorry?
Hi, Jason. I apologize. Okay. A very rough way to look at it is just, if we looked at Q2 this year, if the calendar had been Kind of the same as last year. A very rough number would be about $6,000,000 in the Q2 period as a result of that shift in the timing.
So you're sort of trading off early spring days for kind of midsummer days.
Thank you. That's very clear. And then my follow-up is, you mentioned Food service distribution losses outside the U. S, I didn't get the sense they were that big, but can you just fill us in a little bit on what those were and maybe give us a sense Their size and their impact?
Yes. Hey, Ken. It's Ethan. Hope you're doing well. So I think if you think about the overall distribution for the company, we gained distribution over the quarter, went from about 118,000 to 119,000.
In the international space, those losses were primarily due to independent operators Who didn't make it through COVID, sort of washed out during the process, versus being dropped from menu or things of that nature. So it was not a big number, and that was from what we understand the cost.
Thanks, Ethan.
Yes. Anything else?
That's it. Thanks.
Ken, you usually have some sort of zinger here. All right. Thank you.
And our next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Great. Thanks so much. Just had one question on the QSR partnerships. I'm sorry, I got a call late, so I hope that some of the NASA's already. I think you had said Some point previously, Ethan, maybe some of those new partnerships that you've recently signed could start to see some product come Maybe towards the end of this year, probably more of a 'twenty two and go forward event.
So just curious, kind of broadly speaking, Is there any update on timing of those products? And I'm assuming if we just take McDonald's for an example, Kind of the rollout of the plant and kind of how you're thinking about that in terms of You're kind of ramped this year in the next.
Sure. No, thanks for the question. So not to be Unfair to McDonald's and speak for them. I want to step back from them specifically. And if you look at the universe Of QSRs that we're working with that are large and global in nature, I do think, And of course, these plans do change because of the we've talked for a number of different reasons, COVID, labor, etcetera.
I think you will see some activity this year that Yes, test in nature and things like that or market analysis and tests and things like that. And then you're right, the general Uptick will be in 2022 from what we're seeing, but provided plans don't change or something exciting that's coming actually in the very near term It's a new innovation from us, the trolling out with one of our big partners. So I'm excited about what I'm seeing in terms of the thawing in the QSR space, but I don't think it's going to contribute From those large partners to significant volume in the second half of the year.
Okay, fair enough. And then maybe if Just squeeze one quick one in. In terms of the new shipping product, there are kind of timing expectations on The broader U. S. Rollout at least in retail, again, is that something we should be expecting to see sometime later this year or is that
Yes, I think that's been a really good launch for us, The poultry platform in general. And so we launched with the chicken tenders broadly in foodservice And then did the Panda Express, which was a great project sold out right away almost, I think within a week or so for the 4 week plan. And then with A and W, the nuggets that we just launched, they're nationwide in Canada. And so that's Just in the beginning on that platform, you are going to see more activity from our Pulsey platform in terms of Number of customers and activity in the balance of the year, I don't know if we're going to sign a revenue target or number to that Publicly, but it is something that we're scaling up now.
All right. Super. Thank you so much.
Thank you.
And our next question comes from the line of rupesh Parikh with Oppenheimer, please go ahead.
Good afternoon. Thanks for taking my question. So I wanted to go back to just the loss of, I guess, some of your Your Dunkin' distribution, I was wondering if you could provide some more color in terms of what drove that loss of distribution? And then if you have any learnings going forward, I guess, on the QSR side?
Sure. So the Dunkin' relationship, I think, first of all, Important to note that it's still strong with respect to the Western States and we're in all of their Western stores and really enjoying the relationship. There was a change in management there, And they have every right and appropriately decided to do a review of the menu and make changes, and we were part of that. If you look back at our history of QSR launches, we are from time to time going to cycle off menus. And so if you look, for example, A couple of years ago, Tim Hortons did the same thing.
And back then, I don't think this portended any issues with our traction in foodservice, and I really expect the Same in this case. I think you'll see us continue to add QSR distribution of the largest QSRs at a very healthy pace, Provided we don't see a sustained resurgence in COVID. Again, it gets back to it to in this most recent few weeks. So I've mentioned A and Ws, Panda Express, Etcetera. But Pizza Hut, for example, in the UK, just added us as a permanent menu item, Italian sausage, beef and pork crumble.
The announcement I referenced coming soon. So a lot of things going on and you look at that very product itself And how it's doing at Teets and Caribou's and Phil's. I anticipated this question obviously and In reviewing the data from those stores, I came across a quote they had shared with us From one of these outlets, Pete's and Caribou and Phil's, where they're talking about basically the 3 times lift in from the original forecast when they launched it back in March, which has held on steady since the launch and that the product at this particular store It's the number 2 item behind the bacon cheddar product, bringing in more Gen Z consumers And driving new customers of the business. That's exactly what we want to hear from our QSR partners. And it's that very product, that breakfast A sausage product that's doing it.
So I think you'll see us continue to do things, Dunkin', that's my expectation. And just part of the kind of cycling on and off that occurs
Great. And then maybe just one follow-up question, just given some of the COVID uncertainty out there. As we look at your R and D spending and Really SG and A in the back half of the year, should we expect that you guys will still remain aggressive or is there a potential for me to cut back in terms of how aggressive you are on the spending
I'm sorry, I didn't hear the first part of the question.
Yes. So just with COVID uncertainty out there, I was just curious, How aggressive do you guys plan to still be on the R and D and the SG and A side in the back half of the year?
Yes. No, so I think it gets back to Do we believe that anything has fundamentally changed in terms of the long term trajectory of the business or total investment market, etcetera? And in fact, the case keeps getting stronger for investment with the brand and what we're doing. And so if you look at the OpEx increase we Had recently a lot of that OpEx is going into the areas you'd want, which are people costs, in terms of adding new talent, a lot of that in innovation, A lot of it in commercialization of products. And so we're going to keep doing that, because, again, as we viewed throughout the pandemic, these issues Are somewhat transitory and we don't think have an impact on long term health of the business.
So I think we'll continue to make those investments.
Okay, great. Thank you.
Yes. Thank you.
And our next question comes from the line of Benjamin Theurer with Barclays. Please go ahead.
Thanks and good evening. Just two quick ones. So first of all, you've clearly accelerated a lot expenditure and you've talked a lot about the investments you're doing over in Europe, over in Asia. We're basically at a run rate Roughly double where we were last year. So if we think about the back half and into 2022 and With the ambition you have to serve and deliver product locally produced, how should we think Your CapEx program in the next couple of quarters, just to understand a little bit as well how cash flow is going to look like considering The heavy investments you're currently undergoing.
Thank you.
Hey, sure. Ben, this is Luby. I'll take that question. So Yes. So you mentioned it, right, that if you look at the rate of spend that we've had so far through the year in the first half, We're running at roughly double, I would say that you should expect a similar type of growth in CapEx in the back half of this year.
And in terms of what CapEx looks like next year, we're not providing any sort of guidance around that. But I think we've said what we've said generally that look over the next couple of years, this is going to be a pretty capital intensive business Because we are we see this opportunity ahead of us and we are investing to try to capture our fair share of Right. And so when you think about some of the things that we have going on, right, so there's obviously sort of capacity expansion It's always sort of a constant that we're spending against, right? We have this new headquarters, in LA that's It's going to house our new state of the art innovation center that's coming up. We're currently looking, I think we mentioned this previously at having a Fully dedicated pilot production facility, somewhere close in this area, so we'll be spending towards that.
And then this Cost down program that we've mentioned, right, we are really taking a very wide lens and looking at all potential options, right? And Some of those initiatives that we are looking at from a cost down perspective may require some additional capital spending. We'll give you guys an update on where we expect to be for 2022 when we are guiding for 2022. But We've said generally, look, the next couple of years are going to be pretty capital intensive. But clearly, we wouldn't be doing this if we didn't think that this is required to capture Sure.
A significant chunk of the opportunity that we see ahead of us.
Okay. And then my second question is about Your distribution channels and the brand awareness slide you're showing, so it really looks like that with the exception of international retail, There was a sequential deceleration that we saw, fewer outlets in international foodservice as well as in the U. S. Foodservice, but we also saw fewer U. S.
Retail. Could you elaborate a little bit about what's going on in those segments? I understood the retail piece, you said talked about Germany, Australia, Austria, U. K. So that's clear where the uptick is coming from.
But what's been happening in U. S. Retail and in foodservice, both international as well as domestic.
Hey, Ben, I'll take that one as well. So if you look at the retail total growth in doors, right, I think what we've said Is that in terms of a growth rate from the total number of doors that we're in the U. S, You should expect to see that decelerate because we are so well distributed in the U. S. Today, right?
So We are pretty much in all of the major retailers here in the U. S. So the real opportunity from a distribution perspective In the U. S, centers more around the continuing to increase our product offerings per store as opposed to continuing to grow That's number of doors, right? On the U.
S. Foodservice piece, right, so we talked about Dunkin' for instance, right, that was obviously part of the driver there. The international retail, we're seeing continued growth In some of the markets that Ethan mentioned in his prepared remarks, Germany, Switzerland, Austria, Australia, for example. So I think You'll continue to see pretty robust growth there. And then, what we saw in, international food service, right, I think we lost 1,000 total Doors roughly, in this quarter on a sequential basis, right.
I think part of that is just reflective of the lingering impact of COVID, Of COVID-nineteen, right, where we had primarily some of these small independent operators, a lot of them were in Canada, Where we lost some of that distribution, but we think, look, the long term arc of the distribution rollout in International food service still looks very attractive. So we would expect to see growth there over the long term.
I think to Luby's point, if you look at the total distribution points in the U. S, we did see this 55% year over year increase and that's not just adding Number of stores, but obviously being able to introduce new products into existing stores. And when you walk down the aisle at retail, You do see just a few Beyond Meat products, in any given store. And so, the opportunity to Innovate across all three of our platforms, beef, pork and poultry and dramatically increase those total distribution points is significant for Beyond Meat and that's
And our next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead.
Thank you. Good afternoon. Hey, Mike. You call out the 70% increase in your manufacturing capacity, but You're certainly also looking at a near term run rate from sales that's not that close to that level. Is the right way to think about bridging that gap, The price cuts that you anticipate the capacity facilitating so that you would have the volume bump and some sales lift, But not in the magnitude of a 70% range?
How do you think about your side on unit capacity basically?
Yes, and you will update. Yes, that's a good question. So I think it is a combination of these efficiencies we're going to be driving through increased Throughput and all the other cost down programs that we're pursuing, but also to think about the number of partnerships we have in place and the amount of preparing we're doing for those partnerships. And then what I just said about the U. S.
Retail should be layered on top of that in terms of different form factors. And so you see a steady improvement in the COGS structure as we implement this cost down program on our existing product lines. The ability to offer those to consumers at a lower price, and then you layer on the strategic launches with our partners, And then the new innovation coming across those 3 platforms and that's how you bridge that.
Okay. That's helpful. And just a follow-up on the U. S. Foodservice outlet.
You've got the 34 You're calling out this quarter now. I guess just how current or accurate is that? And maybe specifically thinking, Is there is all the Dunkin' update reflected there already? Or is there some trickle to come? Just trying to help Can you help us understand what to have in mind for 3Q and beyond?
I think Similar to what I was saying earlier about, I think you're going to see activity, in the balance of the year from some of our QSR partners, Great, large, but in terms of meaningful additions of stores, that's something we probably can't comment on without Yes. Anyway, probably just can comment on it, one way or the other.
But I guess just specifically what you know has already happened in the last Quarter or I guess even this month is reflected in that 34?
Yes,
it is. Yes.
Okay, great.
Thanks a lot.
And our last question comes from the line of Ryan Bell with Consumer Edge Research. Please go ahead.
Hi, everyone. I know we can
get a reasonably
good sense of your Share within U. S. Track channel, it's obviously a lot harder for us to get a read on the competitive positioning within foodservice just overall, Maybe a difficult question to answer, but would you be able to give a sense as to where you stand just from a broad share
Yes. I mean, so the good news on both the Retail and food service side of our business, we hold the number one position in terms of product and then on the retail side and brand on the Food service side, and that's the NPV data, which is the broadband distribution, not direct delivery. And so, doing really well there. And it's both up and down the street business where not The larger chains or regional chains, but the independent operators, we're doing well there. We're seeing good growth there.
And then of course, the Regional and national and global QSRs. So, even the partnerships, if you look at that, it's a good way To assess, I mean, the partnerships we have with McDonald's, with Yum! Across the KFC, Pizza Hut and Taco Bell banners, We're really well positioned in the foodservice space. Luby, if you want to add to that.
The only other thing that I would add to that, Ryan, is that it's very difficult, Right, to get an accurate picture of the entire foodservice space because to Ethan's point, the data that we're looking at we're referencing and we're sharing with you guys is NPD data, which, for the most part, excludes the largest QSRs, right? Those are typically your direct delivery type of customers. And so it's very hard to get the Higher view. But as Ethan said, at least from the data that we do see, which is the NPD data, which is primarily Broadline distribution. We have the number one market share position there.
And so we feel really good about our positioning. And then obviously, Would not be captured in that number.
Okay. So it's fair to say that from what you can see In that data that you'd feel that you're gaining share?
We've certainly gained share within the NPD tracked Channels, yes, and we continue to hold the number one share there, so.
Great. Thank you. And one last one for me, Sort of a bigger picture question, when you're thinking about the broader household penetration and purchase frequency for your products relative To traditional meat analogs, how far along that journey are you in terms of the comparison of looking at, say, like the weekly and monthly Household penetration, repeat rates and just the general utilization, I know that we're seeing gains overall. When you're looking at In an annual basis, you sort of see it in different time frames, but I would assume that you guys are still quite far off from where traditional meat products are and that provides a strong runway for incremental growth there.
Yes, sure. This is, I can take that. So yes, look, I think there is still a Pretty wide gap between the entire category plant based meat and animal protein. And so to your point, Right. I think what that means to us is that there's a significant opportunity to continue to grow this business.
So we are not looking at our household penetration on a weekly basis, But certainly, when we get updates, we are pleased to see that it continues to tick up. And in fact, the sequential Increase that we saw in this quarter was quite a step up versus the last couple of quarters. And so we're really pleased with the way The overall growth in the business is trending, but there's still a huge, huge market out there, right, when you start to compare us to So, we obviously want to try to capture as much of that opportunity as we can over the long term.
Thank you.
Sure.
And we have no other questions in the queue at this time.
Great. So I'll just offer a few remarks before we sign off here. 1st and foremost, as we're talking about with the company, we're very hopeful that everybody We'll go out and get vaccinated, so we can all get back to business, get back to school and put this thing behind us. We're certainly encouraging that In a significant way here at the company. This last quarter, Q2 was our largest revenue quarter ever.
So record revenue, and by quite a margin. So we're really excited about that. Keep commercializing these new products and the launches that I mentioned are just very important and exciting milestones for our company, Continuing to maintain that top 4 of the 6 items in the category in retail and have that number one position. And then continue to advance these global partnerships and put infrastructure in place in the EU and in China to be able to be So, so many exciting things happening, and we did want to offer this more conservative look at Q3 just because there is so much ambiguity In terms of these broader market conditions, and we look forward to coming back and talking to you guys again in a few months and hopefully having a lot more clarity on where the general economy is. So thanks very much.
Thank you.
That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a great day.