• Market Crumbs

Did SoftBank Just Mark The Top Of The Fake Meat Bubble?


Image via Bloomberg

Earlier this month, Market Crumbs wrote about how the new decade finds Japanese conglomerate SoftBank Group back where it closed out the last one. Last year, SoftBank most notably took big hits on its investments in WeWork and Uber, causing the company to report its first quarterly loss in 14 years. 


At least five SoftBank-backed startups—Rappi, OyoCloudMindsGetaround and Zume Pizza, have already announced layoffs so far this year. SoftBank is also drawing the ire of the startup community as the Vision Fund has walked away from a few startups that it had previously offered term sheets to. 


Some speculate SoftBank walked from the deals because the Vision Fund 2 hasn't raised outside capital yet, while others believe SoftBank may still be "shell shocked" by the WeWork collapse.


Either way, SoftBank apparently has enough money and overcame its shell shock to make one notable investment last week. SoftBank led a $161 million funding round in Memphis Meats, which is one of a handful of companies trying to create an alternative to meat. The valuation was not disclosed, but SoftBank joins other notable investors in the startup such as  Bill Gates, Richard Branson, Cargill, Tyson Foods and Elon Musk's brother Kimbal Musk. 


Amidst the hype of meat alternatives, Memphis Meats stands apart from other well-known companies such as Beyond Meat and Impossible Foods, which produce their products from plant-based proteins. The company has produced imitation meatballs, chicken and duck harvested from animal cells grown in a lab. Memphis Meats harvests meat cells from animals, which aren't harmed, and then feeds them nutrients over a four to six week period so they can grow large enough to produce "meat." 


However, as SoftBank was closing on its latest investment, the news in the meat substitutes industry has not exactly been encouraging. Despite the Impossible Whopper driving 6% same-store sales at Burger King following its release last fall, the fast food restaurant is now slashing the price of the sandwich. As the hype around the Impossible Whopper has faded, Burger King is now offering two for $6.00, compared to the previous price of $5.59 per sandwich. 


Carrols Restaurant Group, the largest Burger King franchisee in the United States, said per store sales of the Impossible Whopper have declined to 28 per day from 32 per day. Impossible Foods "is satisfied" with the sales, citing the variability on seasonality, ad campaigns and restaurant locations as factors. 


Elsewhere, Impossible Foods' competitor Beyond Meats just had its products pulled from popular Canadian fast food restaurant chain Tim Horton's. Last June, Tim Horton's launched Beyond Meat products at 4,000 locations before scaling back to just locations in Ontario and British Columbia, the two largest provinces in Canada.  


Regarding the move, Tim Horton's gave a boilerplate response, saying "We introduced Beyond Meat as a limited time offer. We are always listening to our guests and testing new products that align to our core menu offerings. We may offer Beyond Meat again in the future." 


While both Burger King and Tim Horton's are owned by the same parent company, Restaurant Brands International, it's interesting nonetheless to see both chains paint a not-so-optimistic picture of the meat substitutes market. 


There's plenty of other restaurants still offering these companies' products, but if this marks some sort of plateau for the meat substitutes market, it will be ironic that it was none other than SoftBank who was the last to join the party. 


Leftover Crumbs

  • Better late than never? The World Health Organization will meet today to determine if the outbreak of coronavirus should be deemed a global health emergency. There are now more than 6,000 reported cases across 15 countries, with more than 160 deaths in China. There's also five confirmed cases in the United States, with more than 100 others being observed for symptoms. "In the last few days the progress of the virus especially in some countries, especially human-to-human transmission, worries us,” WHO chief Tedros Adhanom Ghebreyesus said. The last time the WHO declared a global health emergency was in 2019 during the Ebola outbreak in Congo, which killed more than 2,000 people.

  • Not-QE forever? As expected, the United States Federal Reserve left the federal funds rate unchanged at a range of 1.5% to 1.75%. As usual, the Fed continues to not see inflation as they don't actually measure items people purchase on a regular basis. Federal Reserve Chairman Jerome Powell said the Fed will continue its repo operations a.k.a not-QE until at least April. Initially, the repo operations were said to be for tax payments but have been continuously extended since October. Comically, Powell said "It’s very hard to say with any precision at any time what is affecting markets." However, it's actually not very hard to see what is affecting markets, all you have to do is look to see if the Fed expanded its balance sheet on any given week.

  • Boeing's worst year ever. Not surprisingly, Boeing's earnings release was filled with bad news as the company deals with the fallout from the 737 MAX. The company doubled its cost estimate of the crisis to $18.4 billion from $9.2 billion, while also reporting an annual loss of $636 million, the largest in the company's history. Boeing also announced it will cut production of its 787 Dreamliner to 10 per month by early 2021, down from the current rate of 14 per month. "We recognize we have a lot of work to do. We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public," Boeing CEO David Calhoun said. 

  • That's an expensive bet. Penn National Gaming is shelling out $163 million for a 36% stake in Barstool Sports, valuing the company at approximately $450 million. After three years, Penn National will increase its stake to approximately 50% for another $62 million. The remaining 64% of Barstool Sports will be held by The Chernin Group and Barstool Sports employees. "This opportunity is a dream of mine and why I started Barstool Sports in the first place," Barstool founder Dave Portnoy said. "… I think with our shared vision and goals, we are uniquely positioned to be a leader in this business."

  • It's a dying business. Warren Buffett, who even delivered newspapers while in high school, no longer wants to be invested in the newspaper business. Buffet's Berkshire Hathaway has sold its newspaper business, which includes 30 daily newspapers and several dozen weekly newspapers, to Lee Enterprises for $140 million in cash. As part of the deal, Berkshire will become Lee's sole lender by refinancing the company's existing debt, while lending the company $576 million. Berkshire acquired most of its newspaper holdings, which represent a small fraction of the company's overall operating businesses, over the last decade.