Wednesday, September 4, 2019

"Cargill pumps funding into meat & fish alternatives" (BYND)

Cargill is quite large.
$113 billion in revenues, $5.19 billion in operating cash flow, an intelligence operation that makes the CIA envious: human intelligence from spies in just about every country on earth and satellites to watch over it all.
Beyond Meat is about to discover what the Harvard Business Review, back in 2001, called "First Mover Disadvantage".

From AgFunder, August 30, 2019:
Beef processor and commodities trading house Cargill is making big moves in the alternative protein space. This week it inked two deals, one for plant-based protein manufacturing and another in the fishmeal space.

The largest private company in the US invested $75 million investment in Beyond Meat’s pea protein supplier Puris, as a follow-on to an earlier $25 million deal last year after the two companies formed a joint venture for pea protein ingredients. Meanwhile, it’s also sealed a deal with White Dog Labs to deliver a sustainable alternative to wild-caught fishmeal as feed for the aquaculture industry.

Keeping up with demand
Puris said the funds would allow it to double the capacity of its plant in Minnesota, allowing it to keep up with burgeoning interest from food companies, including plant-based protein giant Beyond Meat. 
“As consumer demand increases for plant-based proteins, we want to make sure that Cargill, with our partner Puris, can deliver on that demand with great tasting, sustainable and label-friendly pea protein for customers in North America and across the world,” said Laurie Koenig, Cargill’s Texturizers & Specialties Segment lead. “This investment also provides significant support to the local economy with approximately 90 new jobs and a new revenue stream for Midwest farmers.”
The investment is timely as demand for pea protein-based products is growing rapidly with reports that supply of the processed ingredient can’t keep up with demand. Henk Hoogenkamp estimates that pea protein consumption by tonnage will increase 300% in the 10 years to 2025, according to a Financial Times report.

Beyond Meat CEO Ethan Brown said in a July earnings call that securing raw materials “preoccupies me quite a bit,” and indicated his intention to diversify its list of suppliers. That could have prompted Puris and Cargill to step up their game with all due speed to keep up with the competition that includes France’s Roquette, another Beyond Meat supplier. According to the FT, Roquette, whose contract with Beyond Meat comes to an end this year, is building a processing plant in Manitoba, Canada. Other big players are ramping up too including Canada’s Verdient Foods, a plant protein group backed by Oscar-winning director James Cameron, which has partnered with major ingredients suppliers Ingredion.

The Cargill-Puris venture is also about Regen Ag
Puris’ president Tyler Lorenzen touched on the proceeds saying it would go towards “more than a pea protein facility” but was a move that would power regenerative agriculture, as cover crops such as peas give protection against soil erosion. (*Regenerative agriculture is a system of farming that’s beyond sustainable and aims to benefit the land, soil and ecosystem. Find out more from our team here.*)...
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Here's the October 2001 HBR piece, written with the markets solidly in the second phase of the tech wreck, 78% decline in the NASDAQ, 9/11 mass murders. There was still a year to go before the decline that began in March 2000 hit bottom in October 2002.
And there was Warren Buffett talking about the receding tide exposing who had been swimming naked and stuff.

First-Mover Disadvantage
In business today, it’s universally assumed that speed is good—that the fleet thrive while the laggards struggle just to survive. This belief is perhaps most strongly expressed in the concept of first-mover advantage. The company that leads the way into a new market, the thinking goes, locks in a competitive advantage that ensures superior sales and profits over the long term. It’s a nice theory, with a long pedigree. Unfortunately, the facts don’t support it. We recently completed an extensive study of the results turned in by market pioneers and followers, in both consumer and industrial segments, and we found that over the long haul, early movers are considerably less profitable than later entrants. Although pioneers do enjoy sustained revenue advantages, they also suffer from persistently high costs, which eventually overwhelm the sales gains.

No doubt, there are important top-line benefits to being a first mover. Early entrants tend to make a large and lasting impression on customers, earning strong brand recognition, and buyers often face high switching costs in moving their business to a later entrant. A great deal of academic research conducted over the past 20 years indicates that a true demand premium accrues to pioneers, which is directly attributable to the timing of entry.

The impact of early entry on costs is less well understood, however. On one hand, it’s been argued, pioneers should gain cost advantages by moving through the experience curve ahead of competitors, by gaining control over scarce inputs, and by establishing patents or other forms of technology leadership. Also, because of the relatively high switching costs, pioneers should have to spend less on advertising and other marketing efforts. On the other hand, followers clearly have some cost advantages of their own. They can, for example, learn from the mistakes and successes of their predecessors, reducing their own investment requirements as well as their risks. In addition, followers can frequently adopt new and more efficient processes and technologies, whereas pioneers often remain entrenched in their original ways of doing things.

Until now, it’s been difficult to determine with precision the net effect of early entry on costs, making it problematic to get an accurate read of the relative profitability of pioneers and followers. To fill this knowledge gap, we studied the actual revenue and cost performance over time of both pioneers and followers. We examined 365 business units competing in consumer goods markets and 861 units competing in industrial markets, spanning the years 1930 to 1985. Drawing on the extensive PIMS database of corporate performance, we modeled these companies’ relative revenues and costs as well as their profits as measured by net income, return on investment, and EVA. We used various methodological controls to isolate the impact of order of market entry, filtering out other variables such as level of resources.

Our findings were dramatic. Pioneers in both consumer goods and industrial markets gained significant sales advantages, but they incurred even larger cost disadvantages. We found that pioneers in consumer goods had an ROI of 3.78 percentage points lower than later entrants. And the ROI of first movers was 4.24 percentage points lower than followers in the industrial goods sector. The bottom-line result: Pioneers were substantially less profitable than followers over the long run, controlling for all other factors that could account for performance differences....
....MUCH MORE

So you're saying that competition, absent cartel-like behavior results in low profit margins?
And that paying dearly to acquire knowledge of markets and processes can permanently retard growth?
Who knew?