14 May Tattooed Chef (TTCF)

The plant-based food industry has exploded over the last few years. Companies such as Beyond Meat and Impossible Foods have moved into the mainstream with their plant-based meat substitutes ending up in supermarkets and even fast foods chains such as Burger King and McDonald’s. It’s a sign of the public’s willingness to expand their dietary boundaries and make changes to our traditional meat-heavy meal plans.

It’s been partially due to health-conscious eaters looking for a better alternative. Study after study has revealed that eating too much meat, and with it, too many saturated fats and the bad type of cholesterol (LDL), can lead to an increased chance of heart disease. Along with, of course, increased fatigue, ailing skin, a weakened immune system, inflammation, kidney stones, constipation, increased risk of cancer, and potential weight gain. it’s enough to turn anyone off their next T-bone.

We’ve known the health implications for a while (and to be fair I’ve tried my best to ignore them), but recently there has been a significant shift in the way we view environmental sustainability and the impact our diets or having on it. Those who decide on a plant-based diet are not only doing it to develop healthier eating habits but also adhere to a more holistic, social and sustainable lifestyle. A healthy body and a healthy planet all at the same time.

And yet only 5% of Americans identify as vegetarian, and less than 3% as Vegan. You could be forgiven for thinking that a company marketing to only a tiny per cent of the population has little chance of succeeding. But surprisingly Vegetarians and Vegans are not their primary market. Sure they are locked into the lifestyle and are prime candidates as potential customers, but plant-based companies are aiming for something bigger. The Flexitarian market.

Flexitarians are those who don’t want to go the whole hog and entirely eliminate meat from their diets, but instead choose to merely decrease the number of animal products they consume for an overall healthier and sustainable diet. It’s vegetarian lite. But it’s also a massive target market for the plant-based industry. In reality, it includes anyone looking for healthier eating options at least some of the time. And isn’t that most of us? The PBFA (Plant Based Foods Association) claims that more than one-third of Americans are “actively reducing” their intake of meat and dairy.

Our stock report subject today, the Tattooed Chef, are aiming for just this market. But unlike Beyond Meat and its fellow meat substitute companies, they have focussed on a wider variety of plant-based foods such as pizzas, acai bowls, cauliflower mac and cheese, stir-fries, and salads and much more. It’s this wide variety of options that helps it stand out from the crowd. By the start of 2021 their range offered 38 plant-based options, with plans to expand this to 62 before the end of the year, and over 200 long term. they state it takes them only three months to get a new product from the innovation stage to market. It’s this agility and speed in innovation that will hold it in good stead going forward.

They have production facilities in the US and Italy where the products are organically grown and put together. It’s then sold on through more than 4,000 stores across the US, including Walmart and Costco, as both branded and independent products. Production at these facilities has more than doubled in the last year and it is hoped by management that the number of stores selling their product will increase to more than 10,000 by the end of the year. The growth is amazing considering they only started advertising at the start of 2021.

Revenue increased by almost 75% in 2020, to $148.5 million. It was helped along, no doubt, by the pandemic and the increased need for ready-made foods. But then again its revenue was up 80% the year before as well, well before the coronavirus could have a beneficial impact on sales. In their latest analyst day presentation management advised they hope to grow revenue to $500 million by the end of 2023, and to $1 billion by 2026. Considering the plant-based food market was reported to have hit the $5 billion mark in 2019 and is expected to grow upwards of $70 billion by 2027 this is a distinct possibility.

In their latest earnings report on Wednesday, they announced revenue had increased by 59% to $52.7 million for the quarter. Up by $19.5 million compared to a year ago. $18.4 million of this was an increase in their Tattooed Chef branded label products. Operating expenses also increased which saw them with a net loss of $7.9 million, compared to a net income of $5.9 million in the last quarter. $3.2 million went into stock-based compensation, $2.6 million into marketing, and another $2.6 million into a public company and new employee costs. All totally fine for a company in a high growth phase. Most importantly they still have $185 million in cash and cash equivalents sitting in the bank and waiting to be reinvested.

President and CEO Sam Galletti stated “our record start to the year demonstrates the strength of our business and the Tattooed Chef brand. Branded revenue increased 105% in the first quarter across the mass, club, and grocery channels driven by successful product launches, increased distribution, and a promotion at a large club chain. We are executing on our growth strategy to increase distribution, build brand awareness, expand manufacturing capabilities, and diversify our product portfolio through innovation. We are investing in the business today in order to support strong long-term growth, and we believe the recently announced strategic acquisition of Foods of New Mexico will help create meaningful shareholder value going forward.”

Sam’s daughter and Chief Creative Officer Sarah Galletti advised “we are revolutionizing plant-based eating with the Tattooed Chef brand by tapping into consumer preferences and constantly bringing new ideas to the market. Our recent product launches in retail have been very successful and with the addition of our new manufacturing capabilities with the Foods of New Mexico acquisition, we have a pipeline of over 250 plant-based innovation ideas including ambient products and snacks.”

I like their chances. It’s a booming industry and The Tattooed Chef seem well equipped to get a big slice of the plant-based pie. They have innovative products, the ability to be flexible and get to market quickly, and they have the cash reserves to make it happen. There’s a big opportunity for high growth but it is not without risk of course. They’re currently a small company and the chance of volatility is likely. Margins in the food business are generally on the low side so it will be up to management to make sure consumers are willing to pay a premium for the Tattooed Chef products.

After earnings, the share price is down around 3% at $16.50. That’s down from $25 at the start of the year which is a great little discount considering how well they have increased sales. I’m backing the company to go from strength to strength from here and will buy on any dips such as this one.