The total global plant based retail market size is expected to reach $162 billion in 2030, increasing by more than 500% from $29 billion in 2020 link. Key drivers that result in folks pursuing a plant-based diet are typically health, animal welfare and the environment link. In a world where worldwide obesity has nearly tripled since 1975, 39% of adults aged 18 years and over were overweight in 2016, and most of the world’s population live in countries where overweight and obesity kills more people than underweight, link along with other statistics such as 463 million people live with diabetes and 1.13 billion people live with hypertension (also known as high blood pressure) – conditions that often occur together and are among the leading global causes of poor health and death link, it’s not too surprising that people are turning towards plant-based foods-– which are a large part of a vegan diet – particularly fruit, vegetables, nuts, pulses and seeds, as they have been shown to help in the treatment of many chronic diseases and are often associated with lower levels of type 2 diabetes, less hypertension, lower cholesterol levels and reduced cancer rates link.
From an animal welfare perspective – it turns out that an estimated 99% of US farmed animals are living in factory farms at present. By species, it’s estimated that 70.4% of cows, 98.3% of pigs, 99.8% of turkeys, 98.2% of chickens raised for eggs, and over 99.9% of chickens raised for meat are living in factory farms link, less than ideal conditions within these farms where ‘animals are packed in as tightly as possible to maximize output and profit, even though this causes many to die from disease or infection before being sent to the slaughterhouse’ link has also contributed to an increase in the awareness of and consumption of plant-based foods on ethical grounds.
The third driver’s been getting the most airtime recently since it seems the planet’s actually pretty fucked, with a new report by the UN Environment Programme that came out yesterday finding ‘new and updated Nationally Determined Contributions only take 7.5% off predicted 2030 emissions, while 55% is needed to meet the 1.5°C Paris goal’ link a.k.a a bunch of countries do not want to make the necessary concessions to preserve the planet in its current state. These ‘Latest climate promises for 2030 put the world on track for a temperature rise this century of at least 2.7°C’ link, with the planet still on track for catastrophic heating link. Why is any of this important/relevant in this context? It turns out that ‘the animal agriculture sector is responsible for 18% of greenhouse gas emissions,’ link highlights include 9% of annual human-induced CO2 emissions,3 37% of methane (CH4) emissions, which has more than 20 times the global warming potential of CO2, And 65% of nitrous oxide (N2O) emissions, which has almost 300 times CO2’s global warming potential link. Not that it’ll happen anytime soon but it turns out that cutting meat and dairy products from diets could reduce an individual’s carbon footprint from food by up to 73 per cent. If everyone stopped eating these foods, researchers at the University of Oxford found that global farmland use could be reduced by 75 per cent, an area equivalent to the size of the US, China, Australia and the EU combined – leading to a significant drop in greenhouse gas emissions link. One survey found that ~23% of people were interested in cutting down meat consumption for the sake of the environment, showing an additional market for producers of plant-based food link.
Part 2 – Company Overview and Value Proposition
Let’s take a look at what Tattooed Chef’s all about and what sets it apart in the marketplace. In the company’s own words – Tattooed Chef is a leading plant-based food company offering a broad portfolio of innovative plant-based food products that taste great and are sustainably sourced. Tattooed Chef’s signature products include ready-to-cook bowls, zucchini spirals, riced cauliflower, acai and smoothie bowls, and cauliflower pizza crusts, which are available in the frozen food sections of leading national retail food stores across the United States. Understanding consumer lifestyle and food trends, and a commitment to innovation, allows Tattooed Chef to continuously introduce new products. Tattooed Chef provides great-tasting, approachable, and innovative products not only to the growing group of consumers who seek to adopt a plant-based lifestyle, but to any of the “People Who Give a Crop” link.
The Company’s current market opportunity is worth $42 billion and consists of a number of frozen food categories including frozen appetizers & snacks, frozen breakfast foods, frozen entrees, frozen fruits & vegetables, and frozen plant based meat alternatives link. It’s worth noting that frozen plant-based meat alternatives in which some of its most comparable comps are, is only worth $0.8 billion, in comparison to the other massive segments such as frozen entrees at $23.1 billion and frozen fruits and vegetables at $7.6 billion. The growth in the frozen food category (a key areas where TTCF competes) has been primarily driven by the recent product innovation as a response to the growing demand for great tasting, clean label and convenient options. The overall frozen food category outpaced the general center of store food categories. Millennials and Gen Z are driving growth in the frozen foods section due to convenience, frozen fresh and plant based foods, with the number of consumers who say convenience had a significant impact on their food purchase decision growing from 49% in 2017 to 57% in 2019 link.
The Company’s product portfolio consists of entrees, breakfast, vegetables, pizza, meat alternatives, and with yesterday’s acquisition news – they’ll also be entering into nutrition bars. The growth in their portfolio and product range has been pretty explosive, especially in the last year where they went from 38 total products and 17 total new innovations in 2020 to 73 total products and 35 total new innovations in 2023 (thus far) link.
A key strength of Tattooed Chef and its USP is its vertically integrated operations that enable it to create a strategic advantage, through vertical integration they have control of ingredients and prioritization of product, the ability to go from innovation to market in as little as 3 months with experience in manufacturing, distribution, supply chain. As of their past IR deck presentation they highlighted four manufacturing facilities and capacity available to achieve $500+ million in revenue. This will be increasing to five with Belmont’s acquisition and likely higher revenue potential.
In September 2023, key highlights included 52% year on year growth in revenue from $67.9 million in the first half of 2020 to $103.4 million in the first half of 2023, 82% year on year growth in the established brand from $38.0 million in the first half of 2020 to $69.1 million in the first half of 2023 with no investment in marketing and brand until 2023, strong resources with ~$140 million cash balance, 275k square feet of manufacturing capacity to quadruple in 2023 and opportunity for strategic M&A (closed 2 key acquisitions in 2023), and growth in sales and marketing including launching the first national media campaign, tripling of branded store count and creation of 35 new product in 2023 link. Despite the initial lack of marketing – testimonials such as President and CEO Salvatore Galletti stating that ‘Target said it was the most successful frozen food launch in the history of Target’ during the Q1 2023 earnings call show how popular the products are – even with minimal marketing.
The expansion in national distribution has been remarkable, with growth from 1,614 stores in 2019 to 4,272 in 2020 i.e., ~165% increase. The goal in 2023 was to reach 10,000 total stores, with 8,355 already achieved in the 1H of 2023 – by the 3Q 2023 it’s expected that national distribution will have expanded to over 12,000 stores which would be a ~180% increase with the year not even being over. This was facilitated in part by the number of major retail customers that Tattooed Chef was able to onboard – in 2020 key customers included Walmart, Sam’s Club, Costco, Target, Trader Joe’s, and Aldi. In 2023 this list expanded with 20 additional key customers highlighted, including Kroger, Whole Foods, Albertsons Safeway, Harris Teeter, and Publix. In a study of mass retailers, 3 of the top 10 items including the #1 and #2 since launch in March 2023 of plant based frozen entrees belonged to Tattooed Chef, with dollar velocity over 60% above the nearest top 10 competitor link.
Marketing and branding only really became a component of Tattooed Chef’s outreach in 2023, which makes their success thus far even more impressive in my opinion. The goal is to reach 80% of all Plant Based Intenders (78 million customers) through the national media campaign. I would really recommend taking a look at the IR presentation which has been linked here in several other places to understand more about how Tattooed Chef describes the plant-based intender and the wide cross section of society from which they come – urban dwellers, parents, under 35 year olds, people who want to eat less meat, aspiring & practicing vegetarians/vegans, pescatarians & flexitarians – there’s something for everybody in Tattooed Chef’s product portfolio and they’ve segmented their target audience pretty well. The campaign is running through 10,000+ TV spots plus targeted digital video and streaming – one every 15 minutes, and 24 top tier networks plus Hulu and Programmatic Connected TV/Streaming. As of August 3, 2023, brand awareness grew from 6% to 15% link.
The Company has stable leadership and has been family run, while also adding experienced folks from the industry to the management team. This includes Sam Galletti – the CEO and President with 35 years of experience in the food industry having served in both operational and investor roles within seafood, breaded vegetables, salsas and dips, grilled chicken, and organic foods companies. Sarah Galletti – the Tattooed Chef & Chief Creative Officer who was the creator of the “Tattooed Chef,” joined the Company in 2014 and spearheaded shift to plant based and has experience as a former chef in Italy. Stephanie Dieckmann – Chief Financial Officer & Chief Operating Officer who joined Tattooed Chef in 2017 and has over 12 years of experience in the food industry, also being the former CFO of APPA Fine Foods. Matt Williams – Chief Growth Officer who joined Tattooed Chef July 2020, has over 25 years’ experience in CPG including roles at Dean Foods, Coca Cola and PepsiCo link.
Part 3 – Recent Updates
Yesterday on 10/27, Tattooed Chef entered into an agreement to acquire Belmont Confections, a private label co-manufacturer of nutrition bars, for approximately $18 million in cash and stock. The transaction has been unanimously approved by Tattooed Chef’s Board of Directors and the acquisition is expected to close in the fourth quarter of 2023. The transaction allows Tattooed Chef to further diversify its product offerings and enter into the $10 billion global plant-based bar category. At full capacity, Tattooed Chef believes the Belmont facility can contribute over $100 million annually in revenue in the next two to three years link, for a reference point – TTCF currently expects 2023 revenue to be $235 million to $242 million so having just under half of that come from Belmont alone in a couple of years in a new market segment is a pretty big deal.
Earlier this month on 10/4, Tattooed Chef announced six of its entrée bowls are available in approximately 1,200 Publix Super Markets (“Publix”) stores as of October 1, 2023. Sam Galletti, President and CEO of Tattooed Chef, added that with the addition of Publix, Tattooed Chef products are now in more than 13,000 stores nationwide including Kroger, multiple divisions of Albertsons, Sprouts Farmers Market, Target, Walmart, Costco, and Sam’s Club [link]( link.
On August 10th, Tattooed Chef announced it has launched four entrée bowls including two new flavors at Sprouts Farmers Market in approximately 340 stores link.
In July, Tattooed Chef announced that it expects to launch its branded products across multiple categories in approximately 1,800 Kroger stores nationwide later this summer. By September, shoppers can find a variety of Tattooed Chef’s plant-based offerings including pizzas, entrée bowls, and vegetables in nearly every Kroger. A total of 12 SKU’s will be rolled out nationally link.
On May 18th, Tattooed Chef completed the acquisition of New Mexico Food Distributors, Inc. and Karsten Tortilla Factory, LLC (collectively referred to as “Foods of New Mexico”) for approximately $37.0 million in cash link. The acquisition of Foods of New Mexico allows Tattooed Chef to expand further into the $20 billion Hispanic/Southwest Food sector and beyond, including frozen, refrigerated, and ambient products. Utilizing these new capabilities, the Company expects to launch Tattooed Chef branded products in additional categories. Foods of New Mexico’s two facilities total 118,000 square feet and provides Tattooed Chef additional capacity to continue to innovate link and is expected to contribute $200m to annual revenues in the next two to three years link.
So in the span of 5 months, some of the highlights of Tattooed Chef include completing an acquisition that doubled the number of manufacturing spaces it had (from just Italy and California to adding Foods of New Mexico, Albuquerque and Foods of New Mexico, Karsten), agreeing on another acquisition that will enable it to enter a new market segment and have another production facility (both of these acquisitions are expected to contribute a combined $300m to revenues in two-three years – more than the expected full year revenue of the Company this year), launching into two major nationwide chains and continuing to innovate and launch new products – whatever knock anyone may have on them you can’t deny that they’re moving pretty quickly to lock in sources of major revenue growth.
Part 4 – Financials and Valuation
Revenue – Revenue for the first half of 2023 was $103.4 million, an increase of 52.2% from $67.9 million in the first half of 2023. The increase in revenue was primarily due to growth in sales of “Tattooed Chef” branded products. link. For the full 2023-year, Tattooed Chef expects revenue in the range of $235 million to $242 million, an increase of 58% to 63% compared to 2020. This guidance implies 49% year-over-year growth on the base business to $222 million, and a $13 million to $20 million contribution from one of the two facilities included in the Foods of New Mexico acquisition link. Tattooed Chef is expecting to reach revenue of $1 billion in 2026, so increasing by 5x over the next five years link, with the expected contributions from two key acquisitions this year – they could reach that number even earlier than 2026. The Company expects Foods of New Mexico to contribute up to $200 million annually in revenue in the next two to three years link, and the Belmont Confections facility to contribute over $100 million annually in revenue in the next two to three years link. If we do some pretty rough (by pretty rough literally don’t take this as any kind of in-depth analysis – just guesstimating) back of the envelope math and assume conservatively that both acquisitions begin contributing these numbers in 2024, and assume $240 million for the Company in revenue for this year with a slightly lower year on year growth rate of 50% just to make it easier for numbers’ sake, that would mean $360 million in 2023 (excluding acquisitions), $540 million in 2023 (excluding acquisitions), and $810 million in 2024 (excluding acquisitions). Add in the expected $300m the that Foods of New Mexico and Belmont would be expected to contribute by then and you blow past the $1 billion number a couple of years early (this is assuming of course that operational capacity can sustain these numbers – the Company currently is quadrupling capacity in 2023) link.
Gross Profit – Gross Profit was $13.9 million in the first half of 2023, compared to $13.0 million in 2020 – while this was an increase in absolute terms, the Gross Profit Margin declined from 19.1% in 2020 to 13.4% in 2023 thus far. This was primarily due to expenditure on infrastructure to support current and expected growth in operations and increased raw materials, packaging, freight and container costs due to inflation link. The Company has forecasted improving gross profit margins for the full year 2023 in the range of 16% to 22% link, due to leverage of fixed costs on higher volume, benefit of new equipment to enhance operating efficiencies, and the product and channel mix link.
Adjusted EBITDA – Adjusted EBITDA was ($9.2) million in the first half of 2023, as compared to $9.0 million in the first half of 2020. This was primarily due to public company accounting costs that were not present during the 2020 period, as well as significant increases in promotional expenses, marketing expenses, professional services, and freight and container costs link, this is forecasted to be ($14) to ($17) million for the full year 2023 so still decreasing in subsequent quarters, but at a lower rate, as the Company is committed to an aggressive plan of growing its brand through extensive marketing and promotional spending that has already produced significant revenue growth in both grocery and mass retail link.
Market cap of TTCF link is $1.5 billion, in comparison to ‘competitors’ such as Beyond Meat who have a market cap of ~$6 billion link. Quotation’s emphasis because TTCF is competing in a broader range of segments so they’re not exactly direct comps but one of the closer ones we’d be able to look at here. Beyond has cash on hand of $1 billion compared to the $140 million that Tattooed Chef had in the last quarter, and also has ~2.5x the revenue with $257.59 million compared to $103.4m for Tattooed Chef, however the revenue growth was only 22.4% for Beyond so ~2.5x less than the 52.2% for Tattooed Chef, with Beyond incurring significant losses as well so as a growth story I would really think that TTCF is valued at magnitudes less than it should be.
The analyst consensus for TTCF is a buy with an average price target of $23.50 so a 32.17% upside from current prices link, compared to BYND which has a consensus hold and an average price target of $112.24 so a 18.93% upside from current prices link, with a P/S of 10.22 for TTCF link compared to 13.25 for BYNDlink, it would also seem like the more attractive investment with higher upside.
Part 5 – Bear Case
Well the most obvious risk would be that the Company’s not profitable – as a growth story, it has a higher focus on revenue growth than profitability and my interpretation is that achieving higher revenue is the primary concern over the next couple of years, meaning that there is going to be cash burn in the short-term and I wouldn’t expect them to become profitable till probably around mid-2023. The one-off valuation allowance on deferred tax assets of $47.22 million skewed numbers a bit for this year, but if they were to continue making similar amounts of losses (excluding the one-off) so in effect ~$15 million in the first half of 2023 and doubling that to ~30 million for the full year, they would probably have enough cash to last 3 years – this is of course a very, very crude estimation as losses would not stay the same in absolute terms, the Company has estimated it’s gross profit margin would improve and they could become profitable within a couple of years as well and keep themselves in the running for longer.
From what I understand, the Company is also authorized to issue 1,000,000,000 shares of common stock and currently have 81,938,668 shares issued and outstanding, meaning if it seemed like there was going to be a cash crunch, they already have the authorization for a potential dilution which would be a point of concern for any equity holder. I doubt they would need to call on this at least for a year or two and potentially not at all if they turn profitable soon but you can never be certain so worth keeping in mind link.
Another risk would be the promotional/marketing/professional service expenses which seem to have the biggest percentage increases since 2020, as the company continues to build brand awareness and expand its distribution points and stores, marketing expenses especially would be likely to continue to rise. The Company has said that ‘We expect overall operating expenses to decrease over time as a percentage of revenue as many relatively fixed operating expenses will be spread over increasing revenue, but expect freight and container costs to remain high (relative to historical) as a percentage of revenue for the foreseeable future,’ link. The latter sentence about freight and container costs is concerning to me because in my opinion that’s one of the types of costs that a Company doesn’t have too much choice over e.g. if someone is selling you raw material and it becomes too expensive it’s within your control (hopefully if the product isn’t too niche) to switch to another supplier, but here with shipping costs companies are less likely to have that sort of leverage and would probably end up just having to absorb the cost, especially in this case where Tattooed Chef has a production facility in Italy – not something that I would expect to remain constantly high in the long-run but with current supply chain constraints it’s worth keeping an eye on.
Finally, this is more of a mixed bag of bull and bear, as we’ve seen earlier – the current opportunity market for Tattooed Chef’s diverse range of products is massive and while having a wide variety of products is great as a buffer in the event one particular segment faces issues e.g. as we’re seeing now with Beyond link, there is a risk that increasing competition in this market – especially by firms leveraging economies of scale by operating in just one particular segment, could pressurize margins (although since Tattooed Chef is vertically integrated, it should be more resilient in this regard than competitors that aren’t).
Part 6 – Short Interest
High short interest pumps are now everywhere – like cheese in a mousetrap with half-baked numbers that just act as clickbait or a cause for people to fomo in. Nevertheless, being aware of short interest as a concept and having the numbers is a useful data point to have – though I would urge anyone reading this not to just look at SI numbers when making an ‘investing’ decision. Broken clocks are right twice a day and there are undoubtedly companies for which there is a good justification for folks to be doubling down on shorting them. Let’s take a look at TTCF’s short interest numbers using the SMELL test.
- Short Interest – 15.5 million shares out of 82 million total shares outstanding. With insiders holding almost half the shares, that leads to short interest of 37.43% of free float link, Additionally, with utilization of 98.56%, there’s very little left for shorts to borrow to depress the price further link.
- Market Cap – $1.5 Billion so at the lower range of a midcap stock, would require a few hundred million for shorts to cover if they were the only ones trading on a given day so would require a good amount of capital to exit or to add further to their short position if they decide to double down. Insiders hold 45.03% of shares outstanding, while institutions hold 16.87% of shares outstanding (30.7% of the free float) link.
- Extremely Memeable – Can’t think of too many better causes to get behind than saving the planet by eating your vegetables – if only you’d listen to ma when you were a kid and ate some broccoli instead of meatloaf we wouldn’t be in this mess.
- Low Liquidity – Average volume per yahoo finance is around 1.5m shares, with current volume around 20% lower than that so <5% of the free float. Any inflow will cause the share price to move pretty significantly, which would be exacerbated by the fact that the most recently reported days to cover was 13.49 link which means at the current volume shorts would need almost 3 weeks to cover their positions. Over the last quarter, it seems that institutions have been loading up on TTCF for cheap, with institutional inflows of $119M and only $6.57M sold link so a net increase of ~95%.
- Low Risk (IV) – Yep, current IV is 47.1% for 10/29 and 11/5 options so pretty cheap to load up on if you’re so inclined. A good resource to understand the mechanics of a gamma ramp can be found here in my opinion if that’s the sort of thing that interests you link.
Part 7 – TL; DR
The total global plant-based retail market size is expected to reach $162 billion in 2030, increasing by more than 500% from $29 billion in 2020. Key drivers that result in folks pursuing a plant-based diet are typically health, animal welfare and the environment. Tattooed Chef’s current market opportunity is worth $42 billion and consists of several frozen food categories including frozen appetizers & snacks, frozen breakfast foods, frozen entrees, frozen fruits & vegetables, and frozen plant-based meat alternatives.
Tattooed Chef is a leading plant-based food company offering a broad portfolio of innovative plant-based food products that taste great and are sustainably sourced with signature products include ready-to-cook bowls, zucchini spirals, riced cauliflower, acai and smoothie bowls, and cauliflower pizza crusts, which are available in the frozen food sections of leading national retail food stores across the United States. The Company’s product portfolio consists of entrees, breakfast, vegetables, pizza, meat alternatives, and with yesterday’s acquisition news – they’ll also be entering into nutrition bars. The growth in their portfolio and product range has been pretty explosive, especially in the last year where they went from 38 total products and 17 total new innovations in 2020 to 73 total products and 35 total new innovations in 2023.
A key strength of Tattooed Chef and its USP is its vertically integrated operations that enable it to create a strategic advantage with control of ingredients and prioritization of product, the ability to go from innovation to market in as little as 3 months and soon to be 5 manufacturing facilities. Key highlights included 52% year on year growth in revenue from H1 2020 to H1 2023, 82% year on year growth in the established brand from H1 2020 to H1 2023with no investment in marketing and brand until 2023, strong resources with ~$140 million cash balance, 275k square feet of manufacturing capacity to quadruple in 2023 and opportunity for strategic M&A (closed 2 key acquisitions in 2023), and growth in sales and marketing including launching the first national media campaign, and tripling of branded store count with key customers including Walmart, Sam’s Club, Costco, Target, Trader Joe’s, Aldi, Kroger, Whole Foods, Albertsons Safeway, Harris Teeter, and Publix. In a study of mass retailers, 3 of the top 10 items including the #1 and #2 since launch in March 2023 of plant based frozen entrees belonged to Tattooed Chef, with dollar velocity over 60% above the nearest top 10 competitor.
Revenue for the first half of 2023 was $103.4 million, an increase of 52.2% from $67.9 million in the first half of 2023. For the full 2023-year, Tattooed Chef expects revenue in the range of $235 million to $242 million, an increase of 58% to 63% compared to 2020. Tattooed Chef is expecting to reach revenue of $1 billion in 2026, so increasing by 5x over the next five years, with the expected contributions from two key acquisitions this year – they could reach that number even earlier than 2026. Gross Profit was $13.9 million in the first half of 2023, compared to $13.0 million in 2020. Adjusted EBITDA was ($9.2) million in the first half of 2023, as compared to $9.0 million in the first half of 2020.
Market cap of TTCF is $1.5 billion, in comparison to ‘competitors’ such as Beyond Meat who have a market cap of ~$6 billion. The analyst consensus for TTCF is a buy with an average price target of $23.50 so a 32.17% upside from current prices, compared to BYND which has a consensus hold and an average price target of $112.24 so a 18.93% upside from current prices, with a P/S of 10.22 for TTCF compared to 13.25 for BYND, it would also seem like the more attractive investment with higher upside.
Risks include the Company not being currently profitable due to an immediate focus on the top-line, potential for dilution as the Company is authorized to issue 1,000,000,000 shares of common stock and currently have 81,938,668 shares issued and outstanding, likelihood of increasing marketing expenses even though the Company has an expectation of a decrease in OPEX as a percentage of revenue.
Tattooed Chef passes the SMELL test for with high SI if the conditions are right, as short interest is 37.43% of free float with utilization of 98.56%, market cap is at the lower range of a midcap stock so capital required to cover is not insignificant in the event of shorts wanting to exit or doubling down on their positions, meme-ability is high, liquidity is low with around 1.5m shares traded on average and 13.49 days to cover, and low risk as IV is sub 50% for the next couple of weeks of options in the run-up to earnings.
Appreciate y’all for reading this if you made it this far. I’m playing the runup to earnings because the stock has barely moved with yesterday’s acquisition news and I believe there’ll be some short covering going on in the meantime over the next couple of weeks in expectation of a growth beat as certain milestones that could impact that have already been surpassed e.g. the target of 12,000 stores by Q3 2023 was already announced as over 13,000 in the 10/4 press release. If it does end up picking up in the short-term, I’ll be looking to roll the gains into leaps post-earnings. Positions – 30 x 18.5c @ 10/29 and 20 x 20c @ 11/5.
This article was written by u/ny92.