Tattooed Chef(TTCF) - Plant-Based Foods Consumer Staples Stock Analysis
We look at an innovative vertically integrated plant-based foods brand with high growth and a long runway for growth
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Mission
I couldn’t really find an official “Mission” from their website/sec filings. The above image is the closest thing I could find as to their mission statement on their website. I feel like this mission statement closely resonates with me, myself being a primarily plant-based consumer of consumer products. Tattooed Chef’s mission is to deliver plant-based foods to consumers who care about sustainable and ethically sourced foods. They offer both vegan and vegetarian options in their products, so, I believe they are primarily aligned with non-meat chef quality meals.
Business Overview
Tattooed Chef started as Ittella and has since rebranded and reinvented itself in its current form. You can see how they evolved in the picture below. Tattooed Chef is the result of a SPAC(reverse merger) transaction with Forum Merger II in 2020.
Tattooed Chef is a rapidly growing plant-based food company offering a broad portfolio of innovative frozen foods. Tattooed Chef supplies plant-based products to leading retailers in the United States, with signature products such as ready-to-cook bowls, zucchini spirals, riced cauliflower, acai, and smoothie bowls, and cauliflower crust pizza. Products are available both in private label and “Tattooed Chef” brand in the frozen food section of retail food stores.
Tattooed Chef’s innovative food offerings converge with consumer trends(the image above shows their alignment) and demands for great-tasting, wholesome, plant-based foods made from sustainably sourced ingredients, including preferences for flexitarian, vegetarian, vegan, organic, and gluten-free lifestyles. Tattooed Chef focuses on manufacturing, product innovation, and distinctive flavor profiles that appeal to a broad range of consumers. They create and develop new products to address emerging market demands and food trends for healthy, plant-based foods.
Tattooed Chef’s brand strategy is to introduce the attributes of a plant-based lifestyle to build a connection with a broad array of consumers that are seeking delicious, sustainably sourced, plant-based foods. Tattooed Chef’s diverse offering of plant-based meals includes certified organic, non-GMO, certified Kosher, gluten-free, as well as plant protein elements that we believe provide health-conscious consumers an affordable, great-tasting, clean-label food option.
As of February 28, 2021, Tattooed Chef’s products were sold in approximately 4,300 retail outlets in the United States. As of February 28, 2021, Tattooed Chef had approximately 150 plant-based food concepts and recipes under development and testing.
Tattooed Chef Products
Tattooed Chef sells a range of branded and private label plant-based products across its core platforms of ready-to-cook bowls, cauliflower crust pizza, vegetable spirals, and ready-to-eat acai and smoothie bowls. Tattooed Chef’s products are found primarily in the frozen food section of retail customers.
Branded Products
Revenue of Tattooed Chef branded products in Fiscal 2020 was approximately $84.6 million (approximately 57% of total revenue), an increase of 362% from approximately $18.3 million (approximately 22% of total revenue) in Fiscal 2019. Tattooed Chef Branded products include ready-to-cook meals and snacks such as the Buddha Bowl, Mexican Style Street Corn, Organic Zucchini Spirals, Cauliflower Crust Pizza, Buffalo Cauliflower, Cauliflower Mac & Cheese Bowl, and Acai and Smoothie Bowls.
Private Label Products
Revenue from private label products in Fiscal 2020 was approximately $62.9 million (approximately 42% of total revenue), and approximately $63.8 million (approximately 75% of total revenue) in Fiscal 2019. Private label products include cauliflower pizza crusts and pizzas, riced cauliflower, acai and smoothie bowls, bulk vegetables (plain and value-added), and riced cauliflower stuffing.
Tattooed chef currently offers a wide variety of plant-based frozen meals in various categories such as the following images.
Tattooed Chef Business Model
Tattooed Chef has a very simple business model to produce and procure various inventory(vegetables, berries, etc), turn that into the product, and sell it to customers through retail(Target) and wholesale clubs(Costco, Sam’s). All the steps of their model are vertically integrated which allows them to produce new products faster and ensure supreme quality of their products.
Tattooed Chef TAM
Tattooed Chef’s current TAM is 55B in frozen food sales. The following graphic provides a breakdown of this opportunity.
Tattooed Chef can significantly expand its current TAM(North America) by moving into adjacent categories, channels and adding more products(SKU’s). The following graphic provides a breakdown of this opportunity.
TTCF Growth Strategies
Continue to Grow the Tattooed Chef Brand - To build a stronger competitive advantage
Continue to Expand Demand From Existing Customers - To get more revenue per customer
Attract New Customers - To add more customers
Expand Product Offerings - To add more products that can be attractive to current/new customers
Expand Direct-to-Consumer Distribution Channels - To build an online presence and improve margins
Expand to New Geographic Markets - Going global
Expand through Investments and Acquisitions - To add manufacturing capacity and expertise in developing new products
Tattooed Chef Financials
Following is the income statement for 2020.
Following is the balance sheet for 2020.
Following is the cash flow statement for 2020.
Revenue 2020 - $148M
Revenue Growth - 74% for 2020, 58%-63% YoY guidance for 2021
TAM - Frozen Foods in North America - $55B
Gross Margin - approximately 16%
Free Cash Flow as part of Total revenues - (-9%)(2020)
Total Debt/Equity - 0.13 (Strong Balance Sheet)
Net Cash - $131M(2020) (Strong Balance Sheet)
EV - $1.55B (Assuming $1.65B market cap, $0.032B total debt and $0.132B cash)
EV/Revenue 2020 - 10.4x
EV/Revenue NTM(Assuming 50% growth) - 7x
Insider Ownership
Tattooed Chef has high insider ownership at 42%. The Founder and CEO Sam Galetti owns 40% of the outstanding shares. The management is highly invested in their own business, so we can see that they have a long-term vision and focus.
Revenues
During the Analyst Day in 2020 Tattooed Chef provided the following guidance to scale their revenues and margins over the long term.
Substantially all of the Tattooed Chef’s revenue is from contracts with customers and consists of the sale of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls, and cauliflower crust pizza in the United States and is recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Each unit of food product sold to the customer is a performance obligation. Revenue from the sale of frozen food products is recognized upon the transfer of control to the customer, which is upon shipment to the customer.
Tattooed Chef disaggregates revenue based on the type of products sold to its customers – private label, Tattooed Chef, and others. The other revenue stream constitutes the sale of similar food products directly to customers through third-party vendors and the Company acts as a principal in these transactions.
Revenue streams for the years ended December 31, 2020, and 2019 were:
Customer Concentration
Three customers individually accounted for approximately 39%, 32%, and 17% of 2020 total revenue, respectively. In addition, three customers accounted for approximately 87% of accounts receivable as of December 31, 2020. These three customers individually accounted for approximately 53%, 24%, and 10% of 2020 total accounts receivables. Accordingly, any factor adversely affecting sales generally in these customers (such as competitive pressures, declining sales, or store closings, among others), or any reduction or elimination by these customers of carrying Tattooed Chef’s products, could adversely affect Tattooed Chef.
Tattooed Chef Brand
Tattooed Chef is a business powered by its brand. It’s always worthwhile to see what’s up with their brand/marketing on their following social media and their eCommerce website. Click the button below to check them out!
And while you are at it, check out my Twitter!
Competition
Tattooed Chef competes with companies that produce products in the plant-based, vegetarian, and frozen food categories, such as Sweet Earth (Nestle), Birds Eye (Conagra Brands), Amy’s, and Green Giant (B&G Foods). Additionally, a number of the United States and international companies are working on developing or promoting plant-based products.
Competitive Advantage
Tattooed Chef’s biggest competitive advantage(not fully developed yet) is its powerful brand aligned with the latest trends in consumer foods. The brand launched in 2017 will continue to grow by appealing to younger consumers seeking food products that are sustainable and ethically sourced, wholesome, and delicious. Revenue attributed to the Tattooed Chef brand has grown from $18.3 million in Fiscal 2019 to $84.6 million in Fiscal 2020.
Tattooed Chef’s Track Record of Innovation - Tattooed Chef released 17 new SKUs during 2020 bringing the total as of December 31, 2020, to 38 SKUs.
Time to market for new ideas - Tattooed Chef can quickly develop prototype versions of a product to present internally and ultimately to various retail customers for feedback. It takes them 3 months to bring a new product to the market.
Vertical Integration and Scale - Tattooed Chef controls the entire process of producing, supply chain, manufacturing, and developing new products in-house and has developed/acquired enough scale them to empower their growth till 2023.
Acquisitions
Tattooed Chef acquired 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 on May 14, 2021.
Foods of New Mexico produces ready-to-eat Mexican food items for both retail and foodservice. This acquisition diversifies Tattooed Chef’s manufacturing capabilities, expands production capacity, and accelerates the Company’s expansion outside frozen food and into ambient products. Foods of New Mexico’s facility in Albuquerque currently produces Mexican foods including quesadillas, burritos, and other handheld items, as well as sauces. The second facility in Karsten is brand new and will enable the Company to have extensive tortilla manufacturing capabilities as well as be able to customize the existing footprint.
Risks
Food safety and food-borne illness incidents or advertising or product mislabeling may adversely affect this business
Substantial customer concentration. (I think these are Costco, Sam’s, and Target)
Third-party suppliers are used for select products.
The “Tattooed Chef” brand has limited awareness among the general public. Building sustainable brands are very tough and take a long time.
Fluctuation in currency exchange rates and rates of foreign inflation from operations in Italy
Fluctuations in results of operations for third and fourth quarters may impact and may have a disproportionate effect on, overall financial condition and results of operations. Tattooed chef has more revenues in the third and fourth quarters due to product demonstration schedules, new stock-keeping unit (“SKU”) promotions, and retailers allotting additional freezer space for holiday items.
Final Thoughts
Tattooed chef is a leading brand in the plant-based frozen foods category with high growth, vertical integration, scale and has a long runway for growth. Their innovation to create new products, expand into newer categories, and rapid testing and deployment of products in the market at scale are a compelling addition to their brand.
Note: A lot of information in this article is compiled from Tattooed Chef’s website, SEC filings, and recent presentations/conferences.
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