An Interview With CFO David Lee
COVID-19 exposed enormous supply chain challenges and may have accelerated an already prominent trend: people eating plant-based products that look and taste like meat in lieu of animal products. To learn more about this cultural shift, and the financial model undergirding the boom in meat-substitute companies, I spoke with David Lee, CFO of Impossible Foods, one of the world’s most recognizable brands in this industry, maker of the iconic Impossible Burger. Beginning with the impact of COVID-19, I discussed with David issues ranging from sustainable growth strategies to securing capital for an innovative private startup, and the benefits of being a company animated by purpose.
Jeff Thomson: Has the economic fallout of COVID-19 harmed Impossible Food’s profits or business model?
David Lee: As a food manufacturer, we’re considered an “essential business,” and in fact consumers and retailers have come to depend on Impossible Burger. We continued to produce at our Oakland plant at maximum capacity to keep our commitments to customers and consumers, while introducing strict protocol at our facilities to ensure that our employees and the community at large would continue to be as safe as possible during the pandemic.
Meanwhile, thousands of workers at meat plants fell sick from COVID, causing the first meat shortages in America since World War II and requiring major meat processors to close their facilities and euthanize millions of animals. We have seen no meaningful impact to our supply chain due to COVID, largely because our supply chain doesn’t include animals and is therefore meaningfully more robust than the meat industry’s.
The biggest obstacle we’ve faced? The pandemic has diminished the dine-in component of our restaurant customers’ businesses – and as a result, Impossible Burger restaurant sales were impacted, particularly in March-April 2020. Frankly, sales of Impossible Burger in grocery stores have more than doubled every month since April, when we began dramatically expanding our retail footprint. Keep in mind that Impossible Burger is uniquely appropriate as a take-out, drive-through and delivery menu item, and like ground beef from cows, our product is versatile, convenient and unusually resilient even in the face of economic swings.
One way we’ve adjusted to the shifting food service sector has resulted from the FDA’s recent decision to give restaurants more flexibility to sell food that was not intended or labeled for retail sales. As a result, many of our restaurant partners have started selling their packaged Impossible Burger inventory directly to consumers, whether as an additional revenue stream for take-out orders, or as a means of reducing perishable inventory during temporary shut-downs. Some entrepreneurs have set up online “general stores” where they sell Impossible Burger inventory alongside many other items in their kitchens and warehouses. Many of them have come to us with requests about how they can accelerate food service sales directly to their customers. We are providing restaurateurs a PDF of the information required by the FDA’s temporary guidance to include with Impossible Burger (including patties and 5-pound bricks). At restaurants’ request, we are publicizing on social media the names and locations of restaurants that are selling bulk Impossible Burger directly to consumers.
With these new sales channels and now the early start of a return to dine-in business, we began seeing a recovery in food service sales in late April.
While our food service customers adjusted and pivoted, retailers simultaneously demanded that we accelerate the planned expansion of our grocery store network. 2020 was always the year of massive retail expansion for Impossible, but we pulled up our launches with Albertsons Companies and Kroger due to the shift in consumer behavior from restaurant to grocery shopping. So far in 2020 we’ve increased our retail footprint 30-fold and expect to increase it more than 50 times by the end of the year. The product is now sold in more than 5,000 grocery stores coast to coast, including Kroger, Safeway, Albertsons, Ralph’s, Smith’s, Fred Meyer, Vons, Gelson’s, Wegmans and most recently, 219 H-E-B and Central Market grocery stores across Texas. And our latest round of fundraising helps to ensure that Impossible Foods has the resources to accelerate growth and continue to thrive in a volatile macroeconomic environment, including the current COVID-19 pandemic.
Thomson: Did the initial closure of meat processing plants help sales of your meat substitute products?
Lee: Impossible Foods is accelerating growth in response to unprecedented retail demand — for both plant-based meat generally and Impossible Burger specifically. Demand for Impossible Burger in grocery stores hit a new record in March, and then easily beat that record in April. We were on track for another record-setting month in June. Based on Nielsen data tracking dollar sales of US food in retail outlets, fresh or frozen plant-based meats surged 300% in March, while meat from animals increased about 50%.
Based on high-credibility, third-party observations, COVID has caused a surge in demand for plant-based products. As more Americans find that they can’t get animal-derived meat, Impossible Burger is debuting in their hometown grocery stores – and people are trying it in record numbers as a result.
Thomson: How do you manage the fine line between compassion and commercialism, when restrictions on meat products are an opportunity for you to make the case for meatless products?
Lee: We don’t see the pandemic as a marketing opportunity. COVID-19 is a tragedy of epic proportions — one that none of us could fathom even three months ago.
However, COVID’s impact on slaughterhouses does lay bare the fragility and exploitation of the animal agriculture industry, and it has proven that our supply chain is inherently more robust than the meat industry’s. Impossible Foods’ production process starts with plants, turning them into meat without needing to use the cow as a middleman. Unlike the meat industry, we do not need to artificially inseminate, feed, transport, slaughter and process vast quantities of livestock, and our ingredients require a small fraction of the water, land and energy that’s required to produce meat from animals. And we don’t need to euthanize hundreds of thousands of animals if our processing plants close.
Thomson: Impossible Foods has had an impressive recent run of growth. Where some CFOs may be concerned about their companies’ lagging performance, your preoccupation has been managing a period of “hypergrowth,” common for very successful startups but which can also quickly come to a halt if public tastes shift or a supply chain is overwhelmed. How do you as CFO contribute to pursuing a sustainable growth strategy that accounts for potential disruptions? Has COVID-19 led you to reevaluate your growth strategy?
Lee: When I joined Impossible Foods in early 2016, I was primarily concerned about proving product market fit with our technology. I was worried about whether our customers would be meat eaters or not. I was worried about the scalability of the economics and supply. I don’t have any of those concerns anymore.
We began to scale manufacturing years ago, so we’ve been working for quite a while on increasing our supply in a dramatic way. We developed a simplified and scalable method of production: whereas the meat industry has to grow the cow, transport it, process it and turn it into ground beef, our process bypasses the animals. It takes years to grow an animal and turn it into meat by feeding it plant material. Instead, we go directly to plants, and in doing so we use 96% less land and 87% less water, and produce a fraction of the greenhouse gasses. And the economics of our business model get increasingly strong as we scale.
We have our own manufacturing plant in Oakland which gives us a lot of control over our product – something not all plant-based meat companies have. And because our production process is so simple, we can also partner with nearly any food co-manufacturer when we need to increase production. Last year we launched a collaboration with OSI, one of the largest food producers in the world, to add additional manufacturing capacity for Impossible Burger and increase our output. Back when I was at Del Monte, it would have taken years to increase our footprint that quickly. But because of our innovative production process, we can scale our supply in a very short time by leveraging co-manufacturers.
We know demand will continue to grow in unexpected ways, but I think the ultimate constraint we face will be the ambition that we have. We’re a tech company, but we aspire to have scale in a multi-trillion-dollar industry. So, for us, it’s about fulfilling our extremely large ambitions and adjusting in major increments. Fulfilling the extent of our ambitions and replacing all animal products with delicious plant-based alternatives will be the primary challenge.
Thomson: The role of the CFO often is “typecast” as a voice of restraint, maintaining skepticism of risky new ventures and focusing on the bottom line from a cost and controls perspective. In an era of rapid innovation and technological change, how has the CFO’s role and that of the finance function more broadly been transformed? How do you balance shorter term financial goals with the need to fund longer term high growth ventures, sustainability and other goals to achieve profits with purpose?
Lee: We’re a company with a skyrocketing growth path, and our investment in R&D has been a critical part of our success – it’s the lifeblood of Impossible Burger and the reason why we have the most realistic plant-based products available. We fund our investment in our growth by focusing on cost savings. Growth is hard, and it requires resources and taking risks. We’re in this for the long-haul, so our continued investment in R&D is critical, funded by the unit economics of our business.
That said, although we aren’t public, we choose to operate under the same rigor as a public company. We plan well ahead of cash needs because we’re growing so fast. In 2019 after we closed our Series D funding, we immediately started on our Series E. And earlier this year, we raised our Series F. We’re grateful to have large institutions like Mirae Asset Global Investments, Khosla Ventures, Bill Gates, Google Ventures, Horizons Ventures, UBS, Viking Global Investors, Temasek and others continue to bet on our long-term success.
Thomson: You’ve worked in operations, sales and marketing in addition to the finance function. What specific experiences and competencies enhanced your relevance and performance as CFO? Furthermore, are companies increasingly looking for finance chiefs with more diverse operational backgrounds? How can finance education better equip professionals with skills that will allow them to work cross-functionally as strategic business partners?
Lee: Finance needs to enable better decisions for the business. Walking in the shoes of our colleagues in sales, marketing and operations has helped me provide better advice on how to help their organizations perform better.
Thomson: Many companies now claim that they stand for a “purpose.” In the case of Impossible Foods, “purpose” has been essential to your corporate identity, embodying as you do a broader mission to encourage more sustainable consumption practices. How does this purpose imbue the finance function? What insights could you provide in regard to being a purpose-driven, sustainable finance leader in a time of global consciousness of social and environmental problems?
Lee: The urgency of the Impossible Foods’ mission has been paramount to our success in a few ways. First, employees who work here have the opportunity to make a lasting, positive impact on our planet, which fosters a deep sense of purpose and a shared belief that we are contributing to something extraordinarily meaningful. This gives people a real reason to go to work that’s not just to collect a paycheck. In addition, we’re deeply committed to innovation and disruption, which allows employees to think creatively and take risks in pursuit of our mission and creates a highly motivating and collaborative environment. This is the fundamental reason why Impossible Foods is a great place to work, and why we have a ton of great talent knocking on our doors, including people from all backgrounds: food, tech, bio-sciences, manufacturing, sustainability, sales, supply chain and many others.
Second, our mission has allowed us to create a powerful cultural movement behind our brand. We have an incredibly passionate community of fans, followers, customers and investors, all of whom desire more of our products and are eager to champion our cause. Back when we first created Impossible Burger, I personally cooked for famed chef and restaurateur David Chang of Momofuku so he could try it. He posted a picture of the Impossible Burger on Instagram, and we suddenly had a surge of interest. That was a game changer immediately. People who love food want to share their love of food with others, and people who are passionate about climate change want to have a voice. By being open and transparent, our community has become our biggest advocates. Over the last four years, our growth has largely been driven by word-of-mouth and the restaurants that have chosen to serve our product. We’ve spent very little on marketing for a company of our size.
All that said, one of the biggest keys to our success is to operate as if our mission isn’t a key factor. At the end of the day, in order to disrupt the incumbent industry, we have to create a product that is actually better than meat from animals in every category that matters to consumers – taste, nutrition, sustainability, convenience and affordability. It certainly helps us that no one wants to bet against a cleaner planet, but our success will only be won if we can win over real die-hard meat eaters. So far, it’s working – 9 out of 10 of our customers are self-identified meat eaters.
This article has been edited and condensed.