Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Kellogg's faux meat spin-off faces 'tough environment'

Published 06/21/2022, 05:55 PM
Updated 06/22/2022, 06:00 AM
© Reuters. Frozen plant-based 'chicken tenders' made by MorningStar Farms, a unit of Kellogg Co. are pictured in New York, NY, U.S., April 19, 2021. Picture taken April 19, 2021. REUTERS/Hilary Russ

© Reuters. Frozen plant-based 'chicken tenders' made by MorningStar Farms, a unit of Kellogg Co. are pictured in New York, NY, U.S., April 19, 2021. Picture taken April 19, 2021. REUTERS/Hilary Russ

By Jessica DiNapoli and Hilary Russ

NEW YORK (Reuters) -Kellogg Co's plan to spin off and potentially sell its profitable MorningStar Farms vegetarian patties and plant-based meat business could shake up the frozen aisle in grocery stores.

But the line of plant-based breakfast sausages, burgers and faux chicken, priced significantly less than premium brands such as Beyond Meat (NASDAQ:BYND) and Impossible Foods, faces a "tough environment" without Kellogg (NYSE:K)'s support.

Not only has MorningStar failed to so far break out of supermarket sales into fast-food restaurants, but its profit margins of about 15% could get hit by any slowdown in demand just as overall sales of meat alternatives have flattened.

Total U.S. sales of meat alternatives have plateaued in 2022 after pandemic stockpiling helped drive strong growth in the past two years. Sales rose just 0.3% in the 52 weeks ended May 28 compared with the prior year, according to data from NielsenIQ.

"The short-term prospects for (plant-based) protein are very good, and Kellogg has one of the better portfolios of brands in the industry," said Gary Stibel, the CEO of the New England Consulting Group, which works on consumer products.

"They've been at it for a long time, but they are brilliant for getting out now. That's because the rate of growth in plant-based is slowing and will continue to slow."

Rivals Beyond Meat and privately held Impossible originally launched their "burgers" - refrigerated plant-based patties that look and taste like meat - in 2016.

Since then, more companies have joined the fray and signed deals with restaurant chains to add plant-based burgers to menus. For instance, Impossible supplies Restaurant Brands International (NYSE:QSR)'s Burger King with patties for its Impossible Whopper.

In January, McDonald's (NYSE:MCD) said it would expand the U.S. test of its "McPlant" burger - made with Beyond patties - to 600 locations. But sales have not met projections and McDonald's will not launch the sandwich nationally this year, according to BTIG analysts.

MorningStar - a staple for frozen vegetarian food like Garden Veggie Burgers for decades - launched its meat-like product, Incogmeato, in 2019 to compete directly with Beyond and Impossible.

But it hasn't had the "strongest launch," said John Baumgartner, senior consumer equity research analyst at Mizuho Securities. Now, consumers' appetite for plant-based burgers has cooled as new options flood the market.

"It's a tough environment right now," Baumgartner said. "The category is not going to grow as quickly as the early bulls anticipated. Volume is down."

Yum Brands Inc's Pizza Hut tested Incogmeato's plant-based Italian sausage in 2019 at one Arizona location. Yet, last year it was experimenting with a meat-free pepperoni topping made by Beyond in five U.S. cities.

Pizza Hut did not reply to a request for comment.

Kellogg's last year signed a deal for Incogmeato with Sodexo (EPA:EXHO) SA, a food service company that supplies hospitals and schools.

"IRRATIONAL EXUBERANCE"

The company announced on Tuesday it was separating into three independent companies, with its "Plant Co" anchored by MorningStar Farms. Kellogg's said it was looking into potentially selling its plant-based business, which generated profits of $50 million last year on sales of $340 million.

In an interview, CEO Steve Cahillane said Kellogg has turned the unit "back into a growth business."

"To have a pure-play business solely focused on (plant-based food), with the right resource allocation, the right management team, we believe it's the right thing to do," he said.

© Reuters. Frozen plant-based 'chicken tenders' made by MorningStar Farms, a unit of Kellogg Co. are pictured in New York, NY, U.S., April 19, 2021. Picture taken April 19, 2021. REUTERS/Hilary Russ

"It remains to be seen how big the refrigerated market gets," he said, referring to plant-based meat patties.

On a call with analysts last month, Cahillane said there had been "irrational exuberance" in meat alternatives generally. Incogmeato, he said, is a small portion of MorningStar Farms' total sales.

Latest comments

Plant based meat? Just eat a plant, ********is the point?
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.