Fallout from Kellogg’s plant-based meat business could rock markets

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Fallout from Kellogg’s plant-based meat business could rock markets

June 22, 2022

MorningStar Farms faces a “difficult environment” without Kellogg Co.

Kellogg Co’s plan to spin off and potentially sell off its profitable plant-based meat and veggie patties business MorningStar Farms could upend the frozen food aisle at grocery stores, Reuters reported.

But the line of plant-based sausages, burgers and fake chicken, priced significantly below premium brands such as Beyond Meat and Impossible Foods, faces a “tough environment” without support from Kellogg.

Not only has MorningStar so far failed to break supermarket sales at fast food restaurants, but its profit margins of around 15% could be hit by any slowdown in demand, as could overall sales of meat substitutes have flattened out.

Total U.S. meat substitute sales plateaued in 2022 after pandemic stockpiling helped spur strong growth over the past two years. Sales rose just 0.3% in the 52 weeks ended May 28 from a year earlier, according to NielsenIQ data.

“The near-term outlook for (plant-based) protein is very good, and Kellogg has one of the best brand portfolios in the industry,” said Gary Stibel, CEO of New England Consulting Group, which works on consumer products. .

“They’ve been at it for a long time, but they’re brilliant at getting by now. That’s because the herbal growth rate 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 example, Impossible provides Restaurant Brands International’s Burger King with patties for its Impossible Whopper.

In January, McDonald’s announced it would expand US testing of its “McPlant” burger – made with Beyond patties – to 600 locations. But sales fell short of forecasts and McDonald’s will not launch the sandwich nationwide this year, BTIG analysts said.

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

But it didn’t have the “strongest launch,” said John Baumgartner, senior consumer equity research analyst at Mizuho Securities. Today, consumer 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 predicted. Volume is down.”

Yum Brands Inc’s Pizza Hut tested Incogmeato’s plant-based Italian sausage in 2019 at an Arizona site. Yet last year, he was experimenting with a meatless pepperoni topping made by Beyond in five US cities.

Pizza Hut did not respond to a request for comment.

Last year, Kellogg’s signed an agreement for Incogmeato with Sodexo SA, a catering company that supplies hospitals and schools.

“IRRATIONAL EXUBERANCE”

The company announced on Tuesday that it was splitting into three independent companies, with its “Plant Co” anchored by MorningStar Farms. Kellogg’s said it was considering selling its herbal business, which generated $50 million in profits last year on sales of $340 million.

In an interview, CEO Steve Cahillane said Kellogg had turned the unit “into a growing business”.

“To have a pure-play business that’s just focused on (plant-based foods), with the right allocation of resources, the right management team, we think is the right thing to do,” he said. he declares.

“It remains to be seen how big the chilled market will be,” he said, referring to plant-based meat patties.

On a call with analysts last month, Cahillane said there has been “irrational exuberance” in meat alternatives in general. Incogmeato, he said, represents a small portion of MorningStar Farms’ total sales.

Source: Reuters