© Reuters. Frozen plant-based “chicken tenders” produced by MorningStar Farms, a Kellogg Company-owned company, in New York, U.S., April 19, 2021. Photo taken on April 19, 2021.REUTERS/Hilary Russ
Jessica DiNapoli and Hilary Russ
NEW YORK (Reuters) – Kellogg’s (NYSE: Kellogg’s) plans to spin off and possibly sell its profitable Morningstar Farms vegan pies and plant-based meat businesses could shake up grocery store freezer aisles.
But prices are well below those of high-end brands like Beyond Meat (NASDAQ: ) and Impossible Foods’ line of plant-based breakfast sausages, burgers and faux chicken, facing a “difficult environment” without Kellogg’s backing.
Not only has Morningstar so far failed to expand supermarket sales to fast-food restaurants, its roughly 15% profit margin could be hurt by slowing demand as overall sales of meat substitutes flatten.
Total U.S. meat substitute sales stabilized in 2022 after pandemic stocks helped drive strong growth over the past two years. For the 52 weeks ended May 28, sales rose just 0.3% from a year earlier, according to NielsenIQ.
“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 Stiebel, chief executive of New England Consulting Group, which works in consumer products.
“They’ve been doing it for a long time, but they’re good at going out now. That’s because the growth rate of plant-based foods is slowing and will continue to slow.”
Beyond Meat competitor and privately held Impossible originally launched their “burgers” in 2016—refrigerated plant-based patties that look and taste like meat.
Since then, more and more companies have entered the fray, signing deals with restaurant chains to add plant-based burgers to their menus. For example, Impossible supplies Burger King of Restaurant Brands International (NYSE: ) with patties for its Impossible Whopper.
In January, McDonald’s (NYSE: ) said it would expand U.S. testing of its “McPlant” burger to 600 locations. But sales fell short of expectations and McDonald’s won’t launch the sandwich nationwide this year, according to BTIG analysts.
MorningStar — which has been a staple of 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 release yet,” 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 fast as the early bulls expected. Volume is falling.”
Yum Brands Inc’s Pizza Hut tested Incogmeato’s plant-based Italian sausage at an Arizona location in 2019. Last year, however, it was experimenting with meatless pepperoni toppings made by Beyond in five U.S. cities.
Pizza Hut did not respond to a request for comment.
Kellogg’s signed an Incogmeato deal last year with Sodexo (EPA:) SA, a food service company that supplies hospitals and schools.
The company announced Tuesday that it will split into three separate companies, with its “Plant Co” run by Morningstar Farms. Kellogg said it was considering a sale of its plant-based business, which generated $50 million in profit on $340 million in sales last year.
In an interview, CEO Steve Cahillane said Kellogg had “re-transformed the division into a growth business.”
“Having a pure-play business focused only on (plant-based foods), with the right allocation of resources and the right management team, we believe it’s the right thing to do,” he said.
“It remains to be seen how big the refrigerated market is,” he said, referring to plant-based meat pies.
Kahilan said on a conference call with analysts last month that there is widespread “irrational exuberance” in meat substitutes. Incogmeato accounts for only a small portion of Morningstar Farms’ total sales, he said.