Kellogg’s faux meat spin-off is facing a ‘tough environment’ – Low Calorie Diets Tips

Frozen plant-based chicken tenders, manufactured by MorningStar Farms, a unit of Kellogg Co., are pictured in New York, NY, on April 19, 2021. Picture taken April 19, 2021. REUTERS/Hilary Russ

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NEW YORK, June 21 (Reuters) – Kellogg Co (KN)’s plan to spin off and potentially sell its profitable veggie patties and plant-based meat business from MorningStar Farms could shake up the freezer section at grocery stores.

But the line of plant-based breakfast sausages, burgers and artificial chicken, which costs significantly less than premium brands like Beyond Meat (BYND.O) and Impossible Foods, faces a “tough environment” without Kellogg’s support.

Not only has MorningStar failed to break out of supermarket sales at fast-food restaurants, but its profit margins of about 15% could be hit by a slowdown in demand while overall meat alternative sales have flattened.

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Overall U.S. meat alternative sales have plateaued in 2022 after pandemic stockpiles helped fuel strong growth over the past two years. According to data from NielsenIQ, sales rose just 0.3% year over year in the 52 weeks ended May 28.

“The near-term prospects for (plant-based) protein are very good, and Kellogg has one of the better 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 coming out now. This is because the rate of growth in plant-based products is slowing and will continue to slow.”

Privately held rivals Beyond Meat and Impossible originally launched their “burgers” — chilled plant-based patties that look and taste like meat — in 2016.

Since then, more companies have joined the fray, signing deals with restaurant chains to add plant-based burgers to menus. For example, Impossible is supplying Burger King of Restaurant Brands International (QSR.TO) 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 haven’t met forecasts, and McDonald’s won’t launch the sandwich nationwide this year, according to BTIG analysts.

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

But it didn’t have the “strongest start,” said John Baumgartner, senior consumer equity research analyst at Mizuho Securities. Now, consumer appetites for plant-based burgers have cooled as new options flood the market.

“It’s a difficult environment at the moment,” said Baumgartner. “The category will not grow as fast as early bulls expected. Volume is declining.”

Yum Brands Inc.’s (YUM.N) Pizza Hut tested Incogmeato’s plant-based Italian sausage at an Arizona location in 2019. But last year it experimented with a meat-free pepperoni topping made by Beyond in five US cities.

Pizza Hut did not respond to a request for comment.

Kellogg’s last year signed an agreement for incogmeato with Sodexo SA (EXHO.PA), a food service company that supplies hospitals and schools.

“IRRATIONAL EXCESS”

The company announced Tuesday that it will split into three independent companies, with its “Plant Co” being anchored by MorningStar Farms. Kellogg’s said it is exploring a possible sale of its herbal business, which posted a $50 million profit on sales of $340 million last year. Continue reading

In an interview, CEO Steve Cahillane said Kellogg has turned the unit “back into a growth company.”

“We believe that having a pure-play business focused solely on (plant-based foods) with the right resource allocation and management team is the right thing to do,” he said.

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

In a call with analysts last month, Cahillane said there’s been an “irrational exuberance” about meat alternatives in general. Incogmeato, he said, accounts for a small portion of MorningStar Farms’ overall sales.

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reporting by Jessica DiNapoli and Hilary Russ in New York; Editing by Aditya Soni

Our standards: The Thomson Reuters Trust Principles.

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