NEW YORK, June 21 (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 and Impossible Foods, faces a "tough
environment" without Kellogg'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
"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's Burger King with patties for its
In January, McDonald's 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
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
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
SA, a food service company that supplies hospitals and
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.
"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'
(Reporting by Jessica DiNapoli and Hilary Russ in New York;
Editing by Aditya Soni)