Kellogg’s faux meat spin-off faces ‘tough environment’ By Reuters

© Reuters. Frozen vegan “Chicken Bids” produced by MorningStar Farms, a unit of the Kellogg Corporation in New York, New York, US, April 19, 2021. Photo taken April 19, 2021. REUTERS/Hilary Ross

Written by Jessica Dianapoli and Hilary Ross

NEW YORK (Reuters) – The Kellogg Company (NYSE:Co) plan to roll out its profitable Morning Star Farms vegan pies and sell vegan meat could change the frozen aisle of grocery stores.

But a line of vegan breakfast sausages, burgers, and industrial chicken, priced well below premium brands like Beyond Meat (NASDAQ: and Impossible Foods), faces a “challenging environment” without Kellogg’s support.

Not only has MorningStar failed to penetrate supermarket sales to fast food restaurants, its profit margins of around 15% could be hit by any slowdown in demand just as overall sales of meat substitutes have stabilized.

Total sales of meat substitutes in the United States stabilized in 2022 after pandemic storage helped drive strong growth in the past two years. Sales were up just 0.3% in the 52 weeks ending May 28 compared to a year earlier, according to data from NielsenIQ.

said Gary Staple, CEO of New England Consulting Group, which works on consumer products.

“They’ve been at it for a long time, but they’re pretty good at getting out now. That’s because the rate of growth in the plant is slowing down and it’s going to continue to slow.”

Privately held Rivals Beyond Meat and Impossible originally launched “burgers” — refrigerated, meat-like veggie patties — in 2016.

Since then, more companies have joined the fray and signed deals with restaurant chains to add vegan burgers to menus. For example, Impossible supplies Restaurant Brands International (NYSE:)’s Burger King with patties for the Impossible Whopper.

In January, McDonald’s (NYSE:) said it would expand US testing of its “Mc Planet” burger — made with Beyond patties — to 600 locations. But sales did not meet expectations and McDonald’s will not launch the sandwich nationally this year, according to BTIG analysts.

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

It didn’t have the “strongest launch,” said John Baumgartner, senior consumer equity research analyst at Mizuho Securities. Now, consumers’ appetite for veggie burgers has waned as the market is flooded with new options.

“It’s a challenging environment right now,” Baumgartner said. “The category is not going to grow as fast as the early bulls expected. Volume is going down.”

Yum Brands Inc’s Pizza Hut tested Incogmeato’s vegan Italian sausage in 2019 at an Arizona location. However, last year, it was testing a meat-free pepperoni layer made by Beyond in five US cities.

Pizza Hut did not respond to a request for comment.

Last year Kellogg signed a deal for Incogmeato with Sodexo (EPA :), a foodservice company that supplies hospitals and schools.

“irrational exuberance”

The company announced Tuesday that it will split into three independent companies, with the Plant Co. sponsored by Morning Star Farms. Kellogg’s has said it is studying the possibility of selling its plant-based business, which made $50 million in profit last year on $340 million in sales.

In an interview, CEO Steve Cahillan said Kellogg has brought the unit back into a “growing business.”

“To have a pure business focused solely on[vegetarian food]with the right resource allocation, and the right management team, we think this is the right thing to do,” he said.

“It remains to be seen how big the refrigerant market will be,” he said, referring to meat pies made from plants.

In a call with analysts last month, Cahillan said there was an “irrational glut” in meat substitutes in general. Incogmeato, he said, is a small portion of MorningStar Farms’ total sales.

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