• by Steve Ellwanger , February 13, 2023

Despite predicting an “imminent shakeout” among plant-based food marketers, The Kellogg Co. has decided not to sell MorningStar Farms or spin it off into a separate entity.

When Kellogg announced last June that it would seek to divest MorningStar, plant-based meats were beginning to see a decline in consumer popularity that has accelerated significantly.

“When we began this process, valuation for peer companies were stratospheric compared to where they are today,” CEO Steve Callihane said on a Q4 earnings call last week. “They've come down quite substantially. And when we look at what's on the horizon for this category, we see an imminent shakeout coming. It's happening already.”

He was alluding to the headwinds buffeting plant-based providers like Beyond Meat and Impossible Foods amid a glut of products at retail and the failure of plant-based burgers to make a meaningful entry into the QSR space.

Callihane predicted that there will be “a couple of players left standing.”

MorningStar Farms “still has some of the highest household penetration, highest name recognition, fantastic foods, strong in the freezer space—where this consumer is migrating back to—and [is] profitable, unlike many of the peers.”

That reference to a shift in consumer preference for refrigerated meat alternatives is underscored by data from IRI showing that sales in the category declined year-over-year by 14.5%, 15.7% and 17.5% in the Q2, Q3 and Q4 of 2022, respectively.

Callihane told Reuters that MorningStar’s Incognito refrigerated products—launched in 2020—have not performed as well as MorningStar’s frozen foods.

Acquired in 1999, MorningStar represents just 2% of Kellogg’s net sales. For now, it will remain part of Kellogg’s global snacking unit which, like its cereal business, will be spun off into separate companies this year.

At 80% of total sales, snacks remain the main driver of Kellogg’s revenue.

Asked by Bank of America analyst Bryan Spillane on last week's earnings call whether the company will pursue mergers or acquisitions to further grow its snacks business, Callihane said, “Where we can supplement our portfolio with additions, we'll definitely look to that because we do have great capabilities in snacking, great route-to-market, and bolt-ons or bigger will be part of our considerations going forward.”