Kellogg CEO predicts ‘shakeout’ in plant-based meat as category growth slows, especially in refrigerated

11-Feb-2022 - Last updated on 03-Mar-2022 at 18:16 GMT

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An influx of refrigerated plant-based meat alternatives in the past two years may have helped the category generate consumer buzz and drive initial trial early in the pandemic, but a steady slowdown in sales growth in the back half of 2021 suggests a “shakeout” may be imminent, warned Kellogg CEO Steve Cahillane.

The slowdown also calls into question where in the store is best for both short- and long-term growth for plant-based meat alternatives, given the difference in performance between the sectors, Cahillane suggested during the company’s fourth quarter earnings call Feb. 10.

While sales growth of Kellogg’s Morningstar Farms’ and Incogmeato plant-based meat alternatives outpaced that of the frozen vegan and vegetarian category in fiscal 2021 with a 2-year compound annual growth rate of just under 10%, there was a steady downward trend in both over the course of the year – prompting a question from one analyst about the “meaningful” slowdown, particularly in the fourth quarter.

The compound annual growth rate for Morningstar Farms fell to under 5% in the fourth-quarter, still above the overall category, from a high of more than 15% in the first quarter of the year. Each quarter marked a downward step, with growth slowing to about 10% in the second quarter and the high single digits in the third quarter.

For most of the year, the overall frozen vegan and vegetarian category held steady with compound annual growth hovering around or just under 15%, until the fourth quarter when it plummeted to under 5%.

Kellogg and Morningstar Farms were far from alone in the drop-off. Maple Leaf Foods President and CEO Michael McCain noted during the company’s third quarter earnings call in early November that growth in the plant-based meat alternative category had ‘evaporated so that sales of its Greenleaf Foods fell 6.6% year-over-year.

Beyond Meat also reported late last year that its US net revenues declined 13.9% to $67.5m in the third quarter.

This same trend played out in the refrigerated plant-based meat alternative space more broadly, according to data from 210 Analytics and IRI.

Dollar sales of refrigerated meat substitutes fell 4.6% to $109m in the fourth quarter, compounding a 3.1% drop in the third quarter to $124m, according to a December report from 210 Analytics and IRI.

This drop is a notable shift from the first quarter when sales jumped 14.5% to $120m. However, the second quarter hinted at the slowdown when dollar sales grew only 1.1% to $128m, according to the data.

Are too many new players to blame for drop off?

Cahillane attributed some of the decline in sales of Kellogg’s meat alternative brands to tough comparables from earlier in the pandemic, noting the “huge influx of new distribution and new entrants … drove outsized demand and outsized sales in certain areas.”

Indeed, IRI and 210 Analytics tracked a significant jump of 28% of new refrigerated plant-based alternatives in stores in 2020 over 2019, and a 4.9%increase in 2021. The slowdown in new additions placed a higher burden on existing products to grow sales.

Cahillane, however, suggested that some of the new products likely were not high enough caliber to sustain sales beyond initial trial, driven by consumer excitement around the category or novelty.

“You typically see this in new categories with lots of new entrants, lots of trial, not always the highest quality items making their way on shelf. And so, I think you’ll see that shake out,” he said.

He suggested that this hit the refrigerated segment harder than frozen, which is why there was a “deceleration on a two-year CAGR basis” in the sub-category.

“In the frozen side of the business, we’re still very pleased about the way Morningstar Farms is performing,” he said, noting the brand generated nearly $400m in US retail sales in 2021.

Looking forward, he said he still sees potential for plant-based meat alternatives in the refrigerator, but for now, he added, “we’re much more pleased about how we’re doing in the frozen segment.”

Kellogg hits targets despite headwinds

Beyond Morningstar Farms, most of Kellogg’s other household name brands saw consistent, sustained quarter over quarter growth in fiscal 2021 – often outpacing that of the broader category.

The company’s snack segment performed especially well, with Pringles growing 21% in the fourth quarter – nearly twice that of the salty snacks category – and Cheez-It up 9% in the quarter.

Pop-tarts and Rice Krispies Treats also significantly outpaced the growth of their categories at 11% and 13% in Q4 respectively.

Kellogg’s iconic cereal portfolio, however, did not share the same growth – suffering instead from supply chain bottlenecks, a fire at one factory and a multiple-month strike at others in the fourth quarter that contributed to a drop 14% in the fiscal year over the prior year and 4% on a two-year stack.

Overall, despite many significant headwinds that also impacted the industry at large, Kellogg met or exceed its full year guidance with organic net sales growth coming in at 3.5% and currency-neutral adjusted operating profit declining less than 2% against tough comparables.