MorningStar Farms sales drop 10% on supply disruption

Dive Brief:

• U.S. retail sales of Kellogg’s plant-based MorningStar Farms brand dropped 10% in the first half of 2022 compared to the same period a year ago mostly due to a supply disruption with a co-manufacturer, the company said in its quarterly earnings report this week. 
• In the company’s earnings call, CEO Steve Cahillane described the drop in sales and consumption as “uncharacteristic” and said it caused Kellogg to reduce its commercial activities for the brand. This is as sales of frozen vegetarian and vegan foods grew about 6% in the first half of 2022, according to Nielsen data cited by the company. 
• “We are experiencing a temporary supply chain disruption at our co-manufacturer and are focused on restoring supply. Our next priority will be to resume full commercial activity,” spokesperson Kris Bahner told Food Dive in an emailed statement. As Kellogg moves forward with its plan to split into three companies, its plant-based division is being tested by a mix of supply chain challenges, slowing category sales growth and labor unrest.

Dive Insight:

Kellogg’s move to create a plant-based foods company anchored by its MorningStar Farms brand comes amid a period of stalling sales growth for many plant-based meat companies.

Despite the category slowdown, Cahillane said Kellogg still sees strong potential for MorningStar, and expects it to return to growth in the second half of the year as supply and capacity improve.

“This is a leader in plant-based foods, a category with tremendous growth prospects,” Cahillane said. “This is a business that remains in good condition from the standpoint of brand equity, marketing and innovation pipeline as well as profitability.”

Kellogg’s plant-based business also faces a tenuous labor situation. Last month, workers at a MorningStar Farms plant in Zanesville, Ohio, announced their intention to unionize and join the Bakery, Confectionery, Tobacco, and Grain Millers International Union (BCTGM). Over half of the plant’s 300 workers are prepared to vote for the union, BCTGM told Bloomberg. A hearing next week will decide if the election should be held by mail or in person.

Cahillane said the union push was not linked to the co-manufacturer issue for MorningStar Farms. The CEO added that the company does not support the effort to unionize at the Ohio plant.

“Despite having great relations with our unions, we still believe that the best way forward for this particular plant is to remain a nonunion plant and not have somebody in between us and them.”

Meanwhile, after an 11-week strike in 2021 at its cereal plants and a fire at one facility caused a 10% net sales decline in first-quarter 2022, that segment of the business is recovering faster than expected, Kellogg said. Organic net cereal sales rose 8% over the previous quarter thanks to inventory improvements. 

On the earnings call, Cahillane reiterated that Kellogg believes its plant-based, cereals and snacks businesses are in a strong position but will be even stronger as individual companies with their own strategies and resources.

“The most successful spins happen from a position of strength, not from a position where you’re desperate or things have to happen to fix the business, but when they happen from a real position of strength because then you can unlock the underlying potential of those businesses,” he said.