After the plant-based protein market collapses, Kellogg’s will no longer divest Morningstar.

What to know

In 2018, Kellogg’s refocused its Morningstar Farms brand around plant-based protein. Originally, Morningstar Farms offered breakfast meats and chicken nuggets, but by 2021, the brand’s offerings were 86% plant-based. “We like the sustained growth and potential for this brand,” Sara Young, the Kellogg VP in charge of the brand, told investors. “In many ways, plant-based protein represents an emerging market right here in North America.”

At the time, strategic logic was sound. Beyond Meat, the first and perhaps best-known offering, was a media darling. It used the buzz to catapult itself to a market capitalization of $7 billion. Rumors revealed that a private competitor, Impossible Foods, was valued at nearly $10 billion. It made sense that legacy food companies entered the space.

The pitch was simple. Industrial agriculture, specifically protein, is a huge contributor to climate change. Some estimates attribute 26% of greenhouse gas emissions to our food system- with animal protein being the biggest cultprit. What if you could reduce those emissions by producing an equivalent protein-that tasted the same-in a lab?

Making things sweeter for business, the technology could be patented. Meaning a business could hold a monopoly on protein. It was a compelling narrative. Suddenly, it was conventional wisdom that plant-based proteins were a trillion-dollar market waiting for capture.

By 2021 Morningstar Farms generated around $340 million a year in sales for Kellogg’s. Given the anticipated growth, management announced it would spin the company off. Early estimates placed the value of the new company between $5-$10 billion.

The problem was that the new protein wasn’t cheaper or healthier than animal-based protein. The category has yet to have mass appeal. Sales for each major competitor topped off at half a billion a year. Beyond Meat, the only public company in the space lost nearly 90% of its market value.

“When we began this process, valuations for peer companies were stratospheric compared to where they are today,” CEO Steven Cahillane said in an investor call. “If we could attract the same types of…