Maple Leaf Foods: ‘We unequivocally believe that the investments’ in plant-protein ‘will be rewarded’

During fiscal 2020, Maple Leaf’s plant protein division drove revenue up 19.5% but it failed to meet the company’s 30% target increase due mainly to pandemic-related supply chain challenges, incremental costs and commercialization restrictions that hampered new product launches and limited food service, the company revealed late last week in its fourth quarter earnings report.

CEO Michael McCain lamented to analysts during an earnings call late last week, that “the biggest disappointment,”​ in an otherwise “record performance year”​ in which the overall company’s top line grew and margins expanded, “was a slowdown in the back half of the year in our plant protein revenue growth rate.”​

'S​taying the course for our investments is the right course of action'

In addition to supply chain challenges and COVID-related category deceleration, McCain noted the negative impact on the business of a new retail channel entrant.

“I can appreciate that this is a challenging period, one which would test conviction around our investment in plant-based businesses,”​ but one or two tough quarters for the plant-based protein business isn’t enough to change our conviction in the segment’s long-term potential, McCain said.

“We unequivocally believe that the investments we are making in this business will be rewarded, albeit causing valuation dislocations in the short term,”​ McCain said, adding, “We believe that staying the course for our investments is the right course of action.”​

He justified his optimism by explaining that he does not believe long-term consumer behavior will be defined by COVID moments and by noting that the supply chain obstacles “are being sorted out.”​

He also underscored the company now owns top brands in the plant-based segment, including Lightlife and Field Roast, which have substantial heritage and consumer trust, and for which Maple Leaf recently launched brand refreshes that position the products as having cleaner and simpler ingredient decks than competitors.

Finally, he noted the company has “a very robust innovation pipeline to support our growth ambitions.”​

“Strong underlying momentum”​

COO Curtis Frank echoed McCain’s disappointment in plant-based protein sales in Q4, but he also reinforced his optimism for the future, calling out “strong underlying momentum in the core components of our Lightlife and Field Roast offerings.”​

These include Lightlife tempeh, for which Frank sees “significant upside”​ given the category’s “exceptional growth as it gains recognition and expanding consumer adoption.”​

For example, in November, Walmart USA added the brand’s tempeh to 3,500 store shelves – a tenfold increase over prior distribution – that Maple Leaf plans to support by leveraging available production capacity across its network and by “seizing a unique opportunity”​ to expand capacity at a facility in Indiana, Frank said.

Tempeh: 'A little more niche-y?'

Not all analysts were fully sold on Frank’s assessment of tempeh’s potential, however. While the product is popular among vegetarians and vegans, it has historically been a tougher sell for mainstream consumers and as such remains “a little more niche-y,”​ Frank acknowledged when pressed.

Still, he said, “we’ve got a very large share of tempeh,”​ and it is “super high growth and very lucrative.”​

Frank also touted the success of Field Roast’s Chao plant-based cheese, which he said “has the number one SKU of plant-based cheese in North America with offerings in multiple formats, including slices, blocks and shreds.”​

He added “after early success in launching five new flavors and formats in Q3, we doubled our distribution with Walmart to over 2,000 US locations in late Q4. Our Chao portfolio can now be found at over 18,000 retail locations across the US.”​

Overall, even though the plant-based protein segment has yet to meet targets, McCain and Frank are confident that the strategies the company enacted in late 2020 to differentiate the brands, improve production efficiencies and with upcoming product innovation, the segment will rebound and in the long term hit the desired sales growth targets.