Despite Kashi struggles, cereal strong at Kellogg

by Eric Schroeder
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BATTLE CREEK, MICH. — Food innovation, investment in brand building and execution by the company’s team led to strong U.S. cereal performance at the Kellogg Co. in fiscal 2012, which in turn contributed to a 2.7% increase in internal net sales within the company’s U.S. Morning Foods & Kashi business in the year ended Dec. 29, 2012.

Internal net sales in the U.S. Morning Foods & Kashi unit totaled $3,707 million in fiscal 2012, up from $3,611 million in fiscal 2011. During the fourth quarter net sales increased 6% to $881 million from $829 million.

Much of the success in the segment was due to the company’s U.S. cereal’s business, John Bryant, president and chief executive officer, said during a Feb. 5 conference call with financial analysts.

“In cereal, we gained 0.7 points of category share in the (fourth) quarter,” Mr. Bryant said. “Krave continues to hold almost 1 point of share, as it has all year, and we saw good growth in some of the other brands that we supported, such as Frosted Flakes, Froot Loops and Raisin Bran. Frosted Flakes did very well all year due to strong, family-oriented advertising that really resonated with consumers.

“The innovation we launched in the second half also contributed, as Special K Protein posted very good sales growth and also gained share. And our Bare Naked brand continued to post strong results.”

Mr. Bryant did admit that while there have been improving volume trends in cereal, the category has been “relatively flattish” in terms of dollar sales.

“What we’re seeing in our business is really driven by innovation and by brand building,” he said. “We’re seeing the business respond to that. I’m confident that if the category in totality drives more brand building and more innovation, I think the category will respond to that.”

One aspect of Kellogg’s cereal business that has not performed up to expectations is the Kashi brand, Mr. Bryant said. While noting it is a “great brand” that has had tremendous growth over the years and has performed well in certain areas like frozen and wholesome snacks, the same cannot be said for cereal.

“In cereal we do have a couple of challenges around our Kashi business,” he said. “Some of the innovation in recent years has not been as strong as our core Kashi s.k.u.s (stock-keeping units), so we’ve lost some core s.k.u.s that we think would have done better than the innovation. Some of the brand building has moved away from the core benefit of Kashi, so we have an opportunity to sharpen our focus a little bit more. And some of the shelf presence in some of our smaller s.k.u.s on shelf is not what we need it to be.

“We’re not happy with the performance of our Kashi business. We think it’s more tactical in nature. Over the next six months, we’re going to work to fix and improve that business, get it back in the right direction. But we obviously have some work to do there.”
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