Kellogg’s wake-up call

by Eric Schroeder
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For more than four years, Michael Allen was focused on finding ways to drive growth within the frozen foods segment for The Kellogg Co. as president of the Battle Creek, Mich.-based company’s $1 billion U.S. Frozen Foods unit. But for the past eight months he has been tasked with a much more difficult job: Tackling Kellogg’s $3.5 billion U.S. Morning Foods business, which encompasses U.S. cereal, Kashi, health and wellness, and Pop-Tarts toaster pastries.

In a Feb. 19 presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla., the president of U.S. Morning Foods at Kellogg painted a picture of breakfast as a business that continues to grow.

“It has grown every year for the last three years,” Mr. Allen said. “The three-year CAGR (compound annual growth rate) on this is 5%, and consumers recognize that breakfast is a key meal of the day. They understand the importance of getting a good start in the morning. They understand the importance of getting the appropriate nutrients in the morning.”

Not only is breakfast a growing occasion, it’s also one that is evolving, Mr. Allen said. For Kellogg, a company built on the introduction of Toasted Corn Flakes in the early 1900s, ready-to-eat cereal has served as a solid foundation of growth over the years. But several factors have driven a retreat from ready-to-eat cereal, Mr. Allen said. A decline in milk consumption, a rise in traditional protein sources, such as Greek yogurt and eggs, and expanded breakfast options all have reshaped the morning meal landscape.

“The other thing that is really affecting the category overall is this notion of unconscious migration,” Mr. Allen said. “And this is this notion that consumers don’t necessarily realize (it), but perhaps they are eating one less bowl a week, as an example.

“They’re eating less cereal. The good news about that is there is no specific one reason, so when we have conversations and say what is going on with the cereal categories, is one thing driving impact on the category? The answer is no.”

In the 52 weeks ended Nov. 3, 2013, dollar sales of the R.-T.-E. cereal category totaled $9,293,050,000, down 2.5% from the same period a year ago, according to Information Resources, Inc., a Chicago-based market research firm. Kellogg’s R.-T.-E. cereal sales during that time fell 2% to $2,827,586,000, while Kellogg’s Kashi brand was off 13% at $242,632,400.

But all-in-all, R.-.T.-E. cereal has remained relatively stable over the past decade, and the category in usage occasions still trumps other breakfast items, including fruit, eggs and hot cereals, Mr. Allen said. In approximately 90% of households, cereal has about three times the penetration of Greek yogurt.

Also benefitting the category are the demographics of core consumers of cereal: younger families and aging boomers, both of whom represent large segments of the population.

“So, what we realize when we look at the evolution of the breakfast occasion and all the needs that are desired and the scale that cereal brings to that, as well as the household penetration, is we need to win in breakfast, and we are going to do that with cereal,” Mr. Allen said. “Cereal is still the majority of that breakfast occasion.”

In addition to investing behind core product lines of Special K, Mini-Wheats and Frosted Flakes, the company is activating Kellogg as a master brand.

“So, when you look at Kellogg as a brand versus a sub-brand, like a Special K or Mini-Wheats, Kellogg as a brand is synonymous with U.S. consumers as breakfast; it’s synonymous as cereal,” Mr. Allen said. “We’re going to activate some of our messaging to drive the category behind Kellogg as a brand and a couple of ways we are going to do that.”

Part of Kellogg’s plans to push the nutritional advantages of cereal includes touting the protein benefits of milk.

“As an example, one bowl of Mini-Wheats with a cup of low-fat milk actually has more protein than Greek yogurt,” Mr. Allen said. “These are the kinds of things that we need to make sure consumers understand the benefits of cereal as a category.”

The company also seeks to drive consumption beyond the morning day part, for example, by positioning products as a late-night snack.

“Thirty per cent of consumption is outside of the morning day part; about 10% of that is used for recipes,” Mr. Allen said.

Innovation, too, figures into Kellogg’s cereal revival efforts. Non-G.M.O. Project-verified GoLean Crunch, new varieties of Bear Naked granola and Special K Chocolate Almond and Touch of Fruit Mini-Wheats are among new offerings that promise multiple consumer benefits.

“We always need to build food that is consistent with what consumers want and have a nutritional benefit,” Mr. Allen said.

He emphasized that the company’s innovation efforts are “strong and robust.”

“What I would also say is it’s very difficult to have strong innovation when your core is not necessarily strong,” he said. “It is always best to launch an innovation off a strong brand and a brand that is growing. So we will continue to have a robust innovation program, but job No. 1 is to have a strong core cereal franchise to leverage off of that.”

Still poppin’ after 50 years

BATTLE CREEK, MICH. — Comprising the second-largest portion of Kellogg’s U.S. Morning Foods division, Pop-Tarts are celebrating their 50th anniversary in 2014. The company hopes the next half century is just as successful as the first.

Michael Allen, president of U.S. Morning Foods at Kellogg Co., said during a Feb. 19 presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla., that Pop-Tarts have delivered 32 consecutive years of growth dating back to 1981.

“(Pop-Tarts) grew consumption last year, grew share last year and continued to be a very strong brand,” Mr. Allen said. “And, of course, we have innovation that launched this year, the peanut butter s.k.u.s that are performing very well. So we feel good about the positioning of that brand and the direction of that brand long term.”

In the 52 weeks ended Jan. 26, dollar sales of Pop-Tarts exceeded $749 million, up 3.5% from the same period a year ago, according to Information Resources, Inc., a Chicago-based market research firm. The base Pop-Tarts brand had sales of nearly $659 million during the period, while sales of Pop-Tarts Gone Nutty! topped $44.4 million and Pop-Tarts Wildlicious totaled nearly $19 million, according to I.R.I. Other extensions of the Pop-Tarts line include Oatmeal Delights ($10.8 million), Mini Crisps ($7.4 million), Ice Cream Shoppe ($5 million) and Printed Fun ($4.1 million).

To help celebrate its anniversary, Kellogg earlier this year brought back a retired classic: chocolate vanilla creme.

Kellogg commits to products with sustainable palm oil

BATTLE CREEK, MICH. — The Kellogg Co. in mid-February made a global commitment to work with its palm oil suppliers to source fully traceable palm oil produced in a manner that is environmentally responsible, socially beneficial and economically viable.

“As a socially responsible company, traceable, transparent sourcing of palm oil is important to us, and we are collaborating with our suppliers to make sure the palm oil we use is not associated with deforestation, climate change or the violation of human rights,” said Diane Holdorf, chief sustainability officer of Kellogg.

Kellogg will require all of its global palm oil suppliers to trace palm oil to plantations that are verified independently as legally compliant and that are adherent to Kellogg’s principles for protecting forests, peat lands and communities. In addition, the palm oil suppliers must be compliant with all principles and criteria of the Roundtable on Sustainable Palm Oil.

By Dec. 31, 2015, palm oil suppliers must be compliant or be working to close any gaps identified in their action plans. Kellogg is a member of the R.S.P.O., which is an organization made up of oil palm growers, palm oil processors and traders, consumer goods manufacturers, non-government organizations, banks and investors, and retailers.

Although Kellogg Co. said it is a “very small user” of palm oil, shareholders and activist groups have urged the company to use sustainable palm oil. Green Century Capital Management, which was founded by non-profit environmental advocacy groups, is a Kellogg shareholder.

“Green Century is excited to support Kellogg on this important palm oil journey, which will ensure the company’s core values are upheld throughout the supply chain and create long-term value for both shareholders and the environment,” said Lucia von Reusner, a shareholder advocate for Green Century. “Kellogg Co.’s commitment to directly engage its suppliers positions them as a leader in developing sustainable palm oil.”

Green Century on Nov. 11, 2013, asked Kellogg to confirm that palm oil used in its products was not linked to illegal and high-risk deforestation. A petition started last year and associated with SumOfUs, self-described as a worldwide movement for a better global economy, asked Kellogg to stop using Wilmar International as a palm oil supplier.

On Jan. 30 of this year, however, Green Century praised Wilmar International for a new policy designed to stop deforestation and exploitation of workers.

“If fully implemented, Wilmar’s new policy may reduce risks for its investors and sets a new standard for sustainable agricultural commodity production that protects forests, peat and communities,” Green Century said.
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