Kellogg adds a splash of milk

by Monica Watrous    View Me on Google+
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BATTLE CREEK, MICH. — To sell more cereal, the Kellogg Co. is shilling milk.

The company pins its cereal comeback hopes on a growing obsession with protein in the American diet. Kellogg’s message? A bowl of Mini-Wheats with milk contains more protein than a serving of Greek yogurt.

“As we look at that category relevance work, what is happening within the occasion, the breakfast occasion is actually growing, household penetration is high for cereal, but the issue is that consumers are seeking protein,” said John Bryant, president and chief executive officer, during a May 1 call with analysts to discuss first-quarter earnings. “And they’re not taking into account that milk and cereal is a great source of protein because of the milk. And often some of the cereal, some of the grains, also have a good amount of protein in them as well.”

Kellogg said retailers support the strategy because it promotes both cereal and milk categories. The message also may provide cross-promotional opportunities with dairy processors, Mr. Bryant added.

However, milk, like cereal, has been facing steady declines in recent years.

“And so, we also activate programs with the soymilk suppliers and so on and other alternative ways with which people consume cereal,” Mr. Bryant said. “And rather than think about cereal going up against yogurt, it’s also worth remembering that cereal is actually a complement to yogurt, in that a lot of people add cereal to their yogurt as well.”

Snacking and simple labels also play a role in Kellogg’s cereal programs. The company said cereal consumption outside of the breakfast occasion has increased from 20% to nearly 30% over the past decade. To leverage the trend, Kellogg plans to position Special K as a healthy late-night snack.

“And then there are other programs that remind people of the simplicity of the food; that this is food directly from the farm to the table, that a cornflake is literally a corn grit that’s been rolled and toasted,” Mr. Bryant said. “So, as you think about the category relevance work, it’s not all just a milk and grain story. It’s actually several different executions around the world that we’ll be able to work with through Q2 to Q3, get responses from, adapt, adopt and quickly take up what’s working and move it around the system.”

Enhancements to the Kashi brand include forthcoming launches of Non-GMO Project verified products. Though a major player in the natural and organic space, the brand has lost distribution over the past year and a half, Kellogg said.

“In terms of are we seeing an impact, it’s too early to say there’s a big impact on G.M.O.-free,” Mr. Bryant said. “We do have organic s.k.u.s within Kashi, and they have been doing well. So, I think there’s reason to believe in that. … But long term, this is a very strong business. We just need to get it back on track and invest more in the food, because that’s what consumers are looking for from this brand.”

For the first quarter, the company said operating profit fell in line with expectations and earnings per share, adjusting for items affecting comparability, exceeded expectations. Project K, the four-year efficiency and effectiveness program, is on track, and additional investments in brand-building to drive growth are set to begin in the second quarter.

Net income for the quarter ended March 29 was $406 million, equal to $1.13 per share on the common stock, up 31% from $311 million, or 86c per share, in the prior-year period.

Net sales dipped to $3,742 million from $3,861 million.

The U.S. Morning Foods segment posted an operating profit of $128 million during the quarter, down 21% from $163 million during the prior-year quarter. Sales for the segment were $861 million, down 5.5% from $911 million.

Within the U.S. Snacks segment, operating profit totaled $95 million, down 11% from $106 million in the comparable quarter. The segment had sales of $903 million, up 0.3% from $901 million.

The U.S. Specialty segment had an operating profit of $87 million during the quarter, down 12% from $78 million during the prior-year period. The segment had sales of $372 million, down 1.7% from $379 million.

Kellogg has reaffirmed its guidance for full-year internal net sales growth of about 1%. The company still expects full-year underlying internal operating profit to increase at a rate between 0% and 2%.
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