Kellogg installs new leadership for cereal, Kashi businesses

by Keith Nunes
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Paul Norman (left) has been tapped to lead cereal at the Kellogg Co., and David Denholm will oversee the Kashi brand.

 

BATTLE CREEK, MICH. — In an effort to turn around its struggling cereal and Kashi businesses, the Kellogg Co. has put new leaders in charge. Paul Norman, who is chief growth officer for the company, is now leading cereal, and David Denholm is returning to lead Kashi.

“I can’t think of a better person than Paul Norman to be running the U.S. cereal business right now,” said John Bryant, chairman and chief executive officer of the company, during a July 31 conference call with financial analysts to discuss the company’s second-quarter results. “Paul has tremendously deep experience in the cereal business, globally, and in the U.S., in particular. Paul ran the Morning Foods business for about five or so years back in the 2000s. Quite frankly, over the period of greatest success for the Kellogg Co. in the U.S., Paul was running that business. He knows absolutely what is required to get the business back on track. And he’s helping us work on an exciting re-stage of the cereal business in 2015.”

Mr. Denholm ran Kashi in the 2000s and is returning to become c.e.o. of the business. Mr. Bryant also announced that the Kashi business will be moving back to La Jolla, Calif. In March 2013 Kellogg announced it was moving the Kashi business to Battle Creek and that the move would best position the business unit for growth.

“The whole purpose of moving the business back to La Jolla is to increase the rate of speed, the agility, the ability to get on-trend much faster, and be more in-line with that community,” Mr. Bryant said. “So I expect it to have a faster impact than, say, turning around a more of a mainstream business. However, it will take some time because it is still one of the largest natural foods businesses in the United States — in fact, in the world.”

At its peak the Kashi business, which includes the Bear Naked and Stretch Island Fruit Snack brands, did approximately $500 million in sales, but is now in the low $400 million range, Mr. Bryant said.

“So we’ll need to innovate, renovate and get back on our front foot on that business,” he said. “I think we’ll be doing that through 2015 and 2016.”

As Kellogg’s management team reviewed the company’s performance during the quarter and the first half of the year it became clear many aspects of its business are not considered on-trend at the moment, whether it is in categories like cereal, weight management or frozen. Within cereal, Mr. Bryant noted the business is challenged to compete with a new wave of breakfast alternatives that have emerged on the market in recent years.

Kellogg has repositioned its Special K brand by emphasizing the presence of positive nutrition, such as protein, fiber and grains.

 

Within Special K, it is a matter of relevance.

“Special K continues to be impacted by the evolving consumer trends affecting weight-management brands in general,” Mr. Bryant said. “As a result, we’re actively repositioning the brand and emphasizing the presence of positive nutrition, like protein, fiber, grains, and other relevant nutritional benefits. We also have plans for renovation and innovation, as well as new communication plans to further drive this repositioning of the food.”

Within the frozen category, the results were a mixed bag. The company posted a decrease in internal net sales in the quarter primarily due to difficult comparisons. In 2013, Kellogg launched its Special K Flatbread Sandwiches, which Mr. Bryant called one of the most successful launches in recent years in the frozen business.

“We saw growth in the quarter from new products, such as Eggo Bites, although consumption of the total Eggo brand was below expectations,” he said. “To address this, we are continuing to focus on some great new products in the second half, coupled with strong marketing programs.”

For the quarter ended June 28, the Kellogg Co.’s net income totaled $295 million, equal to 82c per share on the common stock, and a decline compared with the previous year when net income was $352 million, or 96c per share.

Sales for the quarter were $3,685 million, down slightly from the second quarter of fiscal 2013 when sales were $3,714 million.

The company’s North American business experienced sales declines across the board. Total business unit sales were $2.4 billion during the quarter, a decrease of 3.7% compared with the prior year. U.S. Morning Foods sales fell 4.9%, Snacks segment sales fell 2.7% and its North America Other segment, which includes the U.S. frozen foods and Canadian businesses, saw its sales fall by 4.9%. The only business unit to experience a sales gains during the quarter was the Specialty Channels segment, which posted a 1.4% increase.

Operating profit in North America fell by 11.9% during the quarter

For the first half of the year, net income rose to $701 million, or $1.95 per share, from $663 million, or $1.82 per share, the previous year. Sales for the first six months were $7,427 million, a slight decline from $7,575 million the previous year.
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