BATTLE CREEK, MICH. — Last fall, Deanie Elsner, president of U.S. Snacks at The Kellogg Co., laid out four key priorities for the Battle Creek-based company during 2016. A little more than eight months later, a progress report on the priorities indicates the company is on track.
The company’s first priority was to expand margins. To accomplish this, Kellogg set out to drive significant productivity through Project K and zero-based budgeting.
|Deanie Elsner, president of U.S. Snacks at The Kellogg Co.|
“I’m happy to say that we are on track with these savings,” Ms. Elsner said during an Aug. 4 conference call with analysts to discuss second-quarter results. “We are also institutionalizing a broader, more disciplined approach to revenue growth management. We have started with Cheez-It, where we evaluated the price point of our offerings across channels, from large sizes to on-the-go and single-serve. And we are assessing how we invest our trade dollars. In-market for Cheez-It demonstrates the early impact of this effort. Year-to-date consumption is up 5%, led by volume and strong price mix. Base sales, up 7.6%. And we have increased distribution more than 7% behind an expansion of our price pack architecture. The brand also posted improved profit margin.”
Ms. Elsner said similar efforts on productivity, cost savings and revenue management are paying off across the company’s broad snacks portfolio.
The company’s second priority was to shift investment to brands that might provide the strongest growth. To optimize the company’s return on investment, Ms. Elsner said Kellogg has concentrated its spending behind what it considers its best brands.
“In crackers, we are invested behind our big three — Cheez-It, Club and Town House,” she said. “All three of these brands grew consumption in Q2 and year-to-date. Collectively, they are also gaining share in Q2 and year-to-date. Pringles grew consumption nearly 3% year-to-date. Our core four flavors, where we are putting the most emphasis on the shelf, increased consumption 9% year-to-date. And our single-serve offerings have grown at a double-digit rate. So as we get past some phased-out, non-core items in the second half, you will see accelerated growth thrusts in salty snacks.
“In cookies, we have turned on media for the first time in years on the Keebler brand, introducing a whole new generation to the elves in the hollow tree. It’s early days, but the Keebler brand turned to consumption growth in Q2.
“In wholesome snacks, Rice Krispies Treats grew consumption by 4.5% in the quarter, and Nutri-Grain grew consumption by more than 5%. This means two-thirds of our wholesome portfolio delivered healthy growth in Q2. Focusing on investment of our growth brands is a key element of our plan this year, and we are seeing the results.”
Kellogg’s third priority revolves around expanding the company’s on-the-go offerings and distribution.
“We know consumers are snacking more and on more occasions, but we have been missing out on many of these occasions by not having the right pack format in the right channel,” Ms. Elsner said. “This has been a key area of focus for us in 2016.”
She said Kellogg has been expanding formats or pack types across channels to better meet consumer needs. These efforts have included expanding Kellogg’s line of smaller-size and single-serve offerings. Where necessary, the company has added capacity. Ms. Elsner mentioned Pringles Snack Stacks and small cans as an example of the company’s efforts. She said Pringles on-the-go products are up double-digits year-to-date.
“As we launch these new formats, we are swapping out less-relevant s.k.u.s (stock-keeping units) to ensure a more proactive approach to portfolio management,” she said. “This will result in the in-market data looking a bit mixed today, but improving in the second half. This is a big growth opportunity for us, and we are encouraged by the results.”
The final priority discussed last fall was stabilizing the Special K brand. Recognizing that the shift in weight management trends have had a negative impact on Special K sales, Ms. Elsner said Kellogg has taken a page from its cereal playbook and is overhauling Special K’s snacks portfolio to drive consumer relevance and reconsideration.
“We have done a lot of work over the last year, renovating some of the Special K s.k.u.s, and launching on-trend foods like Special K Nourish Chewy Nut Bars,” she explained. “And we are seeing positive results. Our Nourish bars are 80% incremental to the Special K bars line. And importantly, their velocities in Q2 were three times greater than the rest of the Special K bar portfolio. So when we get the food right, this brand can grow.
“The challenge is that there are food forms in this brand that are simply not as well-aligned to how our consumers are eating today. That is why in Q2, consumption for certain lines of Special K declined at a double-digit rate. Stabilizing Special K is mission-critical for us. In 2017, we will make a more aggressive portfolio change to the Special K brand, but we expect to continue experiencing some drag from Special K in the second half of 2016.”
For the second quarter, net income at Kellogg was $280 million, equal to 80c per share on the common stock, up 26% from $223 million, or 63c per share, in the same period a year ago. Sales for the quarter fell 6.6% to $3,268 million.For the first six months of the year, net income rose 1.3% to $455 million, or $1.29 per share. Sales for the period were $6,663 million, a decline of 5.5% compared to the year prior.