Kellogg Special K Nourish cereal with probiotics
The Kellogg Co. will launch Special K Nourish cereal with probiotics later this year.

BATTLE CREEK, MICH. — The Kellogg Co. will launch Special K Nourish cereal with probiotics later this year to combat weakness in the “adult health-oriented segment,” which is dragging down the ready-to-eat cereal category, said Paul T. Norman, senior vice-president and president of Kellogg North America.

Paul Norman, Kellogg
Paul Norman, senior vice-president and president of Kellogg North America

“Whilst we’re happy with the performance of our taste brands, we know we have to do more to reassert this category’s health and wellness credentials,” Mr. Norman said during an Aug. 3 conference call with investment analysts. “And the way to reinvigorate that segment has always been through nutrition-oriented innovation, claims and brand building, so that’s where we’re focusing our efforts.”

While Kellogg’s core six cereal brands, which include Frosted Flakes, Froot Loops, Rice Krispies, Special K, Mini-Wheats and Raisin Bran, collectively held share in the recent quarter, the category remained softer than expected, Mr. Norman said.

“Whilst there are a variety of industry-wide trends that we can point to, it’s our job to drive this category through great commercial ideas across major brands,” he said.

Kellogg cereals - Special K, Frosted Mini-Wheats, Raisin Bran
Kellogg plans to position Special K, Mini-Wheats and Raisin Bran brands around a growing interest in gut health.

Looking ahead, Mr. Norman said, the company plans to position Special K, Mini-Wheats and Raisin Bran brands around a growing interest in gut health.

“If you look at the category and the history of the category, there have been cycles over the years that have driven the category,” Mr. Norman said. “Those cycles are often related to health and wellness positively, and in times, negatively… Well frankly, through the end of the ‘90s and into the 2000s, low calorie, low fat and weight management really drove the category, and no brand drove the category harder in those years than Special K.

“As we get through to 2010 and into the recent years, low calorie, low fat has come off trend, and we have obviously been impacted significantly by that. What encourages me as I look forward in where science and nutrition is going and where the trends are, clearly what is big and right in front of us now and I think will be really important is gut health and the gut-brain connection, the importance of the microbiome and the importance of fiber coming back into people’s diets, either prebiotic or probiotic benefits. Those things, considering 9 out of 10 Americans don’t get enough fiber today, I think are going to position our category extremely well to grow as we go forward.

“So the tailwind is coming back, in my opinion, following a short period here of headwind. For us, we need to reassert our credentials in these areas. So we’ll do the hygiene work we’re already doing, removing artificials, etc. But the big wins will come from upping our claims on existing brands like Raisin Bran, Mini-Wheats, around fiber and the importance of fiber. And then driving innovation into our adult brands, things like Special K with probiotics, etc., as we go forward.”

Kellogg cereal - Frosted Flakes, Froot Loops, Rice Krispies
Kellogg plans to market brands such as Froot Loops, Frosted Flakes and Rice Krispies as all-day options.

Another priority for Kellogg in reviving the cereal category is repositioning its brands for all-day consumption.

“As you probably heard us talk before, 35-plus per cent of cereal is consumed outside of the breakfast occasion, but repositioning the category… to be more of an all-day food and all-day snack to be consumed whenever you want is, I think, critical to how we open up growth potential for the category, whether that’s driving brands like Froot Loops, Frosted Flakes or Rice Krispies throughout the day, through a recipe or consumption opportunity, or whether it’s bringing innovation in the area of convenience and portability to the cereal category to unlock those opportunities throughout the day,” Mr. Norman said. “And then last thing, also important, is we have to keep the pressure on fun and taste in this category, which has always been an important part of what drives the heartbeat of the performance of the category. If I look today, the pressure on fun and taste is fine, the other two we can do more.”

Net income in the second quarter ended July 1 was $282 million, equal to 80c per share on the common stock, up slightly from $280 million, or 79c, in the prior-year period. Net sales declined 2.5% to $3,187 million from $3,268 million.

The increase in earnings reflected higher operating profit and a lower tax rate that offset charges related to the Project K restructuring program. Adjusted earnings on a currency-neutral basis increased 8% over the year-ago quarter.

John Bryant, Kellogg
John A. Bryant, chairman and c.e.o. of Kellogg

“Net sales performance was sequentially better than Q1,” said John A. Bryant, chairman and chief executive officer. “Year-on-year, it was affected by two factors that are being considered in our full-year guidance. First, U.S. consumption remained soft. This was industry-wide and affected many of our categories. And second, we felt in Q2 the residual impact of Q1’s customer negotiations regarding pricing on Pringles in Europe. But we knew this would be the case as it takes time to ramp back up to normal promotional activity.”

Kellogg executives provided an update on the company’s transition to a warehouse model from direct-store delivery in its U.S. Snacks segment, what Mr. Bryant called “one of the most complicated transitions that any food company has attempted to do in the last several years in our industry.”

“Today, we are very close to completing this ambitious and complex transition,” Mr. Bryant said. “In fact, we’re already shipping through warehouse to all of our customers. This is a great example of executional excellence and working closely with our retail partners.”