Kellogg will also spend $14m on pilot plant equipment for the W.K. Kellogg Institute for Food and Nutrition (WKKI) over the next ten years, said president and chief executive officer David Mackay. The company hopes that the new facilities in Michigan, the US, will allow for much more product innovation, helping boost profits even further.
"Innovation is a core component of Kellogg's business strategy and we have a proven track record of delivering results from our innovations," said David Mackay, president and CEO, Kellogg Company. "In 2006, 17 percent of net sales or almost $1.9 billion dollars were delivered through innovations launched in the last three years." The expanded WKKI facility will include food and packaging review rooms, chemistry labs, test kitchens, development labs and a large, flexible production pilot plant where new ideas for food products are tested prior to full-scale production.
The project will increase the plant by 87,000 square feet, as well as adding 70,000 square feet of office space, the company said. Kellogg is currently the world's largest breakfast cereal producer, but margins have suffered this year because of high commodity costs.
For the third quarter ending 29 September 2007 operating margins went down 0.9 percentage points to 16.4 per cent, while operating profit fell one per cent. The company did try in October to pass on some of its costs to consumers. However the strategy failed when Germany-based retailer Metro consequently pulled all Kellogg products from its shelves.
Metro spokesman Martin Bruening told BakeryAndSnacks.com at the time that the company had decided to stop buying Kellogg products because the prices increases were "absolutely not justified".