Kellogg US snacks sales hit by direct store delivery shake-up

By Vince Bamford contact

- Last updated on GMT

Despite impact of DSD reorganization, crackers performed well in Q1, said Kellogg
Despite impact of DSD reorganization, crackers performed well in Q1, said Kellogg

Related tags: Net sales, Kellogg company, Kellogg, Us

A major reorganization of Kellogg’s snacks direct store delivery system took its toll on sales in the first quarter of the year, the company has admitted.

Reporting its performance for the three months to April 2, the company said currency-neutral net sales from its US Snacks segment were down 2.6% year on year from $854m to $832m.

A key reason for this, the company said, was reorganizing the snacks sales force to more clearly define the roles of sales, merchandising and support in a bid to drive more effective selling and merchandising.

We changed thousands of roles, managers, zones and customers and this did impact our display activity in Q1 and into Q2​,” said Kellogg chairman and chief executive officer John Bryant. “But it’s the right thing to do, and when everyone settles into their new roles we should see improved selling and merchandising effectiveness​.”

Display disruption

And although crackers and cookies were areas of the snacks business particularly impacted by the display disruption, Kellogg said crackers were generally performing well. The Cheez-It, Townhouse and Club brands had all posted good sales led by accelerated base consumption, it added.

Townhouse Flatbread+TBM

Townhouse is this month being extended with new flatbread crisps inspired by restaurant flatbread recipes, and Kellogg will be expanding the Club range with Club Snack Stacks later this year.

The company’s ‘wholesome snacks’ segment continued to decline in Q1, and  Kellogg North America president Paul Norman admitted this was “the biggest challenge​” in its snacks business.

It is critical to get the food and the positioning right in this category​,” he added. “We are still up against some lost distribution, particularly from prior years’ innovations that simply haven’t stuck​.”

New snacking products

But Rice Krispies Treats had been a strong performer, he added, and the company is offering new snacking products including Special K Protein Trail Mix bars and new Cocoa Krispies treats including one with M&Ms. Innovations planned for later in the year include Kashi savory granola bars and Bear Naked granola bites.

These give us reason to believe we can stabilize this business as the year progresses,” said Norman.

With regards to Kellogg’s Morning Foods division, which includes its breakfast cereals, Kellogg restated its expectations – first made in February​ – that this would return to growth in 2016.

The segment posted a currency-neutral comparable net sales decline of 1.2%, although Kellogg-branded cereals gained 20 basis points of share in the 13-weeks, said the company.

Share growth in branded cereals

Kell share
Source: kelloggs.com

Our core six cereal brands in combination grew share​,” said Norman. “Special K led the way, with good performance from our redesigned messaging, renovation and innovation​.”

He added the company had been encouraged by the early initial acceptance of the Special K Nourish products recently launched in the US.

We did see some volatility in cereal consumption in the quarter - and an impact from the timing of Easter at the end of the quarter - but looking at more recent weeks’ data the category has picked up again and is ahead of recent years​,” said Norman.

Cereal launches planned for the second quarter include Raisin Bran Granola and a Finding Dory cereal that will be supported with promotional activity.

Cereal sales soft in Europe

In contrast to the US cereals business, Kellogg said it “didn’t necessarily expect cereal​” to be back in growth in Europe in 2016.

Cereal sales were soft in Europe in Q1​,” said Bryant. “We think this was largely a result of timing of investment – our innovation came in mid way through the quarter​.”

He added that the “big advance​” for European cereal would come later in the year through tie-ins with the UEFA Euro 2016 soccer tournament and the Olympic Games this summer.

Overall net sales down 4.5%

Kellogg’s overall reported net sales in Q1 were down 4.5% year on year to $3.4bn,which the company said was primarily due to the effect of currency translation resulting from the remeasurement of the Venezuelan business in mid-2015. Quarterly reported operating profit was $438m, an increase of 14%.

Although currency-neutral comparable operating profit and earnings were ahead of the company's expectations, overall net sales excluding Venezuela came “slightly below expectations,”​ said Bryant.

But even where we came up short we can point to specific factors that we don’t expect to be ongoing​,” he added

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