Kellogg continues to expand identity beyond cereal: 'We are confident that North America can return to growth'

By Mary Ellen Shoup contact

- Last updated on GMT

While The Kellogg Company is strengthening its snack and on-the-go product offerings, the company is keeping its legacy cereal brands alive through new branding and nutrition initiatives. Photo: Kellogg
While The Kellogg Company is strengthening its snack and on-the-go product offerings, the company is keeping its legacy cereal brands alive through new branding and nutrition initiatives. Photo: Kellogg

Related tags: Kellogg company, Cereal

On its quest to become more than a cereal company and reverse years of negative growth, Kellogg has expanded into new categories including snacks and has been revitalizing some of its core brands. But has it been a success?

Kellogg shared that it is inching closer to restoring top line growth, breaking even in 2018 with 0.0% growth, and projected to register between 1% to 2% in revenue this year. 

"We've asked you endure several quarters of substantial investment and we still have a couple more to go,"​ said Kellogg CEO Steve Cahillane during the company's presentation at the Consumer Analyst Group of New York (CAGNY) conference this week.

According to Cahillane, the company's updated approach "required altering our mindset, restructuring our organization, rewiring our processes, rethinking every brand, changing how we think about every channel and reorienting our supply chain, and it required a lot of investment."

Bringing growth back to cereal

While Kellogg has made a number of investments and deals outside of the cereal category (including its 2017 acquisition of RXBAR​ for $600m), the company still believes its legacy cereal brands have a place at the table despite a rising trend of on-the-go breakfast.

It's been a mixed bag as far as revenue performance across its main cereal brands including Frosted Flakes, Fruit Loops, Mini Wheats, Raisin Bran, Rice Krispies, Special K, and Kashi.

"You all know that the cereal category has been challenging. Food beliefs have shifted away from low calorie low fat and full on toward protein, and as a result, this highly penetrated category has felt softness in the health and wellness oriented adult segment. The category's 1% decline is not terrible, but we have to do better,"​ said Chris Hood, Kellogg president of North America.

Kellogg_CAGNY_slide

According to Hood, the company's focus was on stabilizing Raisin Bran and Mini Wheats by emphasizing its wellness attributes. 

"It took a little time, but you can see that these brands did stabilize share and return to outright consumption growth in the second half of 2018,"​ Hood said. 

Hood added that Kellogg has seen success around its promotion of its more 'fun' cereal brands Frosted Flakes and Froot Loops.

"The taste/fun segment is the segment that is growing in the category, partly because it's where most of the innovation and promotion is happening, but also because it benefits the most from increased out of breakfast consumption, mainly snacking. Two of our biggest taste/fun brands, Froot Loops and Frosted Flakes posted another year of share gains in 2018."

Growing its natural segment was another core focus for Kellogg, which involved revamping its Kashi cereal line, which returned to growth in second half of 2018. 

Last year, Kashi announced that it had increased the sourcing of 'Certified Transitional' (the transitional phase from conventional to organic) ingredients by 400% and that its farmers received more than $1m as a result.

Kellogg's work in turning around its cereal portfolio is far from over, however, acknowledged Hood. 

"Now, don't get me wrong; we're not happy with our overall cereal performance. We still got a lot of work to do both to revitalize the brands in our portfolio and to get the category back to growth. But the brands we revitalized are big and they proved that we can do this​." 

Outside of cereal

Kellogg had a streak of new product launches in 2018 and planned launches for the first half of 2019 including Joyb​​öl​ ​(a line of on-the-go smoothie cups launched last summer) and Happy Inside gut healthy cereal (launched in November 2018) to the less wellness-focused Pop-Tart bites and Rice Krispie Treats Poppers. 

The Kellogg Company's acquisition of RXBAR​ for $600m received a lot of press when it was finalized in October 2017. According to AOC retail sales data provided by Nielsen for the 52 weeks ended 12/29/2018, RXBAR sales growth registered +180% increase. 

RXBAR

"Our newly acquired RXBAR brand aggressively expanded distribution into mainstream channels in 2018, bringing its ACV distribution in these channels up to 70% by the fourth quarter, up from less than 30% a year ago, more than double,"​ Hood said. 

How are some of these new items performing? According to Hood, "it's too early to call success."

Bernstein analysts noted last month​that Joybol by Kellogg has had "very limited traction in measured channels"​ despite checking off many of the boxes (on-the-go and suitable for e-commerce). Bernstein commented, “we cannot help but wonder if this is really what smoothie consumers are

CheezIt_snapped

looking for​,” given the powdered nature of the fruit and fact each bowl contains 15g sugar."

The company's snack launches are showing stronger signs of market success and consumer engagement, Hood said. 

"The items launched in January are off to a great start even if it's a little early to gauge the scanner data, but a few notable call-outs. Cheez-It Snap'd's​ terrific food, it already has a velocity that is better than the overall cracker category average, and it only launched at the end of December."

Hood added that while not every product may be a success right away, Kellogg's accelerated speed to market and pipeline of new product launches will pay off in the long-term.

"In fact, we're getting our innovation levels back to their highest levels in a long time, and this is one of the key reasons that we are confident that North America can return to growth."

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