Kellogg plans to boost cereal capacity, business with $45m supply chain reorg that will cost jobs

By Elizabeth Crawford

- Last updated on GMT

Source: Getty/ Jose Luis Pelaez Inc
Source: Getty/ Jose Luis Pelaez Inc

Related tags Kellogg

Over the next three years, Kellogg Company wants to invest $45m to boost production of and better position for long-term success its ready-to-eat cereal business, which has bumped up against capacity restraints in recent months as consumer demand has skyrocketed during the pandemic.

The plan involves a proposal to reorganize Kellogg’s North American supply chain “to drive increased productivity,”“help offset cost inflation and reinvest in our brands,”​ the CPG giant announced Sept. 3 in a special filing with the Securities and Exchange Commission.

While Kellogg said in the filing that it does not expect to close any production facilities as a result of the plan, it is setting aside $4m to cover anticipated employee-related costs, including “severance and other termination benefits.”

Among the anticipated job cuts over the next two years will be more than 200 at the company’s Porter Street plant in Battle Creek, Mich., the company confirmed Friday.

“In our ongoing analysis of our [ready-to-eat cereal] network, it’s clear that some locations are more cost-effective and better performing than others. We must ensure we have the right capacity in the right locations to reduce costs, increase efficiencies and become more competitive,”​ Kellogg spokesperson Kris Bahner told FoodNavigator-USA in a statement.

“While this is the right thing to do for the business, any decision that impacts people is incredibly difficult,”​ Bahner said. “We are committed to helping our talented and dedicated employees, and we are devoted to working with them and their union to ensure they have outplacement assistance, resources and support through this transition.”

Banher added that Kellogg remains committed to Battle Creek, where the company was founded and where the company’s global headquarters remains “with a significant amount of employees and assets.”

The decision to reorganize the company’s North American supply chain is part of a larger “robust commercial strategy that includes brand-building investments, capacity and capability investments at some of our RTEC plants, as well as ongoing innovation plans,”​ Banher said.

The move also comes after Kellogg’s organic sales fell behind its peers​ in the fourth quart of 2020 as pandemic-related headwinds, including unexpected supply constraints of multiple marque brands, plagued the company and larger industry.

Among the brands suffering capacity constraints was Frosted Flakes, which contributed to Kellogg cereal sales slipping in Q4 and which continued through the company’s second quarter of 2021.

During the company’s Aug. 5 Q2 earnings call ​with investment analysts, CEO Steve Cahillane said Kellogg and its vendors continued to struggle with “bottlenecks and shortages of materials, labor and freight, all created by demand-supply imbalances that are also pushing up costs.”

He added that the company continues to fill orders and has added capacity throughout the world – a message that Kellogg reiterated in its 8K SEC filing Sept. 3.

If the plans proposed in the SEC document, which are subject to collective bargaining obligations, are finalized, Banher said, “they will deliver significant savings that could be reinvested into the business to drive growth and help to regain share.”

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