With its ironic location, Battle Creek, Michigan-based Kellogg Company is in a constant battle for the #1 spot in the US cereal market with its main rival, General Mills. (General Mills' fiscal 2012 sales totaled about $16.6 billion, compared to Kellogg's $14.2 billion.) But Kellogg, founded in 1906, boasts many familiar brand names, including Kellogg's Corn Flakes, Frosted Flakes, Corn Pops, and Rice Krispies. While the company works to fill the world's cereal bowls, it supplements its bottom line with snacks and cookies (Keebler, Cheez-It, and Famous Amos), along with convenience foods such as Eggo waffles and Nutri-Grain and Bear Naked cereal bars. Its products are sold in more than 180 countries worldwide.
The food company, based in Battle Creek, Michigan, manufactures its products in 18 countries, marketing them in more than 180 countries. It generates 67% of its revenue from the US.
As part of its business, Kellogg operates through several segments based on product category and geographic location. They include US Morning Foods & Kashi, US Snacks, US Specialty, North American Other, Europe, Latin America, and Asia Pacific. Kellogg's international business focuses almost exclusively on cereal and wholesome snacks.
After posting sales declines between 2008 and 2010, Kellogg has logged positive sales growth during the years since.
The company’s revenue rose 8% and profits jumped 11% in fiscal 2012 as compared to 2011. Kellogg attributes the growth to revenue boosts across all segments. Sales among US Morning Foods & Kashi increased 3% as a result of favorable pricing/mix and relatively flat volume. Its US Snacks segment’s sales bumped up 2% due to strong crackers consumption thanks to the rollout of Special K Cracker Chips and Cheez-it innovation. Sales for the US Specialty segment increased 7% due to strong results from innovation launches and expanded points of distribution. Sales in North America Other (which represents US Frozen and Canada) rose 7%, thanks to the frozen business posting double-digit growth for the year while gaining share after increased brand-building support behind innovation activity.
Internationally, Kellogg’s Europe segment sales dropped 4%, driven by difficult economic conditions and competition. Kellogg is encouraged, though, by continued improvement in sales trends. The food company's Latin America’s sales jumped 7% due to growth in both cereal and snacks behind an increase in brand-building investment to support innovations. Indeed, growth was broad-based across nearly every market in the segment. Sales in Asia Pacific also grew -- by 3% -- thanks to solid performance across most of Asia, as well as South Africa. Australia posted a slight sales decline, but was encouraged by continued improvement throughout the year, as well as share gains across the cereal and snacks categories.
To boost capacity and profits, Kellogg in 2012 focused on capital spending. The cereal maker invested in its supply chain infrastructure and its capacity requirements in certain markets, including Pringles. Additionally, Kellogg continued to fund initiatives related to information technology infrastructure, such as the reimplementation and upgrade of its SAP platform. The cereal giant is in the midst of a four-year global retooling of its manufacturing facilities, which involves the closing of an 89-year-old facility in Ontario, Canada, as well as the closing of an Australian snack factory, and the expansion of a plant in Thailand.
Kellogg anticipates that it will return to its ongoing operating model during fiscal 2013. In recent years it has invested in the business, adjusted its strategy to focus more on growth, and acquired Pringles. It expects to realize growth in 2013 through increased investment in advertising and continued investment behind a strong lineup of innovation launches.
Kellogg is also looking for continued growth from its vegetarian business, particularly its Morningstar Farms and Worthington Foods brands of meat alternatives, as the veggie business has performed well as consumers look for healthier foods.
Mergers and Acquisitions
To further enhance its global snacks business, Kellogg acquired Procter & Gamble's Pringles canned chip business in 2012 for some $2.7 billion in cash. The deal propels Kellogg to the second-largest snack food company in the world, behind PepsiCo. Pringles boasts more than $1.5 billion in sales in 140 countries and manufacturing operations in Asia, Europe, and the US. It's a strategic fit, as the global snacks market is showing growth in both mature and developing regions.
Sales and Marketing
Kellogg's largest customer is Wal-Mart, which has accounted for about 20% of its consolidated net sales since 2009. The company's top five customers, which includes Wal-Mart, generated some 33% of Kellogg's total sales. The company's dependence on just a few companies makes it vulnerable to the loss of or weakness at any one of these retailers. It's also vulnerable to competition from lower-priced private-label cereal brands, which consumers typically flock to during tough times.
The company markets its cereal products, in general, under the recognizable Kellogg's name. Products are sold to supermarkets through a direct sales force model for resale to consumers. Kellogg uses broker and distributor arrangements for certain products. These particular arrangements are leveraged to market its products in less-developed areas or in markets outside its focus.
In fiscal 2013 Kellogg has dog eared more money to spend on advertising. The company has had successes in recent years with improved sales following innovation launches supported by advertising.
The private charity W. K. Kellogg Foundation owns about 22% of the company.