From the company's home base in Battle Creek, Michigan, Kellogg Company is in a constant battle for the #1 spot in the US cereal market with its main rival, General Mills. 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 worldwide.
The food company manufactures its products in 19 countries, marketing them in more than 180 countries. It generates 61% of its revenues in the US.
The company’s manufacturing facilities in the US include four cereal plants and warehouses in Battle Creek, Michigan; Lancaster, Pennsylvania; Memphis, Tennessee; and Omaha, Nebraska; and otherfacilities in San Jose, California; Atlanta, Augusta, Columbus, and Rome, Georgia; Chicago, Illinois; Seelyville, Indiana; Kansas City, Kansas; Florence, Louisville, and Pikeville, Kentucky; Grand Rapids and Wyoming, Michigan; Blue Anchor, New Jersey; Cary, North Carolina; Cincinnati and Zanesville, Ohio; Muncy, Pennsylvania; Jackson and Rossville, Tennessee; Clearfield, Utah; and Allyn, Washington.
Outside the US, Kellogg has additional manufacturing locations (some with warehousing facilities) in Australia, Belgium, Brazil, Canada, Colombia, Ecuador, Egypt, Germany, India, Japan, Mexico, Poland, Russia, South Africa, South Korea, Spain, Thailand, the UK, and Venezuela.
As part of its business, Kellogg operates through several segments based on product category and geographic location. They include US Morning Foods & Kashi (23% of sales), US Snacks (24% of sales), US Specialty, North American Other, Europe, Latin America, and Asia Pacific. Kellogg's international business focuses almost exclusively on cereal and wholesome snacks.
The US Morning Foods segment includes cereal, toaster pastries, health and wellness bars, and beverages. US Snacks includes cookies, crackers, cereal bars, savory snacks and fruit-flavored snacks. US Specialty primarily represents food non-residential food operations, including food service, convenience, vending, Girl Scouts, and food manufacturing.
Sales and Marketing
Kellogg's largest customer is Wal-Mart, which accounted for more than 20% of its consolidated net sales in fiscal 2015. The company's top five customers generated some 33% of Kellogg's total sales that year. 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 and resold to consumers in retail stores, restaurants, and other food service establishments. These particular arrangements are leveraged to market its products in less-developed areas or in markets outside its focus.
Kellogg’s advertising expense in fiscal 2015 was $1.09 billion, compared to $1.13 billion a year earlier.
After posting sales declines between 2008 and 2010, Kellogg logged positive sales growth until 2013. However in fiscal 2015 (year ended January) revenues decreased by marginal 1% due to 4% decline in U.S. Morning Foods as a result of unfavorable volume and pricing/mix caused by a decline in the cereal category from Special K and Kashi; and a 3% drop in North America and Asia Pacific each as a result of decline in volume and unfavorable pricing/mix due to soft cereal market demand.
After reaching peak of $1.8 billion in 2013, the company’s net income fell by 65% in fiscal 2015 due to increase in selling, general, and administrative expenses and cost of goods sold (including mark-to-market adjustments for pension plans and commodity contracts).
Operating cash flow marginally decreased by 1% in fiscal 2015 due to the negative impact of Project K cash requirements of $256 million.
The company is focused on winning in breakfast segment; increasing the size of its global snack business; expanding its frozen-food business; and increasing its investment in emerging markets. In this latter regard, in 2014 Kellogg formed a joint-venture for cereal and snacks in China, It is also building a major halal snack plant in Malaysia.
Kellogg is also focused on creating new simpler foods, including cereals that meet the USDA’s standard for organic food; cereals that are Non-GMO Project Verified; new granolas; gluten-free Special K; and cereals offering progressive nutrition such as Kashi Sprouted Grains organic cereal.
The company has started to invest in new brand-building programs designed to engage consumers and remind them of the health benefits that can result from the consumption of cereal.
To boost capacity and profits, Kellogg 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. 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 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.
The company’s global signature cause (launched in 2013) aims to provide 1 billion servings of cereal and snacks to children and families worldwide by the end of 2016. Through 2014, the company had already provided more than 700 million servings.
Mergers and Acquisitions
To further enhance its global snacks business, Kellogg acquired a majority stake in Bisco Misr, the largest biscuit company in Egypt.
In 2012, in a major move, the company bought Procter & Gamble's Pringles canned chip business 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.