Kellogg has been split into three companies as the focus shifts to Global Snacks

Kellogg a company

K 1.95%

She said she plans to split her business into three companies, in a bid to launch her own largest and fastest-growing snack business while helping her namesake cereal brands reclaim their place on supermarket shelves.

The move, which Kellogg said would separate snacks like Pringles, Cheez-Its and Pop-Tarts from staple grains including Frosted Flakes and Froot Loops, aims to create more flexible and focused companies and marks a shift from the food industry’s decades-old strategy. To follow up on acquisitions and scale building.

“Big for big doesn’t make much strategic sense,” said Kellogg CEO Steve Cahillan, who will head the $11.4 billion snack business, which made up 80% of Kellogg’s net sales last year.

The Covid-19 pandemic has boosted sales for Kellogg and other food makers, as families prepare more meals in their kitchens while they stay home from work and school. The grocery industry is now working to maintain that momentum, but over the past year food makers have been hit by rising costs of fuel, labour, ingredients and packaging, creating what the master does. Cahillan called for an extension of unprecedented inflation.

Kellogg said it expects to complete the split by the end of 2023, with the North American grain business likely to separate first, followed by its plant-based foods business as the third company. Kellogg said she is also considering selling the plant-based foods unit, which is mostly made up of the MorningStar Farms brand. The individual companies have not yet been named.

Kellogg’s stock price is up about 3% on Tuesday. Shares are already up 4.8% this year through Friday, bucking the broader market slump. The S&P 500 index of packaged foods and meats Tuesday is down about 3% so far in 2022.

Kellogg’s disintegration plan follows the splits that General Electric announced last year. and Johnson & Johnson. In the food sector, Kraft Foods organized a similar split about 10 years ago, spinning off its North American grocery business to focus on its fastest growing snack brands including Oreos and Triscuits, a company it dubbed Mondelez International Inc.

Sarah Lee Company. In 2012, it split its business into two businesses, one of which was a meat-focused operation renamed Hillshire Brands Co. , and an international coffee and tea company called DE Master Blenders NV.

Hillshire, DE Master Blenders, and Kraft were later merged with other major food companies.

The biggest of the three planned businesses for Kellogg will be the global snack company, which will include brands like Pringles and Cheez-Its and breakfast items including Eggo waffles and Pop-Tarts. It will also include Kellogg’s international operations – the fast-growing pasta business in Africa and grain sales abroad.

“The snack company will have all the familiar names on the right level of scale,” Cahillan said. “And when you don’t have the ‘clumping effect’, you can get a lot done.”

Kellogg said it will use the international grain supply chain and retailer communications to expand Cheez-Its and other snacks globally. In recent years, the Kellogg brand Pringles has gained traction in Europe and Latin America, which executives said is paving the way for others in its portfolio.

Snacks have been an engine of Kellogg’s growth and an area of ​​particular interest to Mr. Cahillan since joining the company nearly five years ago. In 2019, the Kellogg fruit-cookie and snack company sold nearly $1 billion from Kellogg to better focus on other Kellogg snack brands, which were already getting more of the company’s marketing and innovation resources. Since then, Mr. He was anticipating a bigger split in the company, Cahillan said.

“The pandemic has brought a lot of things to a halt,” Cahillan said. “The time is now.”

Mondelez, the world’s largest snack food company, has added brands for years through small acquisitions, and on Monday said it would acquire Clif Bar & Co. For $2.9 billion plus the potential to achieve more profit-related targets. This deal could increase competition against the KIND bar brand of Mars Inc. , which was acquired by Mars in 2020, and Kellogg’s smaller RX Bar business, which it acquired in 2017.

the master. Cahillan said Kellogg will continue to pursue snack acquisitions after the split.

Other food companies have reshaped their own operations. general mills a company

He took on a large pet food business through acquisitions, getting rid of less profitable brands such as Green Giant Vegetables and Hamburger Helper. Campbell’s soup a company

It faced investor questions about whether it would be better to split its snack food and soup operation business in two, even though executives emphasized that they are better off together.

Kellogg’s decision to divest from its North American grain business, which had nearly $2.4 billion in sales last year, comes as it seeks to reverse declining sales and boost profit margins.

Consumers have been staying away from breakfast cereals for years, and Kellogg’s operations were recently disrupted by a strike among factory workers and a factory fire that halted production and cost market share.

Corporate giants General Electric and Johnson & Johnson announced in late 2021 that they were separating, the latest in a long series of conglomerate breakups. Here’s why the big companies are splitting up and what that might mean for investors. Image caption: Tami Lien/Wall Street Journal

The Kellogg Company, the second largest supplier of grain in the United States after General Mills, has regained 4 percentage points of market share this year. Cahillan said. However, Kellogg’s North American grain sales fell 10% in the three months ending April 2 compared to a year earlier, largely due to supply chain problems.

“Frosted Flakes don’t have to compete with Pringles for resources,” Cahillan said. Economists would say we can do this without division. But we don’t live in a textbook, we live in the real world.”

Kellogg said the Kellogg Plant-Based Food Company, which has an estimated 2021 net sales of $340 million, as a stand-alone company aims first to expand in North America, and eventually globally.

Meat substitutes have found traction in the freezer aisles and meat containers of grocery stores, despite growing competition. In early 2020, Kellogg rolled out a batch of vegan burgers and tenders called Incogmeato, part of an effort to compete against Beyond Meat. a company

and Impossible Foods Inc.

the master. Cahillan said Incogmeato at MorningStar could be more aggressive with investments in its technology and supply chain once it stops contributing to Kellogg’s net profit.

Some Wall Street analysts said a Kellogg split could harm each company’s ability to secure competitive prices by using the purchasing power of the larger conglomerate.

It could cost about 2% of each company’s current total sales of Kellogg’s to take on the sales team, distribution system and other previously shared expenses, Michael Lavery of Piper Sandler said. Analysts at investment research firm Morningstar Inc. He said Kellogg’s snack business could thrive on its own, though the benefits of grains and plant-based processes were less clear.

Kellogg said the North American grain and plant-based foods companies will continue to be based in Battle Creek, Michigan. The global snack business will be based in Chicago, Illinois, with dual corporate campuses in Battle Creek and Chicago.

Moving the snack company’s headquarters to Chicago will position it in a city with other food companies as Kellogg looks to hire and expand its business. Boeing a company

the caterpillar a company

They said in recent weeks that they intend to move their Chicago-area headquarters to Arlington, Virginia and Irving, Texas, respectively.

write to Annie Gasparro at annie.gasparro@wsj.com

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