Soggy ce­real

Financial Mail - - SHOP TALK - @zeenat­moorad mooradz@bdlive.co.za

For the first time in 10 quar­ters, Kel­logg Com­pany re­ported rev­enue growth. It wasn’t a shoot-the-lights-out kind of gain, but it was enough to make the mar­ket think the big daddy of ce­real mak­ers could well halt the de­scent of its share price and keep the firm in touch with evolv­ing trends to­wards health­ier break­fasts.

Kel­logg is one of many legacy con­sumer busi­nesses that are suf­fer­ing be­cause tastes are chang­ing. As an aside, not all of them are food com­pa­nies. Proc­ter & Gam­ble’s Gil­lette busi­ness is tak­ing a knock, both from the on­go­ing vogue for beards and the ris­ing pop­u­lar­ity of niche shave clubs, a craze started by on­line mar­ket leader Dol­lar Shave Club, which of­fers a ra­zor and sup­ply of blades by sub­scrip­tion ser­vice for just US$3. Sim­i­larly, in­die brands such as Glossier and Huda Beauty are trans­form­ing the cos­met­ics mar­ket as women shy away from mass-mar­ket prod­ucts.

Mov­ing on. In the year to date, Kel­logg’s share is down nearly 20% — worse than that of other pack­aged­food groups, such as Camp­bell Soup and Chee­rios maker Gen­eral Mills.

Kel­logg needs no in­tro­duc­tion, but here we go: Corn Flakes was the only ce­real to be eaten by the Apollo 11 space crew dur­ing their his­toric mis­sion to the moon in 1969. Any­way. Ar­ti­sanal gra­nola, açaí bowls and chi­aseed pud­ding have been the un­do­ing of tra­di­tional break­fast foods.

In ma­ture mar­kets, peo­ple are shift­ing away from sweet ce­re­als and pro­cessed foods to­wards (seem­ingly) vir­tu­ous pro­vi­sion. Con­sider this: about 39% of mil­len­ni­als sur­veyed in the US by Min­tel said that eating ce­real was in­con­ve­nient be­cause they had “to clear dishes af­ter pre­par­ing it”. The Lon­don re­search group said con­sumers were turned off by high sugar con­tent and ar­ti­fi­cial in­gre­di­ents, in­stead pre­fer­ring high pro­tein and fi­bre con­tent, and nat­u­ral in­gre­di­ents.

Wall Street fore­casts had im­plied de­clines from Kel­logg, given the con­tin­u­a­tion of chang­ing con­sumer tastes. But its sales for the third quar­ter ended Septem­ber rose 0.6% to $3.27bn, where an­a­lysts had on av­er­age ex­pected a 1.4% drop to $3.21bn.

Three things helped: pretty great cost con­tain­ment, a lift from its buy­out of Brazil’s Parati Group and favourable cur­rency swings.

e:

New broom

At Kel­logg, there’s a new sher­iff in town in ex-coca-cola ex­ec­u­tive

Steven Cahillane. He’s the guy who helped that firm bring on a bevy of “health­ier than soda” op­tions, and who was con­sid­ered a strong can­di­date to suc­ceed its for­mer CEO, Muhtar Kent. Be­fore that he was at AB In­bev and, more re­cently, he spent three years at well­ness chain Na­ture’s Bounty.

I should point out that a fresh price war among US gro­cery stores brought on by Ama­zon’s Whole Foods takeover hasn’t helped food sup­pli­ers. Gro­cery stores are push­ing more pri­vate-la­bel prod­ucts and they’re ramp­ing up pric­ing pres­sure on branded goods. So apart from the tra­di­tional belt-tight­en­ing to boost profit and pre­serve mar­gins, Kel­logg has steadily moved to di­ver­sify into the snack mar­ket. Its port­fo­lio is now 40% ce­real and 50% snacks, from 70% ce­real and 20% snacks in 2000.

So far this hasn’t re­ally helped it be­come more de­fen­sive amid ce­real’s de­clin­ing rep­u­ta­tion. The is­sue is twofold: Kel­logg hasn’t mar­keted its health­ier brands well, and it needs to make ac­qui­si­tions of small spe­cialised com­pa­nies.

Kel­logg’s buy­out of cheeky, min­i­mal in­gre­di­ent pro­tein-bar brand RXBAR, says the firm kind of gets it.

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