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.
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.