Kellogg Sees Cereal Sales Driven By Price, Not Volume

Date : 02/22/2012 @ 10:23AM
Source : Dow Jones News
Stock : Procter & Gamble Company (The) (PG)
Quote : 86.08  -0.13 (-0.15%) @ 5:53PM

Kellogg Sees Cereal Sales Driven By Price, Not Volume

Kellogg (NYSE:K)
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Kellogg Co. (K) expects cereal sales will be driven by higher prices rather than selling more of its products over the next couple years, Chief Executive John Bryant said Wednesday.

Bryant said that mix--selling more higher-priced products--will help Kellogg keep its cereal sales growing at a low single-digit rate.

"It's a bit more of a mix game than a volume game, but over the long term it shows decent volume growth," Bryant said at the Consumer Analyst Group of New York conference in Boca Raton, Fla.

Kellogg and other cereal players like General Mills Inc. (GIS) and Post Holdings Inc. (POST) face increasing challenges to their breakfast stronghold from new options like fast-growing Greek yogurt and frozen breakfasts. More fast-food chains like Wendy's Co. (WEN) and Yum Brands Inc.'s (YUM) Taco Bell are also trying to get into breakfast, posing a challenge to at-home breakfast consumption.

Kellogg is counting on much more robust growth from its snacking business, especially after last week announcing that it was buying the Pringles chips business from Procter & Gamble Co. (PG) for $2.7 billion. Kellogg swooped in to buy the deal after a prior agreement to sell Pringles to Diamond Foods Inc. (DMND) was derailed by accounting irregularities at Diamond.

Kellogg expects the Pringles acquisition, scheduled to close mid-year, will help grow what it sees as an underdeveloped international snacking business that only makes up 5% of Kellogg's $13.2 billion in annual sales.

Kellogg has tried to grow snacking sales overseas by using its existing cereal sales infrastructure to try to push Keebler cookies and other products. But with Pringles, Kellogg is getting a brand with $1.5 billion sales globally, and that comes with a team focused on growing snacks.

"We're a cereal organization that primarily looks at everything though a cereal lens," Paul Norman, president of Kellogg's international business, said. Pringles, he added, "brings in a eat, sleep, drink, think about snacks mindset to our business."

Kellogg expects its international snack business will focus its efforts on five or six brands, and sees it as a better vehicle to penetrate emerging markets than cereal.

"It's easier to drive growth in emerging markets through salty snacks than to change people's breakfast habits," Bryant said.

Kellogg shares were flat at $51.96 in recent trading.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

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