Kellogg Sees Cereal Sales Driven By Price, Not Volume
February 22 2012 - 10:23AM
Dow Jones News
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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