Tag / Kellogg’s

by Frank Maduri

Kellogg Sells Cookie Brands To Ferrero

The news on Tuesday that Kellogg has an agreement to sell several brands to confection maker Ferrero, came as no surprise to many in the food industry. The iconic cereal maker had been working for months to sell the cookie brands of their business to a willing buyer. The total amount of the transaction is reported in several sources as $1.3 billion.

Ferrero will obtain Keebler, Famous Amos, Murray’s, and some other smaller brands from Kellogg. This will allow Kellogg to focus more specifically on their core business focus of breakfast cereal and snacks. They want to create a niche in both of those industry segments, that quite frankly, they could not achieve in the cookie segment of the business.

The cookie business is very competitive with Nabisco leading the pack with some top selling brands. Kellogg executives determined that the cookie brands were not a good fit for their overall business model. I have food industry background, and personally I did not understand why Kellogg purchased Keebler, Famous Amos, Murray’s, and other brands to get into that business. In my view, it never made sense that they would enter such a competitive landscape and it seemed to distract their marketing focus away from cereals and salty snacks. Those two areas have been segments of the business where the company has done very well.

Kellogg, according to a report by CNN, reportedly had $900 million in sales from their cookie brands in 2018 but that yielded just $75 million in operating profit. That demonstrates the challenges of being in that industry segment and the overhead costs involved from packaging, production, and marketing costs.

Conversely, Kellogg has had success since it acquired the Pringles snack brand from P&G. The iconic potato chip brand was a lower-performing brand that was a bit of an afterthought at P&G. The attention that Kellogg provided has turned into a powerhouse brand that has helped drive profits.

The Pringles brand along with Cheez-It, Pop Tarts, and Rice Krispie Treats are called the “power brands” by the CEO of Kellogg. This is where they will bring some very specific marketing and advertising techniques into greater intensity now that the cookie business is not siphoning off dollars.

Ferrero completed this deal so that they can gain a better foothold into the North American market. The foreign confectioner specializes in Tic Tac, Nutella, and Ferrero Rocher among other smaller brands. They took an opportunity to obtain some nostalgic brands that truly represent a slice of Americana with Keebler and the Keebler elves baking up “magic” in the oven in the iconic tree.

Famous Amos has been highly visible in parts of America for decades for their signature chocolate chip cookies. The move to Ferrero could potentially increase their entry into the convenience store chains along with Tic Tac and some other confectionary products. Ferrero most certainly has some strategic plans for the brand to make it more visible in different channels.

Ferrero will also gain the agreement to manufacture the ubiquitous Girl Scout Cookies, which are currently made by a subsidiary bakery within the Keebler business structure. That piece of business could be significant for Ferrero in an increasingly competitive cookie market.

Kellogg will shift their focus back to another core business area: breakfast cereal. The sales of cereal have been sluggish overall, but the company maintains that by exiting the cookie business they can bring some new emphasis and innovations to the cereal aisle.

Some people might have a problem with a foreign based company holding the rights to some quintessentially American brands such as Keebler, Famous Amos, and the Girl Scout Cookie that we all love to partake in. However, times are changing, and Kellogg is trying to distinguish itself within a highly competitive industry.

In fairness, Ferrero is attempting to do the same thing, they need to grow and diversify their brand holdings at the risk of being consolidated by a larger fish in the food industry pond. This transaction will help Ferrero increase their visibility and their sales volume in North America, where the cookie business is projected to grow after some years of flat results.

The consumer wins in this deal because Kellogg is going to focus on even further improving their core businesses of snacks and breakfast cereal brands. Ferrero will have a fresh perspective and will bring some new innovations and energy to the Keebler and other cookie brands that Americans have grown up with over decades. It is certainly one of the larger deals in the food industry in 2019 and could shape the directions of both companies for years into the future.

(some background info and stats courtesy of CNN and PR Newswire)

by Frank Maduri

Outsourcing Our Food Supply

The lockout of workers at the Kellogg’s cereal production facility in Memphis is just the latest episode of a large American company trying to cut costs to maximize profits. Kellogg is also under scrutiny for its production of cereal in Mexico and other countries, a move designed to slash production costs even further.

 

This profit driven behavior has earned them a hash tag on the social media site, Twitter, labeled “Kellogg Greed”.  This whole situation of outsourcing the production of food has become the standard practice rather than the exception. America is supposed to be the “bread basket” for the world, and huge U.S. owned conglomerates are shifting production of basic products, such as cereal, to other countries.

 

This shift in production has caused two main issues to come to the forefront of the national debate on our food supply:

  1. The potential food safety issues of a supply chain stretched across multiple countries and the cleanliness standards of production facilities outside the U.S.
  2. Renewed fervor toward products being “Made in the USA” and from wholesome and trusted ingredient supply lines.

 

Lightning Fast

 

While those two issues are very important, I have observed another negative scenario that has been the result of these production outsourcing decisions: negative publicity and the negative public perception of the company involved.

In today’s age of social media, and the lightning fast delivery of news content, the perception of a company, even one as iconic as Kellogg, can go sideways very quickly. I mentioned earlier that Kellogg has their own Twitter hashtag with a huge thread of “tweets”: communications by average Americans, many of whom are also their customer base, regarding how greed driven their behavior is with the situation in Memphis.

 

I do not understand why some companies, in this case Kellogg, would inflict so much damage on their public perception over a group of full time workers at one production plant. The labor dispute there, which has now attracted the involvement of the National Labor Relations Board, coupled with the news of the outsourcing of cereal production has made their company look badly.

 

The public perception of Kellogg is that they are pushing around these average American workers because they can do so, over a small amount of money relative to the profits they have raked in over the years. That negative perception could potentially hurt Kellogg’s overall product sales.

 

The only rationale myself and other Americans are left with in order to understand the actions of Kellogg in this situation is that it is greed for additional profits. That desire for profit outweighs any negative publicity, let alone the impact it will have on the workers and their families.

 

The Correct Way

 

A few years ago, when another iconic American brand, Budweiser, was sold when their parent company, A.B. merged with InBev, a foreign owned brewing company; the American public grew concerned that the new ownership was going to outsource the production of these traditionally American beers.

 

In fact, the opposite occurred, InBev kept the production facilities in the U.S. and allocated a huge advertising expenditure to tout that Budweiser was made in America. They ran television commercial advertisements touting the locations of the breweries and the freshness of the product. Many Americans were concerned that the quality of the products or the taste profiles will change, and they did not change at all.

 

InBev executed a very smart public relations campaign because they understood what Budweiser and some of the other A.B. branded products meant to Americans, and they were not going to lose any market share by moving the production of these products to Mexico or South America.

 

Riding the Wave

 

Mars Inc., the American confectionary giant, is riding the wave of positive public relations with the announcement of their opening of a new manufacturing facility outside of Topeka, Kansas. It is the first new plant built by Mars in North America in 35 years, but it will provide 200 new jobs and the company has donated $200,000 towards the development of downtown Topeka.

 

The plant will be able to manufacture 14 million Snickers bars each day, and the reaction of the public has been proof of the power of the “Made in the USA” movement. The company has received nothing but shining media coverage: for keeping jobs in the U.S., from not outsourcing the production of some of America’s favorite candy brands such as M&M’s and Snickers, and for pursuing “Gold” certification for environmental sustainability of their new facility.

 

 

Food Labeling

 

In my food industry experience, I know that food labeling is a very important part of the process in designing a particular product. The ingredients sourced and the process taken from a concept to a finished good is rather complicated.

 

The cost factor plays a role in the design of a food product, and that is where food labeling and the outsourcing of the U.S. food supply is going to be the next big challenge for government regulation. We have begun to see evidence of that with the food industry groups fighting the passage of regulatory policies towards the disclosure of the country of origin on a variety of products.

 

The U.S. government remained steadfast in upholding the disclosure of the country of origin of certain ground beef and meat products this week, despite the heavy opposition of certain food industry lobbying and interest groups.

 

The outsourcing of American jobs and products is not a new concept. However, Kellogg found out this week that it is a concept that Americans have grown weary of, and have the public forums to voice that displeasure. In the end Kellogg will find out that greed always backfires.