Kellogg Is Hungry for More Growth


Breakfast is still big business in the U.S., with sales of cold cereal alone generating around $9 billion annually according to the folks at Nielsen ($10 billion, according to the Euromonitor's researchers), but sales trends show cereal sales faltering, and some breakfast bakers are looking to international markets to juice sales.


When Kellogg reported earnings last month, its results got a big boost from the Pringles chips business it acquired from Procter & Gamble earlier this year, but its U.S. morning-foods division saw revenues drop 3% from the year-ago period. Similarly, General Mills saw cereal sales fall 1.5% in its fiscal 2013 report, while Post Holdings enjoyed a nearly 2% increase in revenues, but that was driven largely by sales of its private-label cereals. While store-brand products in general are a strong growth market, cereal itself is a top performer, with 71% of consumers in a recent survey saying they bought private-label cereals, so Post's performance there isn't surprising.

Post goes on to note that Nielsen says U.S. ready-to-eat cereal category dollars were down 2.6% in the second quarter, though that gave the breakfast maker an opportunity to pick up market share, which now stands at 10.6%. So where the U.S. breakfast market remains strong, tastes are changing and consumers are moving to items beyond cereal, such as Greek yogurt, which provides a powerful protein punch and now commands 40% of the yogurt market from virtually nothing a few years ago.

That has cereal makers like Kellogg looking overseas to help drive future growth -- though it's more than just cereal, because in some countries like China, there's just not much of a viable market. Kellogg has created a joint venture with Asian agricultural giant Wilmar to expand its presence and ingratiate itself with local consumers.

Yet the cereal maker's strategy is one it describes as "beyond the bowl" that is looking to remake itself as a cereal and snack business going forward. Second-quarter sales in the Asia-Pacific region were up 4.1%, while Latin America was even better with 5% growth.

Kellogg believes "hand-held snacks" will gain particular traction, which is what snack makers are also finding is popular back here at home. Where it has developed a complete line of snack bars based on its cereals, PepsiCo's Quaker Oat brand has introduced its Real Medleys cups that pair the oatmeal with fruit or nuts in smaller on-the-go containers. Analysts at Mintel confirm the trend, saying almost one in five of all U.S. consumers who snack every day do so in their car.

As one of the three square meals a day a person is supposed to have, breakfast is often viewed as the most important. For long periods of time, cereal has been the go-to meal, but with international consumers increasingly influencing food habits and with changing tastes at home, breakfast eaters don't have to settle anymore for just a bland, cold bowl of cereal and milk, and Kellogg investors for one can dine on the new growth possibilities it's exploring.

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