Kellogg believes innovation will lead to better sales in the second half

Kellogg believes innovation will lead to better sales in the second half

Kellogg has said it will look to innovation and increased advertising spend in a bid to address falling cereal volume sales in North America in the second half of the year.

Kellogg this morning (1 August) saw slower sales growth than it anticipated in developed markets in the first half of the year, particularly in the US. In North America, sales were up 3.3% but internal net sales fell 1.6%. In its Morning Foods cereal division, internal net sales fell 3.3%.

The slower-than-expected growth in developed markets, particularly in the US, prompted the Special K producer to trim its full-year sales outlook to around 5% from a prior forecast of 7%. The news sent Kellogg's share price down 1.49% to $65.26 at 11:18 ET.

CEO John Bryant told analysts on the firm's earnings call this morning the innovation Kellogg is putting into the market will lead to better sales in the second half.

"If we think about cereal and volumes ... there has been some short-term pressure from alternatives to breakfast occasions on the market. How we are addressing that will allow us to get volumes back."

Bryant cited a range of initiatives including driving increased adult consumption through advertising, innovation and packaging. The CEO said advertising will be up in the second half and "flat to up" for the full year. He did not break out figures.

"It's about winning in breakfast beyond the cereal bowl ... it's Pop Tarts, breakfast sandwiches and now hot cereal, which is launching in the US and the UK. We're confident we can grow cereal and leverage our strong brand to other formats. If we do this well we can get ourselves back to volume growth as a company."

In June, Kellogg launched three products focusing on convenience, health, and expanding into the complementary formats of breakfast bars and drinks. These included Special K Nourish hot cereal and bars, and Kellogg's To Go breakfast shakes.

"This is not a short-term but a longer-term journey we're on," Bryant told analysts. "We've seen our ability to grow these categories over time and it's a case of engaging the consumer and bringing them back in."

Cereal consumption in the US - and more broadly in developed markets - has come under mounting pressure, as consumers eschew traditional breakfast concepts in favour of more convenient or healthier options. Kellogg has been attempting to capitalise on this opportunity with its recent product launches, expanding into the complementary formats of breakfast bars and drinks.

Janney Montgomery Scott analyst Jonathan Feeney described Kellogg's volumes as "soggy", with North America second-quarter volumes now below 2006 levels after "declining off easy compares".

However, he added: "We expect the company to increasingly use a more friendly cost environment to drive investment to repair volume."

Indeed, Bryant told analysts Kellogg's intent was to "get back our sustainable growth model".

"We recognise the need to grow more aggressively and we're making the investments we need to make to drive that growth."