Ferrero has once again used M&A to expand into another part of the store – but will it pay off?
After The Wall Street Journal and Reuters reported on Wednesday (9 July) Ferrero was nearing an agreement to buy WK Kellogg Co, the Italian giant behind Nutella and Kinder announced yesterday afternoon (European time) the two sides had struck a deal.
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At a smidgen more than those reports suggested, Ferrero is to pay $3.1bn for WK Kellogg, the home of the Rice Crispies, Special K and Fruit Loops sold in North America.
With Mars in the middle of trying to buy Kellanova (EU regulatory scrutiny notwithstanding), the acquisition of WK Kellogg is set to mark the end of what was the old Kellogg Company as an independent outfit, a business with origins dating back almost 120 years.
Giovanni Ferrero, Ferrero’s executive chairman, said: “This is more than just an acquisition – it represents the coming together of two companies, each with a proud legacy and generations of loyal consumers.
“Over recent years, Ferrero has expanded its presence in North America, bringing together our well-known brands from around the world with local jewels rooted in the US.”
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By GlobalDataThe deal is Ferrero’s latest move to expand its portfolio into other product areas – and to bolster its presence Stateside – through M&A.
In recent years, the company has broadened its stable of products through deals for companies including US ice-cream maker Wells Enterprises and the UK’s Burton’s Biscuit Company.
The Wells Enterprises acquisition is just one of a series of transactions Ferrero has done Stateside going right back to its acquisition of a clutch of confectionery assets (including some from Nestlé) across 2017 and 2018.
Just this year saw the Tic Tac brand owner acquire protein snacks maker Power Crunch in California. That built on the 2024 deal for the US biscotti biscuits business Nonni’s Bakery.
It could be argued the move for WK Kellogg is the most eye-catching given the context of the market for breakfast cereals in the US, one no longer known for its Snap, Crackle and Pop.
Growth has long been hard to come by in the US breakfast-cereal category. GlobalData forecasts the value of the market will be $14.1bn this year, which, it says, would represent a five-year CAGR of 0.38%.
In 2024, WK Kellogg’s group net sales (on an underlying basis) dropped 1.1%. For 2025, it is forecasting another 1% decline.
When WK Kellogg’s management presented at the CAGNY conference in February, its immediate thesis for the business centred on a “stable” top line, improving its efficiency and growing margins and cash flow.
At CAGNY, the company also outlined its ambition to “accelerate” its sales growth with moves into product types deemed healthier (granola) and different formats (on the go). The challenge there is competition: not just from products in those areas but from other breakfast options. Cereal is no longer central to the morning rituals of Americans.
These considerations will now pass to Ferrero, although the new prospective new owner sounds upbeat. Lapo Civiletti, Ferrero’s CEO, said WK Kellogg Co “represents a meaningful addition to the Ferrero Group” and added: “Enhancing our portfolio with these complementary household brands marks an important step towards expanding Ferrero’s presence across more consumption occasions and reinforces our commitment to delivering value to consumers in North America.”
Civiletti’s remark about “consumption occasions” is key, not just for adding Ferrero a different type of product to its portfolio in and of itself but also for the opportunities for line extensions it could bring: one could easily imagine a line of Kinder or Nutella-branded cereals emerging from the Ferrero NPD department.
However, the more obvious potential benefits for Ferrero lie in scale: in a range of possible cost synergies and in the ability to take a bigger bunch of brands to US customers.
“Acquiring WK Kellogg would give Ferrero a better seat at the table with US retailers, enabling them to do what they do best. Say what you will about cereal: it may be mature, but it is one of the largest, most highly penetrated categories in the store,” former General Mills executive and now consultant David Clark said on Wednesday when the WSJ and Reuters reports emerged.
Peter McDonald, another former-General-Mills-executive-now-consultant, believes the ‘Big G’ may be set to face a rejuvenated rival in the US breakfast-cereal market.
“Their primary competitor in their core category has been relatively uncompetitive for quite some time – first under legacy Kellogg’s where snacking was the priority, then as a standalone company with significant margin and business model challenges requiring attention before any serious growth agenda,” McDonald said earlier this week. “Under new (and privately held) ownership, that would surely change.”
And might Ferrero’s move change the dynamics of Mars’ move for Kellanova? The $35.9bn deal has received the green light from US regulators but is being investigated by competition officials in the EU.
The European Commission said it has “preliminary concerns” the transaction, which would bring together brands including Snickers and Pringles, could lead to higher prices for consumers in the bloc.
Clark suggests Ferrero could emerge as a buyer of Kellanova’s cereal business, arguing the move “makes strategic sense”.
He adds: “Based on Mars’ stated objectives for the Kellanova acquisition, the cereal business has little to contribute. For Ferrero, this presents a compelling, potentially self-funding opportunity: its global scale, US ambitions and the synergies unlocked by bringing WK Kellogg and Kellanova’s international cereal operations back together could be truly transformational.”
Under such a scenario, it would be down to the EU’s watchful competition officials to decide whether it would be preferable for Kellanova’s cereals business to go from one FMCG giant with a stable of household favourites in Mars to another.
Frequently asked questions
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What prompted Ferrero's acquisition of WK Kellogg Co?
Ferrero's acquisition of WK Kellogg Co was driven by a strategic desire to expand its portfolio and strengthen its presence in the North American market. By acquiring a well-established cereal brand, Ferrero aims to diversify its product offerings beyond confectionery and ice cream, tapping into the breakfast category, which remains one of the largest segments in grocery stores. This move aligns with Ferrero's ongoing strategy of growth through mergers and acquisitions, allowing the company to leverage WK Kellogg's legacy brands and consumer loyalty while exploring new product innovations.
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How does the acquisition of WK Kellogg impact the breakfast cereal market?
The acquisition of WK Kellogg is poised to significantly impact the breakfast cereal market, particularly in the United States, where growth has been stagnant. With Ferrero's resources and expertise, there is potential for revitalising the brand and enhancing its product line, especially in healthier segments like granola and on-the-go options. The merger could lead to increased competition in a market that has seen a decline in traditional cereal consumption, as Ferrero may introduce innovative products that appeal to changing consumer preferences, thereby reinvigorating interest in breakfast cereals.
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What are the potential synergies Ferrero could achieve with WK Kellogg?
Ferrero stands to gain considerable synergies from the acquisition of WK Kellogg, particularly in terms of cost efficiencies and expanded market reach. By integrating WK Kellogg's operations with its own, Ferrero can streamline production processes, optimise supply chains, and reduce overhead costs. Additionally, the combined brand portfolio allows Ferrero to negotiate better terms with retailers and enhance its visibility in stores. This strategic alignment could also facilitate the introduction of new product lines, such as Kinder or Nutella-branded cereals, capitalising on Ferrero's strong brand equity and consumer recognition.
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What challenges does WK Kellogg face that Ferrero will need to address?
WK Kellogg faces several challenges that Ferrero will need to navigate post-acquisition. The breakfast cereal market in the US has been experiencing a decline, with consumers increasingly opting for alternative breakfast options. WK Kellogg's recent sales forecasts indicate a downward trend, which will require Ferrero to implement effective strategies to stabilise and grow the brand. Additionally, the company must address competition from both traditional cereals and healthier breakfast alternatives. Ferrero will need to innovate and adapt WK Kellogg's product offerings to meet evolving consumer demands while enhancing brand visibility and engagement.
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How might Ferrero's acquisition of WK Kellogg influence its competitors?
Ferrero's acquisition of WK Kellogg could reshape the competitive landscape in the breakfast cereal market. With the addition of a significant player like WK Kellogg to its portfolio, Ferrero may emerge as a formidable competitor to established brands such as General Mills and Mars. This acquisition could prompt competitors to reassess their strategies, particularly in terms of product innovation and marketing. Furthermore, if Ferrero decides to pursue additional acquisitions, such as Kellanova's cereal business, it could lead to further consolidation in the industry, intensifying competition and potentially altering pricing dynamics for consumers.
