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February 23, 2012

CAGNY: Kellogg bullish over US cereal prospects

Kellogg chief John Bryant has insisted the US cereal giant can grow its core business in its domestic market after a challenging year.

By Dean Best

Kellogg chief John Bryant has insisted the US cereal giant can grow its core business in its domestic market after a challenging year.

The Crunchy Nut manufacturer saw its retail cereal sales increase 3.9% in North America in 2011, although the rate of increase slowed in the second quarter, with sales rising 1.5%.

However, according to data from Sanford Bernstein, on a rolling three-month basis, Kellogg saw its North America cereal sales fall in the three months between November and January this year.

Amid the interest in Kellogg’s planned acquisition of Pringles, analysts have also questioned the company on the outlook for its domestic cereal business. Bryant, speaking at the Consumer Analyst Group of New York conference yesterday (22 February) was asked about the near-term outlook of the division amid increased competition from Greek yoghurt and products like Kraft Foods’ Belvita breakfast biscuits in the retail channel, plus the increased prevalence of breakfast items in quick serve restaurants.

“We absolutely believe we can grow our US cereal business,” Bryant said. He pointed to what he claimed were factors that would drive sales: an ageing population, the baby boomer demographic in the population and the prospect of some cereal brands being eaten at other times of the day, including the Krave brand that Kellogg has just launched in the US.

“All these items – the QSR and so on – have been out there for a decade but we’re actually seeing more breakfast consumed at home. There are reasons to believe we can keep growing the US cereal business over time,” Bryant said.

The Kellogg chief forecast that the company’s domestic cereal sales would grow at a low single digit rate, although he suggested that more growth might come through managing its portfolio rather than volumes. “It may be more of a mix game than a volume game,” he noted.

Brad Davidson, president of Kellogg’s entire North American business, echoed the importance of the group selling the right mix of products but insisted it could grow volumes. Recent moves to increase prices to offset commodity costs and hit volumes, he suggested.

“We think cereal volume can grow. We’ve got to get minds around covering the input cost inflation with pricing and seeing base prices go up fairly substantially across all categories across the store. We’ve also been raising our promoted prices,” Davdison said.

He said Kellogg would monitor its prices but would focus on buildings its brands and on innovation. Last year, Davidson claimed, Kellogg launched more than 80 products in North America across all categories. “We’re going to look at that but our focus is on brand building, really going after the consumer and micro-targeting against millennials and boomers. We’ve to get the mix between mix, price and volume right. Every food company is in that price right now.”

Davidson said Kellogg would look to increase the amount of new products it launches in North America at a “double-digit” rate.

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