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February 17, 2010

CAGNY: Kellogg eyes international growth

Kellogg today (17 February) insisted that international expansion was an “exciting growth opportunity” - but insisted that the company would continue to take a slow and steady approach to moves into developing markets.

Kellogg today (17 February) insisted that international expansion was an “exciting growth opportunity” – but insisted that the company would continue to take a slow and steady approach to moves into developing markets.

Speaking at the CAGNY investor conference in Florida, Kellogg COO John Bryant said one of the primary drivers of Kellogg’s international expansion would be the growth of the cereals market overseas.

“With 80% of our international business in the cereal category, the whole world is largely an emerging cereals market,” Bryant insisted.

With cereal consumption higher in the US than in many international markets, Kellogg management suggested that emerging and developed markets overseas would continue to see category growth.

Nevertheless, the company conceded that in the short-term the tough operating environment in Western Europe would hamper expansion in that region, with top-line growth anticipated to be in the low single-digits.

In emerging markets, Kellogg has focused on expanding in Turkey, Russia and China. According to Bryant, Kellogg’s Turkish business – a joint venture with local firm Ulker – has proven “highly successful” and the business is gaining market share in a growing category. The venture has grown its market share from 2% at its formation in 2005 to 28% in 2009.

Meanwhile, the group’s Russian business, the recently-acquired United Bakers, operates in the cookies, crackers and cereal categories. While it has seen volumes affected as Kellogg moves the product mix away from high-volume, low-margin lines, the group has been able to offset the dollar value of this decline during the fiscal year.

“In Russia, we see a very exciting opportunity and we have a clear path to how we are going to win,” Bryant insisted.

In China, where Kellogg recently acquired a cookie business, the company has also felt the negative impact of adjusting product mix to high-return goods. However, the company is yet to offset this decline and conceded that it would “take longer” to get fulfil the potential of the Chinese business.

“China is another great market but it will take a lot longer to get there than Russia or Turkey,” Bryant said.

According to Kellogg’s CEO David Mackay, the company is looking at expanding further into other developing markets. However, the company is yet to determine how this can be achieved.

“Expansion could take the form of a joint venture or acquisition – that will be different from market to market. It is hard to say how that will play out,” Mackay said.

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