US cereal giant Kellogg has launched an aggressive programme to drive efficiency gains by cutting manufacturing costs, centralising procurement and increasing overhead discipline.

Addressing analysts at the Consumer Analyst Group of New York (CAGNY) conference today (18 February), Kellogg CEO David Mackay revealed that the group is targeting US$1bn in annual cost savings – excluding advertising efficiencies – over the next three years.

This represents a 30% increase from Kellogg’s current cost-savings rate.

Kellogg has developed a three-pronged approach to drive savings, Mackay revealed. It is implementing a “K-Lean” (Lean, Efficient, Agile, Network) programme to deliver manufacturing savings by “streamlining to reduce complexity and to save costs”; centralising direct procurement to leverage the buying power of the whole company; and increasing overhead discipline.

“All of these initiatives… will not only drive cost savings but… give us the confidence to invest for the future,” Mackay emphasised.

Mackay said that investing in the company’s brands and innovation was becoming ever more important as consumers and retailers increasingly look for value in response to the global economic recession.

Kellogg unveiled a swathe of new product launches that are scheduled for 2009, including the launch of a Special K blueberry muffin variety in the US, Special K chocolate in Australia and the new Nature’s Pleasure cereal brand in the UK.

Mackay said that Kellogg’s innovation plans were centred on the principles of “fewer, better, bigger”.

“Consumers are tending to trend back to more familiar, well-known, trusted products. … While innovation will remain critical, some consumers will shy away from paying $3-4 for something they don’t see as differentiated,” he warned.

Consumer communication is becoming increasingly important in order to continue to build Kellogg’s brands across its snacks and cereal portfolio.

“Strong advertising will remain a pillar of the Kellogg business model and a key to our success,” Mackay affirmed.

Nevertheless, Kellogg said that a review of its advertising was expected to generate additional savings and provide greater value for the company’s investment.

“Specifically for 2009, we’re already identified efficiency initiatives [in advertising] in excess $40m and that excludes any benefit of media deflation” Mackay revealed. “We can increase consumer impressions at reduced cost.”