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Kellogg’s Company

Kellogg’s Company

Introduction

Kellogg began as the Battle Creek toasted Corn Flakes Company in 1906 by W.K.Kellogg. The company was the first to introduce the ready to eat breakfast cereal in the United States. The worldwide expansion of the company began in 1914. By 1938 Kellogg’s had established itself in the European and Australian markets. After W.K.Kellogg’s death in 1951 the company started factories in Asia and Latin America. The company continued its foray into the other businesses even as it bought out the vegetarian-based food company Worthington foods in 1999. It also took over the operations of the company of the organic-foods company Kashi foods in 2000 and the snack-leader Keebler foods in 2001. In a bid to reach out to a whole new customer base the company tied up with Disney in 2002 to produce new innovative cereals.

Major Products

The major cereal products from Kellogg’s are Corn Flakes. Bran flakes, Choco Crispies, Eggo waffles, Froot Loops, Frosted Flakes, Yogos and the Disney cereal. Other products include crackers, organic foods, vegetarian foods, cereal bars and protein bars. With products in over 180 countries, Kellogg (NYSE: K) is the world’s leading producer of cereal. Kellogg also holds a large market share in the convenience food industry with sales of cookies, crackers, toaster pastries, snack bars, and frozen foods. The company has been very successful in the American and the European markets. It is currently number one in the US and the West European cereal markets.

 

Market share
Figure 1: Pi chart of the major cereal makers in US

Company Comparison
Company
Net Revenue (in millions)
International Rev as % of sales
Gross Margin %
Kellogg
$10,906
32.6%
44.2%
General Mills
$11,640
15.8%
40.1%
Kraft
$34,356
32.4%
36.1%
Figure 2: The technicals of the top three cereal companies in the world

 

From the above table it is clear that the stiffest competition for Kellogg’s in the US is from general mills and internationally from Kraft foods. Still Kellogg is currently the world’s largest breakfast cereal producer, but margins have suffered this year because of high commodity costs.

Target Market

Kellogg’s has been trying to reach beyond the young adults to other age groups like children and older people. Kellogg President-CEO David Mackay said that 27% of Kellogg’s ad spending in the U.S. is currently directed to children under age 12. According to Advertising Age estimates, Kellogg spent $765.1 million on total marketing in 2007, so a potential $206 million could be affected in the neat 5 years. Kellogg Canada will change what and how it markets to children under the age12 using nutrition criteria. The Company will use its new internal standard, the Kellogg Global Nutrient Criteria (Nutrient Criteria), to determine which products will be marketed to children on TV, print, radio and Internet as well as how those products are marketed, including use of licensed properties, Web site activities directed to children, promotions/premiums, product placement and in-school marketing. Kellogg Canada will continue its practice of not advertising to children under 6.New adult cereals provide tasty ways to stay on track with diet and weight-management goals, while kids can enjoy whole-grain goodness in two new great-tasting cereals. With the launch of the new nutritional varieties over the last few years the company hopes to be able to cater to the needs of senior citizens as well. In effect Kellogg’s is looking to target age groups on the either side of the young adult spectrum.

 

Expansions across the world:

Kellogg’s has bought the Russian breakfast cereal market with its purchase United Bakers Group, which reportedly already has 90 percent of the Russian market early this year. This is followed by the company’s foray into the east and central European market late last year. Kellogg’s is now set to make its foray into the east European market with the launch of its facility in Poland. The manufacturing facility is set to come up in the town of Kutno at the cost of $50m. The region is a big market for the company with close to 150m potential customers in the waiting.

Kellogg’s set up a branch in India and started producing corn flakes to give the customers the real thing. The Indian culture however is not accustomed to starting the day with cold milk on cereal. When warm milk was poured on the cereal it turned to a paste and consumers didn’t like it anymore. So when the company entered India they did not study its anthropology and cultural rituals before setting up base. On the other hand had the company focused on the breakfast market as such then the company would have found a large consumer base in the burgeoning Indian middle class.

Kellogg’s has big ambitions to target China, a potentially booming market. But typical western breakfasts, such as cold cereal with milk, are not popular in Asia, so the firm says it will tailor its products to local tastes. The firm plans to buy a local, as yet unnamed, Chinese food firm and is looking at buying other local cereal and snack firms for regional growth. The firm plans to double sales in Asia to $400m (£217.6m) by 2009 or 2010.

In all of the Gulf markets, the company has a dominant market share and they are clear market leaders. In Saudi Arabia, Kellogg’s is neck and neck with Nestle, yet it is the market offering the greatest opportunity. Saudi Arabia holds a lot of untapped potential and has an immature category, so that’s really where the company needs to grow. Kellogg’s is targeting consumers in the Kingdom by investing in communication for mothers about the kids’ brands. They are spending 20% of the total amount for this very purpose. As a corporate, Kellogg’s is willing to invest in the future of this region, one of great potential.

Kellogg’s company hopes to expand into all the major global markets by the end of this decade. This, however, the company needs to keep an eye out for its competition in the United States and the Gulf countries. General Mills in the US and Nestle in Saudi Arabia are fast closing in on Kellogg’s profits. PepsiCo’s aggressive entry in the snack market is also a matter of concern for the company. Its recent acquisition of Quaker oats has helped the company enter the cereal market as well. Kraft is an international competitor the company has to watch out for. Apart from the big companies in the target markets Kellogg’s will have to face off stiff competition from local manufacturers. Therefore, Kellogg’s now has to put its acquisitions in the past year to good use if it has to stay number one in the breakfast cereal market.

References

1.      Kellogg’s website

http://www2.kelloggs.com/

2.      Wikinvest for the pi-chart and table-            http://www.wikinvest.com/stock/Kellogg_Company_(K)

3.      Expansion strategies in India-             http://www.businessweek.com/innovate/content/may2006/id20060508_952455.htm

4.      Kellogg’s foray into the Russian market-     http://kelloggs.mediaroom.com/index.php?s=press_releases&item=189

5.      Kellogg’s history

http://www.kelloggcompany.com/company.aspx?id=39

6.      Kellogg’s products

http://www2.kelloggs.com/Product/Product.aspx

7.Kellogg’s future target groups

http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/02-08-2008/0004752220&EDATE=

8.Kellogg’s health and wellness

http://www.referenceforbusiness.com/businesses/G-L/Kellogg-Company.html