Kellogg separation fits with larger trend

Food industry expert points to other large public company spinoffs as precedents.
Kellogg separation fits with larger trend
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The news last month that Kellogg Company would be splitting into three separate entities didn’t come as a surprise to a food industry expert at Western Michigan University.

The Battle Creek-based breakfast and snack food maker announced on June 21 it would be splitting into three companies — temporarily dubbed Global Snacking Co., North America Cereal Co. and Plant Co. until permanent names are chosen — with the latter two headquartered in Battle Creek and the former based in Chicago with a Battle Creek presence.

A Kellogg spokesperson told the Business Journal the transactions will not result in any office moves or closures, and Kellogg’s intent is for its current real estate footprint to remain the same. The company as of now does not plan to close any plants, and Kellogg doesn’t anticipate any plant job losses because of the changes.

The company said the decision was not made as “a cost savings exercise,” but rather it is intended to ensure and facilitate the success of the three companies and create growth opportunities.

Steve Cahillane Steve Cahillane

“These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities,” said Steve Cahillane, Kellogg Company chair and CEO, who, going forward, will serve as chair and CEO of Global Snacking Co. “In turn, each business is expected to create more value for all stakeholders, and each is well-positioned to build a new era of innovation and growth.”

Kellogg — which started out as a pioneer in the cereal industry — said about 80% of net sales in 2021 came from global snacking, international cereal and noodles, and North America frozen breakfast products, all of which will be folded into Global Snacking Co. going forward.

The other 20% of sales in 2021 was from its cereal and plant-based businesses.

Bob Samples is executive-in-residence at Western Michigan University’s food and consumer package goods marketing program and worked at Hormel Foods for three decades before joining academia.

He said he agrees with Cahillane that Kellogg’s attention was drawn in too many different directions to be able to grow its underperforming business units in any meaningful way — largely because as a unified company, the divisions were competing against each other for investment dollars.

Freed up from that, he said he sees “a huge opportunity” to grow all three divisions.

Bob Samples Courtesy Bob Samples

“Snack, of course, has been rocking — Cheez-Its and Pringles and all that has been doing great — but I think there’s more opportunity to grow,” he said. “And (on) the plant-based food side, Kellogg was early on with MorningStar (Farms), and Kashi has some products in that category, and Garden Burger, too, but it seems like it’s been really flat there. I think with a clear focus on that business and not competing for investment assets, I think there is an opportunity to grow.”

Samples said while Michigan is known as the cereal state, sales of ready-made cereal had gone soft prior to the pandemic, then heated up again when people started eating at home more during COVID-19.

“I just think it has not had the focus that it needs. Kellogg was first in, with the whole Corn Flakes and the health business they had in Michigan, and it’s good to see them making sure that’s going to stay in Michigan and have an opportunity to grow,” he said.

He added Kellogg is no exception when it comes to the global supply chain issues, and he believes with plant-based foods being a frozen category and snacking and cereals as shelf-stable items, the business units operated differently enough that Kellogg’s supply chain department had to have been faced with tricky issues on multiple fronts. Divided into three separate companies, he believes they’ll be able to tackle those issues more easily and better target their individual buyers.

Samples said Kellogg’s decision to spin off its businesses is by no means a first among global public companies. J&J announced in November it would sheer off the consumer health business from its faster-growing medical devices and pharmaceutical portfolios. Perrigo recently completed its transformation from a pharmaceutical company to a “consumer self-care” business. IBM separated its managed infrastructure services to Kyndryl in late 2021 and in the past also split up its infotech, artificial intelligence and quantum computing, and consulting divisions. 

Kraft Foods Inc. a decade ago spun off its North American grocery business to a company called Kraft Foods Group Inc., and the remainder of Kraft Foods was renamed Mondelēz International and was refocused as an international snack and confection company. Then, in 2015, Kraft merged with Heinz, bringing together the Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia brands and creating what was billed at the time as the third-largest food and beverage company in North America.

“I think that business, with a clear focus in highly related segments, allowed them to grow,” Samples said of Kraft Heinz, “and I think Kellogg has the same opportunity. Of course, the big snack piece going to Chicago, it seems like everybody that does snack is in Chicago: Mondelēz, and of course, Kraft has been there forever. I hate to see that part leave (Battle Creek) but it will be interesting to see … what happens there.”

When Samples worked for Hormel, he said the company bought a lot of other brands, but they didn’t try to bring them all directly under the corporate umbrella in Austin, Minnesota.

“When they bought Planters, they left Planters in Chicago. And so Planters’ headquarters is in Chicago. When they bought Applegate (Farms, they left it in New Jersey), or Justin’s, they left that in Denver. … And so I think if you bring everything in, it becomes complex, and by splitting it up or keeping it (separate) … I think it’s going help all three of those businesses grow and provide the focus that they need.”

Samples said he teaches a strategy class at WMU, and a main thrust of the class is in business, you need to focus on strengths rather than weaknesses. Just because a company houses a portfolio of all consumer goods products doesn’t mean they’ll do well together.

“Kellogg is great at cereal, but they’re spending all their time on snacks. And so I think they just need to get back to that focus of (applying) great minds toward the product category that’s really, really big,” he said.

Samples said he also hopes the spinoff will help Kellogg recover from the troubles it had in its cereal category with union strikes last fall.

“Inherent in the culture of Kellogg is a drive to succeed and an ability to bounce back from adversity,” he said. “I think they’ll be OK.”

Updates about Kellogg’s transformation will be posted at newsroom.kelloggcompany.com/news-releases.