Kellogg’s path to becoming different company ‘inescapable’

BATTLE CREEK, MICH. — When The Kellogg Co. completes the breakup of its company into three independent business by the end of 2023 it is “inescapable” that it will emerge as a different company, said Steven A. Cahillane, chairman, president and chief executive officer.

Presenting at the Barclays Consumer Staples Conference held virtually on Sept. 7, Mr. Cahillane talked extensively about what Kellogg may look like post-split. And while much of the focus has been on the future of the company’s North American cereal business, Mr. Cahillane used the Barclays presentation to expand on expectations for what is being called Global Snack Co., or Remain Co, portions of Kellogg’s business that includes what Mr. Cahillane described as “incredibly powerful brands.”

“You have Pringles, Cheez-It, Rice Krispies Treats, Pop-Tarts, Eggo, these are world-class brands that are growing exceptionally well,” he said. “You look at the geographic footprint, we have — we already have 25% in emerging markets. That’s going to grow. And so it’s 60% that’s going to be in snacking.

“So we call it a global snacking company and some people have these other businesses. Well, they’re all great businesses and they’re all growing businesses. And if you look at what we talk about, what I’ve been talking about in the last five years, the first question I always get is because your Kellogg, it’s about the cereal business.

“Well, US Cereal business is 17% of our portfolio. And so I think when we do the spins, it’s just going to be inescapable that we are a different company. Inescapable. Whether or not the market values ​​that is going to remain to be seen, but you’re going to have a portfolio of world-class snacking brands. You’re going to have a portfolio of emerging markets where our emerging markets for the last many years now have been durable. And emerging markets by their nature, is a risk-reward proposition. Things are always volatile, but we have proven with our emerging market strategy that we know how to do it, and we’re doing it exceptionally well. And so I think when you look at just the last quarter, this portfolio of Remain Co grew double digits, and that’s well above the algorithm that we’re talking about.”

Two brands that Mr. Cahillane focused on were Pringles and Eggo.

He pointed to Eggo as an example of a product that is not just a snack, but a “phenomenal brand.” While Eggo may make sense as a spin-off business, it’s a great business as is, he said.

“It’s got over a 60% share,” he said. “So it’s relative market share and position is quite strong …”

Meanwhile, Pringles has stood out as a “brilliant acquisition” and as “a case study in what having the right parent can do for a brand,” Mr. Cahillane said.

“Procter & Gamble is obviously a world-class blue-chip company,” he said. “I mean they do just about everything right. Pringles wasn’t a fit. It wasn’t a strategic priority. For Kellogg, it was a fit, it was a strategic priority and you see what it’s doing now.

“We’ve added, I think, $1 billion in sales in Pringles, and the brand is just doing tremendously well, double digits in virtually all countries that it’s competing in right now because it was of strategic importance. We invested in the brand. We recognized it’s differentiated. It is unique. It’s got a great consumer value proposition. And so that was the beginning of really a portfolio transformation.”

With Pringles, Eggo and Cheez-It one thing is for sure: there are no laggards in the portfolio, Mr. Cahillane said.

“It’s a really world-class portfolio of brands with a geographic makeup that I think is very compelling,” he said. “And I think the market will see that and recognize that.”

It’s also possible that Kellogg’s future may not include MorningStar Farms, or Plant Co as it’s known in the breakup. Even while acknowledging that MorningStar Farms is a “terrific asset” with “a great portfolio,” Mr. Cahillane said the category in which it competes has been disrupted.

“We see the real opportunity for MorningStar Farms, or what we’re calling Plant Co, to be one of those players as a publicly listed player and compete differently and not worry about the obligation that they have to the parent company because they’re profitable, right?” he said.

He continued, “But there may also be a parent out there that, as I said before, in the Pringles acquisition, it’s a case study with the right parent or a different parent or a more appropriate parent, where it could do the same things under a corporate umbrella. And so that’s when we said there’s potentially a different strategic outcome for that because there might be an owner out there that would look at it and say, this is an asset, again, that is very unique. There’s nothing else like it that competes in this very exciting space with name recognition, market share portfolio that is really quite interesting.”