Kellogg rides out the low-carb storm

Related tags Cent increase Carbohydrate Low-carbohydrate diet Kellogg

The latest figures from Kellogg suggest that the US-based cereal
and snacks group has weathered the low-carb dieting storm with
relative ease, helped by a combination of new product launches and
increased advertising expenditure, writes Sibonelo Radebe.

Kellogg fought off rising raw material costs, tighter competition and significantly increased capital expenditure to report a 16 per cent increase in earnings to $237/4 million in the second quarter on the back of a 6 per cent improvement in revenues to $2.4 billion.

Consumers responded well to Kellogg's new range of products, designed to meet new demands for health and convenience. New launches in the Pop-Tarts range and innovative foods such as Special K bars were key in driving a 5 per cent increase in revenues in the group's core market North America.

Accounting for more than 60 per cent of Kellogg's total revenues, North America has posed the biggest obstacle to the company's growth in recent times because of the maturity of the market and, latterly, the invasion of new dietary regimes such as low-carb, which have prompted Americans to eat fewer cereal products.

In its response, Kellogg has been careful not to lose balance. New products like Special K bars show that the company can respond to demands for healthier products, but not at the expense of its other, less-healthy products. For example, the group has used more aggressive marketing to push its impulse snack products, such as tying its Pop-Tarts brand to the popular TV show American Idol in 2003.

Having coped well with the low-carb challenge in particular - in part, it has to be said, by launching a number of products with a low carbohydrate content, such as low-carb Special K cereal - Kellogg's CEO Carlos Gutierrez is looking to the future with more confidence.

Speaking to investors last week, Gutierrez said "We're hearing that there's a bit of a glut of low-carb products in the marketplace and inventories are extremely high. So while we are clearly seeing that the low-carb trend or fad has peaked, and looks like it is taking a bit of a dive in the supermarkets, we have yet to see the recovery of those categories that were impacted by low-carb."

If he is right, the worst could be over for the cereal group - provided consumers return to their former eating patterns once the dieting fad is over - allowing it to continue its impressive growth of the last few years. After a torrid period between 1998 and 2000, when sales revenues were stagnant, Kellogg has posted growth of more than 13 per cent in the last three years, taking sales to $8.8 billion in 2003 as it revamped its product portfolio, reduced costs and invested more in its brands.

The group is already forecasting earnings growth of between 8-10 per cent for 2004, and an improvement from the cereals division could produce an even better performance. The division showed a paltry 2 per cent increase in revenues in North America during the quarter, while retail snack sales were up 7 per cent.

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