Marketing and health keep Kellogg rising

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Kellogg has increased sales and profits in its first quarter
through clever pricing and strong marketing investment, helping the
firm to forge ahead in healthy snacks and beat off private label
competition in cereals, reports Chris Mercer.

Kellogg said net profits rose 16 per cent to $254.7 million (€197.9 million) as efficiency savings offset pressure from rising costs and increased investment in new products. Company sales went up eight per cent to $2.6 billion.

The success follows Kellogg's strong performance in 2004 and again shows how the firm has adapted well to new market situations.

In breakfast cereals, Kellogg managed to increase sales by four per cent, with "successful new product introductions and effective brand-building campaigns"​ helping it to avoid the poor results posted by main rival General Mills in its first quarter.

Kellogg's more focused product portfolio enabled it to spend twice as much as Mills on research and development per category in the last fiscal year, and the firm has performed better in the lucrative premium-health sector, America's biggest consumer products category.

Mills' higher pricing, to about $3.30 for Big G Cereals, meant it was also hit harder by rising competition from private label, despite the added health bonus of making all its cereals with whole grains. Kellogg has fared better by consistently maintaining prices below the $3 mark.

Even so, the US breakfast cereal arena remains tough with a modest two or three per cent market growth forecast.

Outside cereals, Kellogg's strong focus on healthy snacks have continued to drive it forward.

The firm spent 2004 strongly promoting the image and consumer recognition of its wholesome Nutri-Grain and Eggo brands, and was rewarded in the first quarter with double-digit gains in Eggo.

Wholesome snacks is now Kellogg's most profitable business unit according to financial analyst group Goldman Sachs​ , who predicted it would grow by around eight per cent annually up to 2009, twice as fast as the total forecast for Kellogg North America.

Kellogg also recently bought the Nabisco fruit snacks factory from rival Kraft Foods and acquired the license for Nickelodeon Fruit Snacks - consolidating the company's position as the second biggest player in the fruit snacks sector after launching in 2003.

The company said it hoped the Kraft deal could be completed by the end of June. The Kraft factory covers 300,000 sq. ft. with space for extra capacity.

The Goldman report praised Kellogg for successfully adapting its cereal brands such as Froot Loops and Special K into a new wholesome snacks portfolio, including snack bars and fruit snacks.

North America remains Kellogg's stronghold, yet the firm also made steady progress across international markets in its first quarter, including a 7.5 per cent sales rise across Europe, 6.1 per cent in Asia-Pacific and nearly 12 per cent in Latin America.

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