Kellogg likely to increase product prices next year to offset higher costs of US single-pack snacks

By Douglas Yu

- Last updated on GMT

Pic: Mike Mozart
Pic: Mike Mozart
Kellogg is likely to increase the price of its single-pack snacks next year, such as Pringles and Cheez-It, to offset their high operational costs.

The company noted during the recent Q3 earnings call that it had been investing in single packs due to the growing consumer demand in the US, and has seen similar trends in other parts of the world as well.

CEO Steven Cahillane said: “[We are] leaning into these pack formats that are meeting key consumer occasions and incremental to our brand’s growth… This principally took place in our US snack business where on-the-go is a critical occasion for us to win.”

However, many of these snack items are currently co-packed as Kellogg does not have the capacity for all pack formats, and they also require additional transportation in a high freight cost environment.

The company’s CFO Fareed Khan revealed the company is currently building up its in-house packing capability for its single-pack snacks to alleviate manufacturing costs and transportation needs.

However, “this will take a few quarters to get fully ramped up,”​ he said.

Actions to battle high costs

Cahillane said the team has been talking about “earning price in the marketplace”​ with new products development.

“We continue to really drive that mentality,”​ he said. “We’re coming with more innovations next year, which we think are very exciting, and will come with the ability to earn more price in the marketplace.”

BakeryandSnacks will keep its readers updated on the NPDs as soon as Kellogg discloses them.

Kellogg’s US snack sales experienced a temporary high in operational costs during the recent quarter (down 3.5% year-to-year, dropping to $737m) however, Cahillane said it will continue increasing the investment in its single-serve products with a high annual single-digit rate.

“What’s important is that these investments are working, [as] you can see this in the improvement in our consumption this year,” ​he said, adding that Kellogg’s crackers, Pringles and wholesome snacks, like Rice Krispies Treats, had all grown their volumes and shares during Q3.

RXBar sales continue at a ‘torrid’ pace

RXBar, which Kellogg acquired in October last year for $600m​, is also among products supported by Kellogg’s investment along with its core single-pack snacks.

The Chicago-based nutrition bar company, led by Peter Rahal, drove Kellogg’s ‘North America other’​ segment up to $483m in net sales, a 2.8% increase versus last year’s period.

“[RXBar] continues at a torrid pace… with triple-digit consumption growth,”​ said Cahillane.

“During the quarter, we launched our first-ever national advertising campaign aimed at increasing this brand’s awareness, while also relaunching kids’ flavored bars and new nut butters.”

Snapshot of Kellogg’s Q3 financial results

Kellogg posted consolidated Q3 net sales of $3.47bn, a 0.4% increase compared to last year. Its morning foods (business such as breakfast cereals and specialty channel sectors (brands including Bear Naked bars and Special K bars) both reported a 1.3% sales decrease, dropping to $683m and $285m respectively.

The company predicted its full-year 2018 net sales growth to be 5% on a currency-neutral basis.

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