Cereal sales haven’t been crunchy in years. Cautious consumers appear unwilling to splurge in the cereal aisle, and a crowd of new options, from Greek yogurts and bottled shakes to fast-food chains, vie for America’s breakfast attention.
What’s an old-school Raisin Bran peddler to do? At Kellogg (K), the answer is to reengineer its global supply chain, closing plants and moving others in an effort to trim costs and adapt to a lower-volume world in which too many cereals just might be chasing too few shoppers. And why not try branding the turnaround effort as if it’s a bowl of crispy corn flakes?
Meet “Project K,” Kellogg’s new four-year program to reduce its workforce by about 2,000 employees and save $425 million to $475 million by 2018. One focus, the company said Monday, will be to stoke international sales—now more robust than those in the U.S., where weakness prompted a lowered sales forecast for the full year—with an emphasis on developing new regional brands. Kellogg spent $2.7 billion to acquire Pringles from Procter & Gamble (PG) last year to diversify its product line and boost its reach in the global snacks market.
The company also warned that its full-year income would be at the low range of its prior forecast, but the news on Kellogg’s effort to eradicate costs helped to blunt the weak results, and shares rose about 2 percent in morning trading.
Meanwhile, predictions for the cereal industry have gotten so dire that rival General Mills (GIS) kicked off its last quarterly earnings call with a spirited defense of the food’s primacy at the breakfast table, noting that 90 percent of U.S. households buy cereal. “Cereal’s lower in calories than most breakfast options, and it’s a very nutrient-dense food choice,” Jim Murphy, a senior vice president, told analysts in what sounded a bit like an apologia for the stuff. “In fact,” he continued, “fortified cereals provide more iron, folic acid, zinc, and B vitamins than any other conventional breakfast food. Plus, there’s all that whole grain and fiber.” As Kellogg’s striped pitchman has long been telling us: They’re grrrrreat.
Both companies say the route to more robust sales will come from product innovation. Kellogg, for example, has 11 variations of its Special K brand, from “chocolatey strawberry” to a new version packed with extra protein. It has also released a new Raisin Bran with Omega-3 from flaxseed. General Mills now has a dozen versions of its flagship Cheerios brand, including one with peanut butter. Maybe new twists on old cereals will get American shoppers to think about cereal once again.