The Split of Kellogg: Kellanova and W K Kellogg

Case Code: BSTR685 Case Length: 13 Pages Period: 2022-2023 Pub Date: 2024 Teaching Note: Available

Price: Rs.400 Organization : Kellogg Company Industry : Food & Beverage Countries : United States Themes: Business Level Strategies, Strategy Implementation

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Growth Through Diversification

In 1969, Kellogg ventured into tea and desserts with the acquisition of Salada Foods. In 1970, it acquired Fearn International, which marked its entry into soups, sauces, and other foods. In 1976, it acquired Mrs Smith Pie Company. The next year it acquired Pure Packed Foods, makers of nondairy frozen foods.

One of the main reasons for Kellogg’s diversification into other products was the increasing concern about high levels of sugar in cereals, and the fact that they were being promoted as healthy food for children.

Acquisitions and Divestitures

Carlos M. Gutierrez became CEO in 1999. He was of the view that the company needed to expand the product line. In October 1999, Kellogg acquired Worthington Foods Inc ., which owned Morningstar Farms, in a US$ 307 million deal. Worthington Foods made meat alternatives and frozen egg substitutes and vegetarian burgers under the Natural Touch, Worthington, and Loma Linda brands of vegetarian burgers..

Cereal Problems

In the late 1990s, the cereal businesses began showing signs of strain. In 1999, Eric Katzman, vice president at Merrill Lynch Global Securities, said, “Cold-cereal category appears to be a mature market and it is difficult to gain ground here.” The traditional cereals business of Kellogg faced challenges due to a shift in consumer habits. Cereal had been traditional breakfast for most Americans for years, and Kellogg was synonymous with cereals. But over the years, the breakfast habits of Americans had started to change..

The New Approach

In 2018, Kellogg started evaluating its portfolio and it shifted resources to higher growth categories like snacks. But the Covid-19 pandemic put paid to this move, with the demand for cereals rising suddenly, as people could not go out to eat breakfast, and prepared meals and meal kits were difficult to get. This made them turn to cereals, which were easy to make. After the pandemic ended, the demand for cereals again dropped..

From Three to Two

In February 2023, Kellogg decided to split the company into two instead of three and include plant-based foods in one of the two companies. On March 15, 2023, it unveiled new names for the companies it planned to create by splitting the organization. WK Kellogg would be the new name for the cereal business and Kellanova for the snack business. The new names were expected to go into effect on October 02, 2023..

The Rationale

The split of Kellogg was expected to create an upside growth potential for the company, and to enable it to concentrate on focusing on individual brands. The company would become lighter and be able to make products specific to each region and culture by allocating funds, marketing, and catering to local consumer preferences. According to the CEO of Kellanova, the split had been made to achieve Kellogg’s vision of becoming the “world’s best performing snacks-led powerhouse.”..

Where will it go from here?

Kellogg’s business had significant international exposure. In 2022, its sales outside North America stood at 41.5% of the total sales. Kellogg was looking at increasing the global market for its snack business through the split. CFRA Research's Arun Sundaram said that in developed markets, big brand names did not have much of an attraction for consumers..

Exhibits

Exhibit I: Cereals Market in the US
Exhibit II: Kellogg - Consolidated Statement of Income
Exhibit III: Kellogg – Two Companies and Brands
Exhibit IV: Kellogg Stock Price 2018-2023

Buy this case study (Please select any one of the payment options)

Price: Rs.400 Instant Download

Price: Rs.400 Express Checkout

PayPal (9 USD)