Sales for Kellogg’s U.S. morning foods unit declined 1.3% in its fiscal third quarter, reported CNBC (Oct. 31). Despite the decline, company officials see improvements on the horizon.
The decline in sales of morning foods is partially due to its refoodcall of Honey Smacks cereal, which was potentially tainted with salmonella. This accounted for 40 basis points of the company’s overall 20 basis point decline. The company did receive a slight boost in the category from higher sales of Pop Tarts during the period.
Sales for its snacks business – its biggest unit – fell 3.5%, as transportation costs due to a shortage of truck drivers in the U.S. took a toll, despite switching its snacks delivery model to reduce expenses.
The company stopped distributing its U.S. snacks business’ products to stores and switched to its more widely used warehouse model to cut costs and adapt to a changing retail landscape, reported Reuters (Feb. 8).
However, consumption data showed improvement, according to CEO Steve Cahillane on a third quarter earnings call.
Crackers’ consumption growth accelerated, led by its Cheez-It and Club brands. Cheez-It, Club and Townhouse collectively returned to consumption and share growth during the first nine months of 2018.
Pringles grew both consumption and share during the year-to-date period as a result of the successful flavor-stacking campaign, which involved both media and in-store activation.
Wholesome snacks growth was led by Rice Krispies Treats, which grew consumption and share, and in cookies, resumed investment support behind Keebler Fudge Shoppe, Keebler Grahams, Mother’s and Famous Amos is bringing these key brands back into consumption and share growth, stabilizing company share overall.
Kellogg has been spending more money on advertising and promotions to drive cereal sales as consumers seek out healthier, low-sugar options such as protein bars and yogurt.
“We again increased brand-building investment and we again leaned into single-serve items, even though they generated higher costs,” said Cahillane. “Most of the shortfall from these factors was in a single business unit, which is U.S. snacks, but these did not reflect any deterioration in our fundamentals in that business unit or elsewhere.”
Cahillane said the company could have “pulled back” on brand-building investment – but it chose not to, instead increasing brand-building because that is what it thinks will help grow the brands.
For the full story, go to this week’s Food Institute Report.
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