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MarketScreener Homepage  >  Equities  >  Nyse  >  Kellogg Company    K

KELLOGG COMPANY

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Cereal Makers Look for New Dawn Abroad

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09/25/2015 | 05:35am EDT
By John Revill And Annie Gasparro 

Several years ago, Kellogg Co. discovered it had a problem with its Corn Flakes brand in South Africa: Customers were boiling the cereal and turning it into a soggy mess.

Many South Africans, accustomed to hot porridge for breakfast, didn't know how to prepare Corn Flakes. So Kellogg switched gears, rolling out a Corn Flakes Instant Porridge in 2012. It since has expanded with new flavors, including a strawberry version launched this year.

Fine-tuning products to meet cultural expectations is critical to efforts by Kellogg and other multinational cereal makers to ramp up sales in developing countries in Africa, Asia and elsewhere. The giants are making the overseas push to offset lackluster sales in the U.S. and parts of Europe as consumers increasingly shun sugar-laden breakfasts in favor of fresher, faster and more portable foods.

Emerging markets are growing in importance to cereal makers as more residents in those countries move to cities and have less time and inclination to make traditional warm breakfasts. As middle classes emerge, consumers have more disposable income and want more variety in their food, said Dave Homer, chief executive of Cereal Partners Worldwide SA, a joint venture between Swiss food maker Nestlé SA and General Mills Inc., the U.S. producer of Cheerios and Wheaties.

"Globally, cereal-category [sales] volumes are flattish, but they don't need to be this way," Mr. Homer said. Cereal Partners, which sells cereal in about 130 countries, isn't giving up on its traditional markets, but developing markets "can help a lot," he added.

Cereal sales in the U. S.--by far the biggest market, with around one-third of the $32.5 billion global business--have been sluggish for several years as more consumers favor protein-heavy meals they can eat on the go. U.S. dollar sales of hot and cold cereals are expected to inch up just 0.6% annually over the next five years, according to market-research firm Euromonitor International. In contrast, sales in China and India are expected to rise an average of 9% and 22% each year, respectively, over the next five years.

To appeal to consumers in developing markets, cereal makers must overcome many hurdles, including little-to-no appetite for dairy milk in some regions and a cultural affinity for traditional hot foods such as rice. Chinese, for instance, often favor a breakfast of hot rice porridge, breakfast soups or steamed buns.

"It is one thing to get people to try Western breakfast cereals, but it is another thing entirely to get them to adopt it," said Marcia Mogelonsky, an analyst with market-research firm Mintel in Chicago.

In many countries, consumers eat fewer than 100 grams of breakfast cereal annually per person, or about 3.5 ounces, according to cereal manufacturers. So the companies can make a significant impact on their growth simply by getting consumers in emerging markets to eat one or two more servings a year, said Mr. Homer of Cereal Partners, based in Lausanne, Switzerland.

Cereal Partners has been making inroads into markets such as Indonesia and the Philippines. It seeks in developing countries to promote cereal as a source of fiber, vitamins and minerals, focusing especially on the benefits for children. To make products more affordable and convenient, it has introduced three-serving bags in Indonesia, while in Thailand it rolled out a single-serve Koko Krunch chocolate cereal that comes with a paper bowl and plastic spoon.

In Indonesia, Cereal Partners employees attend informal women's networking groups and discuss the nutritional benefits compared with the traditional local breakfast of fried rice.

"Eating cereal is very new to them," said Nadia Devisa, a Cereal Partners marketing executive. "The moms had a lot of questions, like, 'Can I eat it with any kind of milk, or hot milk?'"

Mira Santi, an Indonesian mother of two, found her children liked Western cereal during a tasting. "I don't mind giving it to them because it gives nutritional value," said Ms. Santi, who usually makes nasi uduk, a rice dish, or bubur ayam, a type of porridge, for breakfast.

Cereal Partners, formed in 1991, posted $1.89 billion in sales in the 12 months through March 31, down from $2.11 billion a year earlier. It doesn't break out sales in emerging markets.

Kellogg expects a higher percentage of its cereal sales to come from more culturally relevant varieties, with Corn Flakes flavors like unsweetened mango and local dishes like savory pongal--a mixture of rice, milk, cane sugar and coconut--in India. The company also has been selling sugary flavors such as Chocos Crunchy Bites in India, but it said they haven't sold especially well.

In Colombia, Kellogg is selling cereals in packs attached to yogurt, because consumers there to tend to eat more yogurt than milk.

Kellogg logged about one-third of its $14.6 billion in sales from outside the U.S. last year, with at least $2 billion coming from sales of cereal and other products in emerging markets. Its cereal sales by volume are rising by double-digit percentages in Asian emerging markets and in the 4% to 6% range in developing countries in Latin America, according to an investor presentation earlier this month.

Kellogg has found it must be vigilant in some developing markets about communicating how consumers should eat cold cereal. "In markets where milk consumption is a lot lower, educating consumers how to eat cold cereal, with ads illustrating that, is important," said Doug VanDeVelde, senior vice president of global breakfast for the Battle Creek, Mich., company.

The company drew lessons from its stumbles with Corn Flakes in Africa--where it discovered it had targeted some consumers in rural areas who had grown up eating mielie-meal, a ground maize porridge. Those consumers thought they should use hot water to prepare Corn Flakes, too. Making a change to a porridge product became "a no-brainer" at that point, said Kara Timperley, Kellogg's marketing director for sub-Saharan Africa.

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Stocks mentioned in the article
ChangeLast1st jan.
ACCESS CO., LTD. -0.96% 928 End-of-day quote.-2.83%
CLASS III MILK FUTURES (DC) - CMG (ELECTRONIC)/C1 -0.06% 16.25 End-of-day quote.-15.84%
CLASS IV MILK?FUTURES (GDK) - CMG (ELECTRONIC)/C1 0.00% 12.75 End-of-day quote.-24.06%
CORN FUTURES (C) - CBR (FLOOR)/C1 -2.31% 369.75 End-of-day quote.-2.39%
DEERE & COMPANY -3.50% 214.21 Delayed Quote.23.64%
DOW JONES AFRICA TITANS 50 INDEX 0.58% 471.2 Delayed Quote.-12.32%
DOW JONES SOUTH AFRICA(ZAR) 0.28% 1589.35 Delayed Quote.-12.19%
DRY WHEY?FUTURES (DY) - CMG (ELECTRONIC)/C1 0.00% 31.75 End-of-day quote.-3.64%
JUST EAT PLC 0.00% 861 Delayed Quote.3.14%
KELLOGG COMPANY -0.32% 62.72 Delayed Quote.-9.02%
NONFAT DRY MILK FUTURES (GNF) - CMG (ELECTRONIC)/C1 0.00% 100.25 End-of-day quote.-17.39%
RISE, INC. -3.70% 26 End-of-day quote.-13.33%
S&P AFRICA 40 INDEX 0.19% 156.38 Delayed Quote.-9.44%
SWISS RE LTD 0.00% 69.56 Delayed Quote.-35.97%
WHEAT FUTURES (W) - CBR (FLOOR)/C1 -3.52% 554.75 End-of-day quote.-0.72%
ZR (ZR) - CBE (ELECTRONIC)/C1 -2.36% 12.22 End-of-day quote.-6.97%
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Financials (USD)
Sales 2020 13 653 M - -
Net income 2020 1 200 M - -
Net Debt 2020 7 525 M - -
P/E ratio 2020 17,1x
Yield 2020 3,68%
Capitalization 21 508 M 21 508 M -
EV / Sales 2020 2,13x
EV / Sales 2021 2,16x
Nbr of Employees 31 000
Free-Float 68,2%
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Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 72,52 $
Last Close Price 62,72 $
Spread / Highest target 30,7%
Spread / Average Target 15,6%
Spread / Lowest Target -13,9%
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Managers
NameTitle
Steven A. Cahillane Chairman & Chief Executive Officer
Amit Banati Chief Financial Officer & Senior Vice President
Lesley Salmon Chief Information Officer & Senior Vice President
James M. M. Jenness Director
Donald R. Knauss Lead Independent Director
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