We’ve seen this movie before
In some ways, Kellogg’s move has precedent in the consumer packaged goods industry—namely the Kraft Foods Inc. breakup first announced in 2011 and completed a little more than a year later. Like Kellogg’s plan, that move created a new entity and a new name—Mondelez International—for a fast-growing global snacks portfolio, while spinning off slower-growing legacy grocery brands to a separate company that retained Kraft in its name, Kraft Foods Group Inc.
The move met with mixed success, especially in the early going for spun-off Kraft, according to Burt P. Flickinger III, managing director of Strategic Resource Group. “The Kraft-Mondelez spinoff worked for Mondelez, but not for Kraft,” he said. “The better management team went with Mondelez.” (Kraft later merged with Heinz and the combined company of late has enjoyed a renaissance fueled by standout marketing that helped land the company on Ad Age’s 2021 Marketers of the Year list.)
An analyst participating in Kellogg's conference call, Jonathan Feeney of Consumer Edge Research, raised the issue of retailers in the aftermath of such CPG breakups tending to view these deals negatively. He suggested the reason is that the brands sold get less support. (Such budget cuts could trickle down to marketing.) Feeney was not immediately available for comment.
Cahillane responded by saying he had not shared details of Kellogg’s plan with customers (meaning retailers) but said “it’s a value-creation opportunity for the entirety of the company, but it is the right thing to do for our cereal business. And I think that will translate well with our customers so that they know that the Kellogg's cereal business in the U.S., Canada and the Caribbean has a dedicated focused management team, dedicated customer teams that have really one objective, and that is to win in cereal with our retail partners.”
Cahillane dated the moves Kellogg’s announced back to the 2018 introduction of the company’s “Deploy for Growth” strategy. One key element of that strategy was dismantling a direct-store delivery program for its snacks business, and redeploying those assets behind brand-building efforts for products like Pringles, Cheez-It, Pop-Tarts and Rice Krispies Treats. Acquisitions (including RXBar in 2017) and divestitures (cookies, fruit snacks, pie crusts and ice cream cones) since then also shaped the portfolio for growth, he added.
The deals however may not be over, noted Flickinger. Despite a healthier projected portfolio, the $11.4 billion Global Snacks business would still be looking up at the size of snack-focused competitors such as Mondelez (which reported $26.5 billion in sales last year) or PepsiCo, with a global snack business including Frito-Lay.