Packaged Food Kellogg Company - Case Study Example

Kellogg Company Part One Introduction This research work analyses the marketing issues of Kellogg’s breakfast cereals. It consists of an introduction, evaluation of marketing issues, future strategies for development and recommendation for the strategy to be adopted for children’s breakfast cereal brand. William Keith Kellogg incorporated this company on 19 February 1906, which commenced international operations in 1914 and 1938 in Canada and the UK, respectively. This company emerged as a major business concern, by adopting aggressive marketing strategies. As of 2010, Kellogg Company’s total sales exceeded US$ 12 billion, making it the largest producer of convenience foods and cereals. Kellogg’s owns around 40% of the breakfast cereals world market[Ony11]. SWOT Analysis Strengths The cereal industry has an oligopolistic character. Accordingly, the small companies have a minor market share, whilst the large companies account for the major share of the market. As of 1995, small companies accounted for 13.6% and large companies 86.4% of this market[Roy14]. The large companies, which constitute the oligopoly are; Kellogg’s, General Mills, Post, and Quaker Oats. The Kellogg Company ensures that its breakfast cereal orders are completed within a few days. It has been traditionally envisaging intense competition, at the national and international levels. Kellogg’s breakfast cereal competes with branded and private label products across the globe[Kel13]. Weaknesses Mintel Report Over time, cereals manufacturers have made some changes to their recipes. However, just 30% of cereals consumers believe that the existing breakfast cereals have become better for their health. This can be traced to the reluctance of companies to alter the taste profile of their cereals, which the consumer may dislike[Min14]. At present, consumers prefer breakfast cereal with substantial nutrition value and not just the reduction of calorific intake. Recognising this change, Kellogg’s has taken several initiatives and made changes to its marketing strategies and products. For instance, there was a 4.9% reduction in the sale of morning-foods, in the second quarter 2014, and the total sales of the company reduced to US$ 3.7 billion. The market share of Kellogg’s has undergone a significant decline, since 1988[Sch142]. For example, in the US market the decline has been to the extent of 8.5%, while the reduction was 5% across the rest of the world. Brands Market Share (%) Kellogg 32.0 General Mills 28.9 Post 16.3 Quaker Oats 8.6 Own label 7.8 Others 6.4 [US breakfast cereals market 1997-98] Kellogg’s profit margins were the highest in the food industry. From 1995 to 1998, these margins reduced from 19% to 15%. The share price in 1998 declined to US$ 33, which was the share price in 1993. Moreover, the revenues in 1994 had been US$ 7 billion, which fell to US$ 6 billion by 1997. The net profit of this company reduced dramatically, in the year 1997[Pie12]. In 1999, General Mills displaced Kellogg’s from the leadership of the US market. The former has popular breakfast products, including Cheerios, Golden Grahams, Wheaties, and Raisin Nut Bran. General Mills cornered 32.5% of the market in the area of revenue. The corresponding proportion, with regard to Kellogg’s was 31.6%[Pie12]. Opportunities The use of alternative sweeteners could prove to be of great benefit to breakfast cereals manufacturing companies. For instance, it could dispel the negative opinions regarding flavoured cereals, due to their high sugar content. Moreover, by exercising innovativeness, a much larger number of young people could be induced to transit to the porridge market[Min14]. Furthermore, an innovative approach to breakfast cereal packaging and formats could provide additional value to the product. In anticipation of the enhancement of competition in the year 2010, Kellogg’s decided to embark upon an ambitious programme of increased investment in order to provide unstinting support for their various products. In fact, the implementation, in 2009, of the various strategies associated with productivity and cost savings, served to provide this company with tremendous financial visibility. It was decided, by the Kellogg Company, to have in place realistic financial targets, and to take decisions that would promote the long-term benefits of the company[Kel10]. Threats As it to be expected of such a market structure, there is negligible price competition, with no company enjoying a dominant status. However, the profit margins are massive, with an average net profit, as of 1993, of 6.7%. It is almost impossible for a new company to enter this niche market, and the several attempts by the government to destroy the oligopoly have ended in dismal failure[Roy14]. Nevertheless, General Mills, Quaker Oats, and Post have diversified their business to other food products. This has enabled them to employ aggressive strategies to procure or preserve market share. Despite being restricted to the cereals market, Kellogg’s has remained strong, by keenly focusing upon the market. The cereal industry is US$ 8 billion, and even a 1% increase in market share, constitutes a significant amount for the company that manages to achieve the increase[Roy14]. PESTEL Analysis Political issues With a view to control the ever increasing childhood obesity rates, several scientists and experts met in Congress. From their efforts, nutritional guidelines were generated, with regard to foods to be consumed by children. A mere quarter of the existing cereals were seen to be compliant with these proposed guidelines. These guidelines are to become effective in the year 2016, and unsurprisingly, the beverage, cereal, and food companies have commenced hectic lobbying to prevent the application of these guidelines[Tor11]. Breakfast cereals constitute a household staple in the UK, as 92% of the consumers, irrespective of their age and socio-economic status, partake of this food item. The breakfast cereals market tends to be highly mature with considerable product innovation. This has transformed it into a dynamic and extremely competitive market. The sales of breakfast cereals, as of the year 2012, had reached the £1.6 billion sales mark, and the growth had reached 4%, while the volumes had reduced by one percent. Increasing input costs have resulted in such a value versus volume dichotomy[Min13]. Economic Issues The business strategy adopted by Kellogg’s concentrates upon the stakeholders. Thus, this company’s decisions are taken with the primary objective of promoting the best interests of the company’s stakeholders. There is active engagement with the internal and external stakeholders of the company, which generates two-way communication. Such communication ensures substantial benefit to the each stakeholder group and the Kellogg Company. These engagement initiatives involve vast costs for the Kellogg Company[Bus142]. All the same, they provide enormous benefits to the stakeholders, communities, and Kellogg’s. However, in the year 2013, cereal sales of the Kellogg Company did not grow to any appreciable extent. This had been attributed to adverse sales trends and reduced investments in this area. In the US, which constituted the bedrock of the cereal business, Kellogg’s had experienced very slow growth. This was perceived to be the outcome of competition from bread, eggs, peanut butter, yogurt, and other alternatives. The Kellogg Company embarked upon aggressive marketing campaigns and innovation, with a view to reviving this segment. Its efforts did not achieve the desired level of change. Furthermore, this company experienced a weakening of its cereal category in Australia, Canada, UK, and the other developed nations[Zac14]. The Kellogg Company has drawn strength, despite these adverse developments, from its strong foundation, tremendous brand positioning, and geographic diversity. Social Issues The Kellogg Company has been exploring various solutions that address the global obesity epidemic. Some of these being, portion control packages, consumer education, and participation in industry groups. In order to facilitate the consumer to assess the presence of excess calories in the food items, Kellogg’s pays strict attention to the development of its products and provides nutrition information. This proves to be of considerable assistance to consumers, as it furnishes them with information regarding physical activity and dietary alternatives[Kel12]. Technological Aspects The 2012 Mintel Report on breakfast cereals has provided important insights into this market. The packaging of breakfast cereals has not changed significantly in several decades. This situation has persisted, despite the preference of 80% of the consumers towards breakfast cereals that have been provided with resalable packaging. Substantial demand has been noticed for packaging that retains the freshness of the breakfast cereals for a much longer period[Cli14]. This indicates the presence of an opportunity for breakfast cereal manufactures to introduce resalable packaging that is characterised by functionality, reliability, and cost effectiveness. Environment The objective of the Kellogg Company is to maximise profits and thereby ensure high returns for its shareholders. In addition, Kellogg’s makes substantial investments in its existing and prospective employees[Sta143]. In addition, Rice, the chief marketing officer of Kellogg’s claims that Kellogg’s has developed in such a way that it can make its consumer data base into a standardised digital platform. In addition, it created Kellogg’s family rewards for loyal customers. With this system, consumers can avail themselves of gift cards, books and other academic resources of all brands[Hel14]. This reward system made the Kellogg’s brand, customer friendly, and constitutes a novel strategy developed by Kellogg’s to improve its customer base. Legal Issues The consultation paper Children, Food and Obesity of the UK Government states that it is the responsibility of the parents to inculcate health eating habits in their children. However, the Government is responsible to a certain extent, in this exercise, and it has a crucial influence[Bri13]. The European Union has proposed recommendations that will restrict arsenic to 200 parts per billion for adults and exactly half that amount for children and babies. Some of the products examined were Kellogg’s Rice Krispies, which depicted high levels of arsenic. These arsenic levels were considerably higher than the proposed limits[Bak14]. Target Market Breakfast cereals have constituted 49% of the total for the year 2013. The principal cereal markets of Kellogg’s are North America and Western Europe. The growth of these markets is expected to be slower than the growth of the global market for breakfast cereals, over the period from 2013 to 2018[Pac141]. Wal-Mart Stores, Inc constitutes the largest customer of Kellogg Company. Along with its affiliates, it was responsible for 21% of the consolidated net sales of the Kellogg Company, during 2013. As of the end of the third quarter of 2013, 18% of the consolidated receivables balance and 30% of the US receivables balance consisted of amounts due from Wal-Mart Stores, Inc. None of the other customers of the Kellogg Company were responsible for more than 10% of the net sales for 2013[Kel13]. As such, the success of a business enterprise is crucially dependent upon the presence of a clear and well-defined competitive strategy. In order to obtain a decisive competitive advantage, the company concerned should necessarily incorporate a distinct business formula and customer offer. In addition, this competitive strategy has to be supported by utilising appropriate actions[Dob091]. Hence, the competitive advantage can be preserved, only when the company conserves and increases its resources and competencies. Thus, continuing investment is extremely important, and the competitive advantage will be irretrievably lost, if the company were to rest on its laurels or indulge in complacency. Part Two Kellogg’s Frosties The continued existence of Kellogg’s Frosties mascot of longstanding, Tony the Tiger has become the subject of speculation. This uncertainty has emerged from the drastic decrease in sales, resulting from the increasing concern of parents regarding the suitability of this breakfast cereal for their children. As depicted by Nielsen, the market analysts, the sale of Frosties has reduced by 18.3% and value sales have reduced by 6.6% to £29 million[Col131]. This breakfast cereal has dominated the market for nearly six decades. However, it has run afoul of the UK Government’s policy to eliminate sugary foods from the diet of children, in view of the increasing prevalence of obesity among youngsters. From its genesis, at the hands of an advertisement agency, in the year 1952, Tony the Tiger had been disporting with gay abandon and disregard for the ruination of the health of youngsters[Col131]. In the year 2007, Ofcom imposed a prohibition on the advertising of high fat, salt and sugar food and drink on children’s television shows. This proved to be a major setback for Frosties and several other breakfast cereals aimed at youngsters. Moreover, the shadow health secretary, Andy Burnham, had declared that politicians should prohibit foods with high sugar content, such as Frosties and Sugar Puffs [Col131]. He emphasised that increasing obesity in the UK, was posing a major problem for the nation and the NHS. In addition, the principal segment for Kellogg’s Frosties are children who are below the age of 12 years. The process of segmentation is followed by targeting. It entails the development of a marketing mix that produces characteristics and brand values that attract the consumers of each segment. The origin of Tony the Tiger can be traced to this approach to marketing[Rev15]. This mascot’s image has a major influence upon the sales achieved by Frosties. However, it has been vociferously proclaimed, in several quarters that the marketing of foods that are energy-dense and poor in nutrients, whilst having high fat and sugar content is unethical. The situation is much graver, when the targeted section of the populace is that of children. It is now incumbent upon the breakfast cereal companies to change the composition of their products, and manufacture and sell products that promote health. In this context, it would be very helpful, if the WHO and the national governments were to make it crystal clear that they would take stringent action against the breakfast cereal companies, if they were to persist with the marketing of unhealthy foods[Con08]. Moreover, the promotion of products, by breakfast cereal manufacturers that have high salt and sugar content to children serves to increase the obesity epidemic. These companies promote harmful dietary habits among youngsters. Moreover, they serve to undermine the efforts of civil society and the government to promote healthier diets[Con08]. The pledges made by Kellogg’s to promote the health of the consumer, have been seen to be false and insincere. As such, sugar levels had been described as high, if it was 15g per 100g. However, Kellogg’s Frosties depicted, in some nations, sugar levels that were higher than 40g per 100g. The presence of 5g of fat per 100g had been deemed to be a high level of fat content[Con081]. As a well-established market leader, Kellogg’s faces a marginal threat from new entrants. The challenges and pressure brought to bear upon a company, by the other companies in the same industry, produces competitive rivalry. The extent of such rivalry is determined by several factors, such as, the number of rivals, the extent of control over the market exercised by these rivals, and the weaknesses of these rivals. In 2013, the Kellogg Company was perceived to be transiting towards greater options in its breakfast choices. However, the competitors to this company had already made considerable inroads to that section of the market[Pac141]. Despite the numerous opportunities in the developing markets, the Kellogg Company has to be cognisant of the cultural breakfast disparities. This is because, the presence of close substitutes poses a major threat to Kellogg’s. Therefore, it has to acknowledge that cereal bars and other substitutes are making their inexorable entry into the cereals market. Moreover, a substantial number of consumers have transited to other novel substitutes to breakfast cereals. In this context, it has to be stated that Kellogg’s suffers from comparatively slower responsiveness to the market trends and diversification. Kellogg’s has to take cognisance of diversification of products, for achieving long term success in the market. In addition, the main cereal markets of Kellogg’s are those of North America and Western Europe. Hence, Kellogg’s should adapt measures that are compatible with the health choices of the people of these regions. Part Three Strategy for Long Term Success The Kellogg’s Frosties brand should adopt a nutrition-based product strategy for ensuring long term success. The following discussion will prove this contention. In general, cereal constitutes a packaged food product that enjoys vast popularity. Manufactures have been inclined to praise and exaggerate the benefits of breakfast cereal. This food item has been subjected to considerable derision for its hyperbole and advertising campaigns aimed at children, which are regarded as being unethical[Kum12]. It is claimed that since, 1998, the salt content of Kellogg’s cereals has been reduced by 50%, which compares favourably with the industry standard of 30%. Sugar is an essential component of the human diet, and it provides energy to the human body. The breakfast cereal range of Kellogg’s boasts of more than 50 products that have varying sugar content. This sugar content range varies from 8% to 37%[Kel141].This demonstrates the insensitive attitude of Kellogg’s towards sugar content in its breakfast cereals. In addition, Britain has been experiencing childhood obesity, which has assumed epidemic proportions. In order to address this highly undesirable development, the government has initiated several steps to regulate the quantity of sugar present in breakfast cereals. The Labour Party’s health spokesman, Andy Burnham, has clearly stated that British youngsters commenced their day with a bowl of Kellogg’s Frosties. He declared this to be unacceptable, as this breakfast cereal contained sugar to the extent of 38%[Mar149]. Furthermore, according to the Mintel Report of 2014, only a small number of people, consuming cereals have good health. This shows that all cereal manufacturers, including Kellogg’s accord greater importance to taste, despite the health issues of their customers. Kellogg’s has to take a serious note of the issues discussed above, and take decisions that are in the best interests of its consumers. Moreover, notwithstanding Kellogg’s claim of its commitment towards strengthening its financial targets, there are serious threats from its competitors, such as, General Mills, Quaker Oats, and Post. Moreover, the UK Government has undertaken the task of implementing stringent food and obesity laws. Under these circumstances, Kellogg’s has to coordinate its efforts with government agencies, scientists and other intellectuals of the food industry, so as to render the quality of its cereal products compliant with the extant, as well as proposed legal and health norms. This discussion emphasises the necessity of a strategy that is focused on nutrition-based products for Kellogg’s to obtain competitive advantage and success in the long term. Conclusion The Food Safety Department has claimed that breakfast cereal brands are less nutritious and contain excessive fat. In order to establish itself as a company that cares for the health of its consumers, Kellogg’s has to adopt measures to ensure that it complies with safety rules, thereby promoting the best interests of its consumers. This requires Kellogg’s to consult nutritionists and legal experts, so that its products are in compliance with the food regulations of the UK. Kellogg’s has to take measures to lower pricing, attract customers’ attention, and diversify its products, so as to acquire competitive advantage. In addition, it has to review and revise its pricing strategy. This company has to consider lowering its prices, as this is a weakness that is being exploited by General Mills to reduce its market share. Kellogg’s is sufficiently large to diversify into other industries. The major challenge for this company is to continue with brand innovation, development, and marketing research. When the competitive pressures are unending and relentless, long-term advantage cannot be preserved, in the absence of constant innovation, and the development of new products and processes. References Baker, K., 2014. Cereal killers? More than half of rice products including Rice Krispies and Heinz baby rice exceed new EU limits for ARSENIC. [online] Available at: [Accessed 19 December 2014]. Brimelow, A., 2013. Consider tougher regulation in obesity fight - Labour. [online] Available at: [Accessed 19 December 2014]. Business Case Studies , 2015. Revitalising a valued character. [online] Available at: [Accessed 7 January 2015]. Business Case Studies, 2014. 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