Kellogg Company Strategy - Essay Example

Kellogg Company Strategy Introduction Kellog’s is easily associated with cereals for breakfast and snacks for both the young and the young at heart.It has permeated the breakfast culture for over 100 years as it started in 1906 in Battle Creek Michigan (Kellog Co., 2009a). The company, which started with only 44 employees, now has over 32,000 employees all over the world selling in 180 countries with manufacturing branches in 19 countries. Among the brands that Kellogg’s is known for are as follows: ready to eat cereals like the Kellogg’s Cornflakes, wholesome portable snacks like Kellogg’s Yogos, cookies and crackers like Kebbler Cookies, natural organic and frozen like Eggo and Loma Linda, and also specialty channels like Kebbler Graham Crackers Crumbs and Kellogg’s Stuffing Mix. It can be said that the company is currently successful in its marketing and production strategies since it was reported in its 2009 annual report that the company has exceeded the targets they have set. Shown in the following table is the summary of the net sales and net sales growth from 2006 to 2008. Table 1. Net sales and net sales growth from 2006 to 2008 (in millions $) 2008 2007 2006 Net sales 12,822 11,776 10,907 Net sales growth (as reported) 8.9% 8.0% 7.2% Source: US SEC Form 10-K, 2009 This shows that from 2006 to 2008 the net sales of the company are increasing significantly despite the reported economic problems worldwide. This goes to show also that people still rely on the food products of the company despite all the identified problems that affect the world and each and every household. The company operates in different countries worldwide and is highly visible and represented in the United States, United Kingdom, Asia-Pacific (including South Africa), and Latin America. The following table shows the net sales of the company in these geographic areas. Table 2. Net Sales in US, UK, Latin America and Asia-Pacific (in millions $) 2008 2007 2006 United States 8,457 7,786 7,349 United Kingdom 2,619 2,357 2,957 Latin America 1,030 984 891 Asia-Pacific 716 649 610 Consolidated 12,822 11,776 10,907 Source: US SEC Form 10-K, 2009 The report shows that the United States is still the biggest market of the company while the Asia-Pacific is yielding the smallest net sales. It should be noted though that from 2006 to 2007 the net sales of the company across all these geographic areas is increasing significantly which shows that their promotion strategies are effective. They should however increase promotions and marketing in the Asia-Pacific since this is a potentially large market. The company continues to strive to better its products by improving each and every item that they market by providing support to its research and development department. There was an increase in financial support from 2007 ($179M) to 2008 ($181M) that shows the important role of the R&D for the company. As part of their strategy for growth, they continue to improve on their products and quoting their 2008 annual report “Our focused strategy concentrates on growing our cereal business and expanding our snack business” (Kellogg Co., 2008a, p. 8). The biggest client of the company is Wal Mart which is obviously a valuable client base since it has a wide reach in terms of the variety of clients it serves and also with the geographic locations of all the Wal Marts in the US. In other locations however, a big market similar to the Wal Mart or its equivalent should be explored and targeted as a partner in marketing the products. The direction that the company is taking in purchasing potential partners like those in Russia (United Bakers) China (Navigable Foods) and in Australia (Specialty Cereals Pty) contributes directly to the growth of the company (Kellogg Co., 2008b). In the US, they also acquired Bear Naked Inc., IndyBake Products LLC and Brownie Products Co. Their acquisition of existing companies and adopting or improving the products to make it their own is not unique to Kellogg but it is to their advantage since there would be lesser input to the Research and Development Sector of the company (as opposed to developing a product from scratch). Also, this is to their advantage since their competitor or a potential competitor becomes one of their own already. The acquisition of the ones in China and Australia is to their advantage since these brands/companies are already known. It is just a matter of infusing their own flavor or the logo of Kellog’s to the product (although it is not as simple as it seems). This success should be placed in context also. In the 1990s the company faced a downturn as described by Fraser (2004) “Kellogg developed a reputation for failing to live up to its own rosy projections” (p. 27). This was a time when dot coms were popular and investors were into these types of companies. However, Kellogg managed to survive and reinvent itself and returned with a vengeance. The products were not the only ones reinvented by the company but also its organizational structure to enable the segments of the company to analyze their contribution to the growth of the company. Aside from that, training and empowerment of their employees were also seen as important in the turnaround of Kellogg to become the number one or number two leading company in cereal and snack sector. Strategic Context The strategic context that the company operates on is based on the following identified risk factors. One of the identified risks that the company and of course all other companies for that matter is the worldwide economic problems or the recession. With the recession there is a tendency for downturn which is what is being avoided. The said financial risks also translates to their conduct of business elsewhere in the country since the financial status of the countries where they operate in would greatly affect the company in more ways imaginable. Stability in financial and economic status is very important. The competition in the food industry is also a focus of the strategy for growth. Way back in the 90s the company has almost lost its lead and due to reinvention of its products and marketing strategies, it has regained its lead (Fraser, 2004). The focus on the competitors is a very important factor in determining the proper strategies to implement. After all, competition is the driving force of strategic positioning. Continued process of research and development contributes to growth of the company. Where necessary, products were recalled and were analyzed to avoid future problems. Like what happened in January 2009 where peanut butter products brought a scare on the salmonella contamination, the company recalled its peanut butter products. As according to David Mackay, president and CEO, “The actions we are taking today are in keeping with our more than 100- year commitment to providing consumers with safe, high-quality products” (Kellogg Co., 2009b, para. 3). In relation to this, safety concerns are also an important focus for strategy formulation. The scare in salmonella contamination has affected not only Kellogg’s but all companies producing peanut butter based products. If people lose interest or confidence in the products and in the company, then this is the start of a big downfall. In relation to research and development, the branding and product positioning is also a necessary focus of strategy. Lindstorm (2005) reports that sensory impact is already being incorporated in the branding of products. For Kellogg’s the sensory impact on the products, especially on the cereals would be the crunch that they produce. This branding technique is supposed to be felt by the consumer themselves and not just a couple of sound effects during the television advertisement. Rather, the sound effects heard during the television advertisement should also be heard and experienced by the consumers. If this is so, then retention of consumer loyalty will be gained. If this particular branding technique is achieved, then probably the position of the product in the market or grocery displays would just be a secondary concern since consumers, having been loyal to the product, will already look for the product rather than pick whatever is pleasing to the eye in the grocery display. In relation to branding is global recognition. Even when the brand name is translated in different languages and in different scripts, it should always be recognizable by everyone. If it is too popular and it grows on everyone, it can become the generic. To illustrate (though deviating quite a bit), here’s an anecdote of a woman who is buying cereals. She goes, “I’d like to buy a Colgate please.” The saleslady asks, “Oh, do you want Crest or Aquafresh?” Since Colgate is so popular as a brand of toothpaste, some have already conceived the brand as the product itself. Kellogg’s also is more popularly known as a cornflake brand. However, this global brand recognition may be detrimental since Kellogg’s has already branched out to many products other than cornflakes. The focus of strategy then is for the other products to be recognized globally. It may be the case that one product is more popular than the other. The key here is to determine the market of each product type and concentrate on marketing this to them instead of marketing all the products to all types of consumers. This will be spreading too thinly and may not be an effective brand management and marketing strategy as well. Technological changes are also considered to avoid disruptions in production and the overall management of the company. Another factor to consider to avoid disruption of production would be the source of raw materials. It has been a fact that raw materials have been costly and this rising cost of materials may give a dent in the growth of the company. An excellent source of raw materials will contribute to the efficient growth of the company. Other risk factors, as mentioned in their annual report in 2008 include terrorist activities not only in the United States but in the rest of the world especially on those parts where the company operates – in terms of production or sales. Security measures are needed and should be heightened where necessary. Another threat in relation to their locations abroad is the stability of the economies of these countries as well as the rate of monetary exchange in these countries as these also affect production, sales and growth. The Business Model The company invested in advertising and innovation of the products. It also increased prices where and when necessary in order to meet the set targets for the company’s growth which was consistent with the Sustainable Growth Principle. The following figure illustrates the business model of the company which is derived from the 2009 annual report of the company. The units that are highly involved are as follows: Overhead Discipline, Advertising Effectiveness and Efficiency, Innovation, Price/Mix, Grow Internal Sales, Grow Gross Profit. All these factors working together will lead to Sustainable Growth. Figure 1. Sustainable Growth Model of the Kellogg Company Source: Company Profile, Kellogg Company Annual Report The Sustainable Growth Model is presented as a cycle and for this it can be pointed out that the cycle somehow starts with overhead discipline in order to produce effective and efficient advertising and other promotional programs for the company itself and also for its products. They have admittedly “embraced the digital media” in their advertising activities which of course proves to be effective in promoting the publicity of the company. It should be noted that more and more people depend on the world wide web and the Internet for information and entertainment. As such, the company should face this trend and embrace it in order to sustain their strengths and growth financially and as a company as well. As proof, their company website shows complete information of their products like nutrition information, ingredients along with vivid images of the packaging and what the product looks like. An added information which is not necessarily found in the usual advertisements are the recipes and twists that can be made of the products. Website interaction is also a welcome strategy since this makes the consumers involved. For example, still in the Kellogg’s website (www2.kelloggs.com), newsletters are provided upon subscription or request of the user and depending on what the user wants given the multitude of choices. What is noteworthy is that newsletters are not limited to information on the product itself but also newsletters that showcase health concerns, nutritional tips, product releases, company information, and more. It should be noted also that advertising digitally is not only for the product promotion but also promotion of the company in terms of its vision and mission and even recruitment. As a proof, the annual reports are published electronically and this shows transparency of the company which translates to attracting efficient workforce and possibly interested investors. It should also be noted that there are no reported disputes from among their employees which is an indicator of a peaceful and efficient work environment. Innovation of the products is effective. Right now, the focus of the breakfast cereals and snacks is to promote healthy living. Infusing the products with the necessary vitamins and minerals that lead to healthy living is a positive innovation move because in a fast paced society where there is almost no time for a decent sit down breakfast, meals on the go is the most popular. It will become more popular if it is able to satisfy not only the hunger of the consumers but also satisfy their health concerns like consuming the right amount of calories, right amount of vitamins and minerals. In relation to the promotion of healthy living through the products, the company is making itself possible into a lifestyle due to the other merchandise available for purchase or for free like ball caps, jackets, mugs and more. This initially is a way of promoting the company and the products since the logo or insignia is placed visibly or prominently in the merchandise. However, if it persists, people will no longer look at it that way, Kellogg’s then becomes a brand in itself that transcends cereal and snacks. Although there should be more concentration on the cereal and snacks area since this is what Kellogg’s is known for. Strategic Issues The strategic issues of the company is focused on sustaining the growth that they are experiencing. In order to do this, they focus on product innovation and development. They recognize the economic problem worldwide and that is an opportunity for innovation. With the economic problems, families and individuals tend to save up on expenses and cut back on unnecessary purchases. As such, families tend to eat home or to eat on the go but with big consideration on the price and the quality of the food that they eat (Kellogg Co., 2008c). The company is focusing in widening its reach and since the DSD (delivery – store – door) system is effective, more support should be given to this or improve this system. Even when the WalMart is there as their biggest client, there are still those who are too busy to go to the grocery to buy their own. Either that or they are too engrossed in online shopping which is the increasing trend now a days with the boom of electronic commerce. It is also important at this situation that the loyalty of the consumers be established since the problem with the Internet is that the consumers already have their own censorship in the sense that they will not visit the webpage. In the grocery or in the market, products are displayed such that consumers can only to a certain extent censor themselves unlike in online shopping. Improving the reach of the company in other parts of the world is also a strategic issue. And since going worldwide implies variety of tastes and needs brought about by varying cultural practices, product variety and diversity is also a strategic focus. It should be noted that the company is not only focused on cereal breakfast because this is probably more related to the western context of meals. The utilization of the Internet to improve the reach of the company is very effective since having websites compensates the lost information in print and television advertisements. Looking at the Kellogg’s Official website, brand information is very extensive. This allows the consumers to compare and decide for as long as it takes them to, instead of being pressured by time and people when they are in the grocery stores. Websites are very useful since anything and everything can be placed in the webpages. Company reports are also available such that consumers are being given the opportunity to get to know the producer of the brand that they are loyal to. In the Asia-Pacific, milk and cereal breakfast is not much of a market since they are still much into their traditional breakfasts. However, with the product diversity, including snacks like cookies and health bars. The only commonality between east and west is the consciousness of the people in eating healthy and this is what they can capitalize on. Conclusion In conclusion, the company’s strategy is in the right focus and direction by capitalizing on their strengths. For one, the acknowledgement of the present situations like the increased health consciousness of the consumers and the present global economic crisis brought about the improved quality and cost of the products. Despite the present problems, the company was still able to get increased net sales for the past 3 years and will probably continue to do so in the next couple of years provided that they do not waver in their focus. It is safe to say that Kellogg’s is a resilient company since it was able to surpass the downturn it has experienced in the 90s. A contributory factor to this resiliency perhaps is still the focus on the goals that they have set and the thought of the mission of the company to provide healthy breakfast and snacks. Another contributory factor to the survival of the company is the successful investment in the people. A happy workforce is an efficient workforce as the adage goes. In addition, the employees were able to imbibe the values and the mission and vision of the company that is why even with the big number of employees, they are still able to deliver what the products are supposed to deliver. What can be learned from the Kellogg’s experience is that a focused sustainable growth is brought about by clear vision, awareness of opportunities, manipulation of threats to the company’s advantage, understanding the needs and wants of the consumers and giving importance to the employees. References. Fraser, J. A. (2004). A return to basics at Kellogg. MIT Sloan Management Review, 45, 4. Retrieved April 22, 2009 from ProQuest Databases. Kellogg Co. (2009a). Our History. Kellogg Company. Retrieved April 21, 2009 from http://www.kelloggcompany.com/company.aspx?id=39 Kellogg Co. (2009b). Kellogg Company Announces Voluntary Nationwide Recall of Austin(R) and Keebler(R) Branded Peanut Butter Sandwich Crackers and Select Snack-Size Packs of Famous Amos(R) and Keebler(R) Soft Batch Peanut Butter Cookies Because of Possible Health Risk. Retrieved April 23, 2009 from http://investor.kelloggs.com/releasedetail.cfm?ReleaseID=359829 Kellogg Co., (2008a). Annual Report. Retrieved April 21, 2009 from http://216.139.227.101/interactive/k2008 Kellogg Co. (2008b). Kellogg Acquires Specialty Cereals Pty Limited, a Leading Natural Cereal Manufacturer in Australia. Retrieved April 23, 2009 from http://investor.kelloggs.com/releasedetail.cfm?ReleaseID=335464 Kellogg Co. (2008c). Two Bowls For a Buck: Cereal Breakfast is the Best Value Around. Retrieved April 23, 2009 from http://investor.kelloggs.com/releasedetail.cfm?ReleaseID=348144 Lindstrom, M. (2005). Broad Sensory Branding. Journal of Product and Brand Management, 14 (2): 84-87. Retrieved April 24, 2009 from Emerald Insight. United States, Securities and Exchange Commission. (2008). Form 10-K. Kellogg Company. Retrieved April 22, 2009 from http://www.scribd.com/doc/12811316/KELLOGG-CO-10K-Annual-Reports-20090224 Read More