China Food

Kellogg suddenly announced that it would split into three companies. Where would China’s business go?


国际食品巨头突然要“大卸三块”,这是怎么回事?


On June 21 local time in the United States, kellogg’s made such an announcement. The American food company, which sells Kellogg’s cereals and Pinker’s potato chips in the Chinese market, said it planned to split itself into three independent companies by stripping its “grain business in the United States, Canada and the Caribbean” and “plant-based business”.

Three proposed companies


This means that Kellogg wanted to “fly alone” the two business segments that accounted for about 20% of its net sales last year, while the remaining 80% of its business – mainly global snacks, international cereals and pasta, and North American frozen breakfast products – was in another company. If it works out eventually, it also means that the original Kellogg will transform into a multinational company with snacks as its main business and compete more directly with “yizimen”.


Xiaoshidai noticed that Kellogg has a joint venture with Golden Arowana in China. What impact will this adjustment have on China’s business? Now, let’s have a look.


Pinke potato chips of Kellogg


Self cultivation


“This is another brave deal in transforming Kellogg’s product portfolio, further improving performance and creating value.” In a briefing, Kellogg first praised itself and pointed out that “one split and three” is designed to enable each company and its stakeholders to focus more on strategy, operation and finance, which will enable Kellogg’s development to a higher level.


Specifically, these proposed companies will be positioned as follows:


  • “Global snacking Co.”: with a net sales of about US $11.4 billion, it wants to become a “leading company” in the field of global snacks, international cereals and pasta, and frozen breakfast in North America, with “iconic world-class brands”, as well as strong potential growth momentum and profitability;
  • “North America cereal Co.”: with net sales of about US $2.4 billion, it will become a “leading grain company” in the United States, Canada and the Caribbean, with a portfolio of “iconic world-class brands” and “compelling investment and profit growth opportunities”;
  • “Plant Co.”: with a net sales of about USD 340million, it will become a “leading, profitable and pure plant-based food company”. Based on the Morningstar farms brand, it will further penetrate the North American market and expand internationally through investment to seize the strong long-term development prospects of this category.


Categories and sales of the three companies


Steve cahillane, chairman and CEO of Kellogg, said in the briefing that the company has been transforming, hoping to improve performance and create greater long-term value for shareholders. He said that the above businesses have significant independent potential and can turn a new page in innovation and growth.


家乐氏首席执行官 Steve Cahillane就拆分发表的最新视频讲话

It is reported that in recent years, Kellogg has continuously sold its product portfolio to more markets and turned to high growth categories, especially snacks. To achieve this goal, the company has made many acquisitions and cooperation in emerging markets. After several years of transformation, Kellogg believes that now is the right time to split, so that each business can pursue its own strategic priorities.


Regarding the benefits of the split, Kellogg further pointed out that as three independent companies, they can set the financial objectives that are most suitable for their own market, implement and allocate resources more quickly and flexibly, improve profitability and growth prospects, and shape their own unique corporate culture.


Kellogg estimates that the split is expected to be completed before the end of 2023, and the split of North America cereal Co. may precede that of Plant Co.


company

China joint venture


Xiaoshidai noticed that since the split is global and Kellogg has business in China, what impact will this transaction bring to the Chinese market?


Statistics show that Kellogg’s business in China has experienced ups and downs. As early as 1993, Kellogg (China) Co., Ltd. was registered and established. However, at present, the company is in the state of “cancellation”. Also cancelled are Kellogg (Qingdao) Food Co., Ltd., which was established in 2008.


After the setback of “going it alone”, Kellogg adjusted its strategy in China. According to the industrial and commercial data, Kellogg and YIHAI KERRY now have joint ventures in the mainland, which are located in Kunshan and Shanghai respectively. The chairman is Chen Bo. His other identity is the senior manager of YIHAI KERRY golden dragon fish grain, oil and food (Note: Director of marketing management center, consumer goods channel business unit and packaging oil business unit).


According to the latest announcement, businesses related to the Chinese market should enter the above-mentioned global snacking Co. Kellogg said that its three international regions, namely Europe, Latin America and Asia Pacific, the Middle East and Africa, will “remain almost unchanged” in global snacking Co. in addition, Steve cahillane, the CEO of Kellogg, will continue to serve as the chairman and CEO of global snacking Co.


Kellogg’s “gulannola” cereal and Pinker potato chips are sold online and offline, and the products are mainly produced in China.

Kellogg’s cereal on the shelf

至于提议中的Global Snacking Co.,约60%的净销售额将来自“全球零食”板块,这当中包括了品客(Pringles)、Cheez-It、Pop-Tarts、Kellogg’s Rice Krispies Treats、Nutri-Grain 和 RXBAR 等品牌。此外,不到25%的净销售额由国际市场的谷物食品所贡献,品牌包括家乐氏、Frosties / Zucaritas、Special K、Tresor / Krave、Coco-Pops 和 Crunchy Nut 等。


Geographically, North America will account for less than half of the net sales of global snacking Co., emerging markets will account for about 30% of its net sales, and developed countries will account for more than 20% of its net sales.


“This business is expected to become a company with higher growth than Kellogg’s today.” Kellogg said in the notice that it is expected that the business will expand its profit margin through operating leverage, revenue growth management, improving productivity and increasing the sales scale in emerging markets.

Kellogg’s business history


Prospect doubt


The international media also talked about Kellogg’s plan to split this time.


Bloomberg pointed out today that breakfast cereal is the foundation of Kellogg, and the split shows that the expansion of the company will be far from this. The epidemic has boosted the demand for packaged food and snack food, and plant-based food has become more and more popular in recent years.


However, some Wall Street analysts pointed out that the split decision undoubtedly provides an opportunity for Kellogg’s snack business, but in the long run, an independent grain company with slow growth may be more difficult to outperform the market. In view of the slower than expected expansion of Kellogg in 2021 and the recent stock price performance of beyond meat and oatly peers, creating a pure plant-based company “will be a bold move”.


Wall Street analysts also expect that as the snack trend continues under the epidemic and the share prices of related companies are still low, there will be more (M & A) transactions in the food industry.


Proposed plant based product company


Reuters said today that before Kellogg’s decision to split, Johnson & Johnson, general electric and other companies issued similar split announcements in the past year, and stressed that large companies need to be agile in competing for market share. Large companies often split up to try to get rid of the so-called “group discount”, that is, the market value of the group enterprise is often lower than the sum of the estimated market values of its subsidiaries.


Reuters pointed out that Kellogg’s has been focusing on its global snack product portfolio in recent years, because as more and more Americans began to eat snacks and rely on fast-food chains for breakfast, the sales of U.S. grains fell. Most packaged food companies, even those that did not have much business in this field before, are doubling their investment in this business through multi billion dollar acquisitions.


Reuters also pointed out today that Kellogg plans to split or even sell its profitable Morningstar farm vegetarian pie and “vegetable meat” businesses, but their prices are far lower than those of plant-based breakfast sausage, hamburger and artificial chicken of high-end brands such as beyond meat and imposible foods. Kellogg is facing a “difficult environment” without the support of Kellogg.


“It is a difficult environment,” Reuters quoted analysts as saying. “The (plant-based) category will not grow as fast as early bulls expected, and its trading volume is declining.”


The Wall Street Journal paid attention to the work of Kellogg CFO. The report pointed out that as part of the split, Kellogg’s financial department would be responsible for preparing three-year audited financial statements for each company. Kellogg CFO said that splitting the balance sheet will be a thorny challenge, and the senior management has begun to plan how to deal with the financial report.


“Kellogg needs to ensure that the split will not distract the operating department, including ensuring that price increases will not affect sales.” Analysts told the Wall Street Journal.



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