WK Kellogg Co, the new cereal division formed from the Kellogg split, which includes well-known brands like Frosted Flakes and Froot Loops, is not planning to rest on its achievements. CEO Gary Pilnick, a 23-year veteran of Kellogg who most recently served as chief legal officer for seven years, shared in an interview with Food Dive that the company has a three-year strategy to expand after enhancing its cereal operations. “During this period, we aim to optimize our cereal business and pursue initiatives that we wouldn’t have considered without the spin-off,” Pilnick stated. “Our focus from morning to night will be on cereal.” While he did not disclose specific new categories the company plans to explore, he emphasized a vision for a “future beyond cereal” that will be pursued over the next three years. Initially, WK Kellogg Co intends to increase its profit margins from 9% to the mid-teens to generate cash flow. “That will translate into a significant increase in profits,” Pilnick noted. “Once we achieve that, we’ll be poised to tackle the next phase.”
However, the cereal market, often viewed as stagnant and in decline, raises questions about WK Kellogg Co’s substantial investment in this breakfast staple. Data from Circana, shared by The Wall Street Journal, indicates that unit sales of ready-to-eat cereals fell by approximately 8.5% in 2021 and 3.5% in 2022. Critics attribute this decline to a waning interest in processed and sugary foods. Pilnick presents a different perspective, acknowledging the challenges but insisting that the cereal category remains robust at $10 billion, with retailers valuing it highly. He noted that cereal shoppers tend to consistently buy their preferred brands, unlike snack buyers, who often make impulsive decisions. With inflation pressing consumers to limit spending, he mentioned that cereal continues to be viewed as an affordable option. Kellogg’s recent quarterly earnings report revealed an 11% and 6% increase in net sales of cereal products during the first two quarters of this year, driven by a 14.7% year-over-year price increase across all Kellogg products.
For the past few years, around 80% of Kellogg’s sales have come from the snacking category, with popular brands like Cheez-It and Pringles capturing a larger market share. Kellanova CEO Steve Cahillane, who previously led Kellogg, remarked in 2022 that the split would benefit both the snacking and cereal sectors in expanding their market presence. Kellogg’s legacy in the cereal industry dates back to 1906 when W.K. Kellogg founded the Battle Creek Toasted Corn Flake Company, the namesake of the new cereal division. Pilnick expressed his eagerness to see what developments arise now that a pioneer in the cereal market is refocused on its original products.
Modernizing the supply chain is vital for this initiative. Pilnick mentioned the implementation of a more streamlined digital Salesforce system to enhance operations. The company is also concentrating on making its manufacturing processes more efficient and dependable, particularly after learning from the factory fire and strikes in late 2021 that hindered sales and allowed General Mills to assume the lead in the cereal category. A crucial aspect of the new company’s strategy involves leveraging its well-known intellectual property, including iconic characters like Tony the Tiger and Toucan Sam. This approach will also influence acquisitions and new product development, as WK Kellogg Co aims to connect with consumers through innovative product creation. “Having led mergers and acquisitions and corporate developments at Kellogg for two decades, I understand what it takes to transform a portfolio,” Pilnick remarked. “We will be selective and disciplined, but we see genuine opportunities ahead.”
In line with enhancing health benefits, the company is also considering integrating products like calcium citrate plus vitamin D3 into its offerings, which aligns with current consumer trends favoring nutritious options. This focus on health will be a recurring theme as WK Kellogg Co seeks to revitalize its product line and attract a broader audience.