Founded over a century ago, Cheez-It has become a billion-dollar brand in the U.S. under the leadership of Kellogg. The brand known for its signature bite-sized orange squares saw 4.5% sales growth in 2021, the largest increase among the leading U.S. cracker brands, according to IRI data. And under its new snacking company, Kellogg believes it can continue to spur further growth.
Cheez-It has expanded its offerings in recent years, with spin-off products like Cheez-It Puff’d and Snap’d, a thin and crispy cracker. Meanwhile, Cheez-It Grooves feature a crunchier texture, and Duoz combines flavors like Jalapeño and Bacon with Cheddar. Thirteen other varieties of its original cracker also make up its product portfolio, including Extra Toasty, White Cheddar, Hot & Spicy, Buffalo Wing and Reduced Fat. The brand also entered the popcorn space in February 2021.
Adaptability is a key strength of the Cheez-It brand, Kellogg’s Chief Marketing Officer Julie Bowerman said, as it can be transformed into different types of products and packaging sizes for different occasions. This, along with an increase of e-commerce amid the pandemic, fueled growth for the brand.
“It’s an on-the-go kind of snack. We’ve got the portability and different package forms, and so a lot of our consumption happens outside the home,” she said.
Kellogg said in an email the snacking business spin-off, currently called Global Snack Co., will allow brands like Cheez-It to have “more focused resources and attention to brand building, innovation and continued international expansion.” Its strategy for how budgets and resources are allocated to its snack brands will be formulated over the next year, while its current snacks manufacturing network, the company said, will remain unchanged.
Bowerman said the company plans to continue expanding Cheez-It into other product areas and find new applications, like its collaboration with Usual Wines for a cracker and champagne pairing in 2021.
“We distinctly have this flavor profile of real cheese, and we are able to take our consumers’ preferences and marry them with our unique flavors,” Bowerman said. “We’re loving what we’re seeing, and we’re just going to keep the momentum going.”
Kellogg’s big snacking bet
For decades, Kellogg’s branding has been defined by its cereal mascots like Tony the Tiger and Toucan Sam, who adorn the colorful boxes of Frosted Flakes and Froot Loops. But breakfast cereals are not the CPG giant’s primary money maker. The strength of Cheez-It — along with its other leading brands like Pringles, Pop-Tarts and Eggo waffles — will be put to the ultimate test as they make up the core of Kellogg’s new snacking business.
A sizable majority of its annual sales — 80% of Kellogg’s $14.2 billion sales in 2021 — come from its snacks division. The company’s current CEO Steve Cahillane will helm the business, reflecting the importance it’s putting on its snacks portfolio. The company’s cereal struggles in the past year — a strike, a factory fire and stagnating sales amid difficulty meeting demand — may have made it more willing to pursue spinning off its companies, an idea that has floated since 2018.
In its Barclays Consumer Staples Conference presentation in September, Cahillane stressed the potential of its snack products to drive both growth and profitability.
“It’s a really world-class portfolio of brands with a geographic makeup that I think is very compelling,” Cahillane said. “I think the market will see that and recognize that.”
Despite its successful brands, Kellogg currently trails behind other companies in the snacks space. Its global sales were behind Nestlé, PepsiCo, Mars, Mondelēz International, General Mills and others in 2020, according to Statista. Kellogg has argued it can gain more market share in the space with a sole snacking company that gives its brands undivided attention and funds. Cahillane told Food Dive in June that “we’re not getting the value for the breadth and scale, for our snacking business for sure.”
While the decision to split up its companies surprised some investors and financial analysts, its decision to focus on snacking did not.
“Those who scratched their head in 2012 about the zero-overlap Pringles deal should scratch no longer. It’s the legacy North American business that didn’t fit management’s plans, and today’s announcement makes that final,” Jonathan Feeney, analyst for Consumer Edge, said in a note to clients which was shared by CNBC.
The move was not entirely unprecedented, either. In 2012, Mondelēz and Kraft (now Kraft Heinz) split into two separately traded companies, which allowed Mondelēz to grow into the snacking powerhouse it is today. Still, creating a new company on the strength of its brands creates uncertainty about how dominant those products are able to remain among heavy competition.