Kellogg plans to sell Keebler bakery brands and cookie business
- Kellogg plans to sell its cookie and fruit snacks businesses — including Keebler, Famous Amos, Murray, Mother's and Stretch Island brands — to bring a sharper focus to its core business, allow the company to concentrate on top-line growth and return to profitability, according to a statement on Monday afternoon.
- The sale is just one part of a restructuring of Kellogg's North American business. The company plans to consolidate its existing Morning Foods, Snacks and Frozen Foods segments into one categories-focused group, which would make up 80% of Kellogg's North American revenue. Other changes include combining Morning Foods, Snacks and Frozen and Retail Channels sales teams; building a consolidated end-to-end supply chain that includes procurement, manufacturing, logistics and customer service; and investing in new e-commerce and integrated business planning capabilities.
- Kellogg Chairman and CEO Steve Cahillane said the cookie and fruit snack brands had a hard time competing for funds in the company's portfolio, but added that the brands are strong and could be an asset to someone else. "Ultimately, we believe these changes will make Kellogg more agile and better focused on growing demand for our foods," Cahillane said in the statement.
After years of slow growth, it's past time for Kellogg to divest some of its brands. The manufacturer, best known for its cereal, has been making operational cuts for more than a year. In 2017, the company abruptly switched its distribution method, getting rid of direct store delivery in favor of warehouse delivery — a move that cost more than 1,100 employees' jobs. It also laid off close to 500 employees — about 250 who mainly worked in the company's Battle Creek, Michigan headquarters and 223 at a Michigan cereal plant that was closed.
So well after the bad optics of job cuts in the name of cost savings, the company is doing something that's still drastic, but much less negative: trying to sell some brands that don't fit in with Kellogg's core mission. Perhaps this choice should have been made more than a year ago — though the personnel cuts also took place before Cahillane became CEO last fall.
The company could use a lasting boost. In Kellogg's most recent earnings report, net sales were up 7%, but that was mainly bolstered by RXBAR, the clean label nutrition bar that Kellogg acquired last October. On the other hand, savings from previous cuts amounted to 38% growth in operating profit so far this year.
Keebler's cookies have been a revenue drag on Kellogg since the Michigan company paid $3.86 billion to acquire the baker in 2000. At the time of the acquisition, Keebler was seen as a way for Kellogg to diversify its portfolio beyond cereal, which was then starting to feel the effect of consumers choosing convenient breakfast options over traditional favorites. Then-CEO of Kellogg, Carlos Gutierrez, told The New York Times that the acquisition was ''transformational,'' with cereals representing no more than a quarter of the company's total business.
But not even four years after the deal closed, there was already grumbling about the cookies' performance under Kellogg, according to AdAge. By 2004, several Keebler brands had seen steep declines, with Kellogg's retail snacks division — which included Keebler as well as several in-house snacks, like Rice Krispies Treats and Nutri-Grain — posting $600 million less in annual sales than Keebler's last year as an independent company. The reason, company officials said at the time, was because consumers were uninterested in less-than-healthy snacks.
Fast forward 14 years, Greg Wank, leader of the Food and Beverage Industry Practice at accounting firm Anchin, Block & Anchin, gave a similar reason for why divestment makes sense in comments emailed to Food Dive.
"Kellogg's is wise to focus on morning foods (cereal) and snacks which probably includes bars but would not include cookies and sweets," Wank wrote. "They appear to have made the decision that cookies are not core to their future and they want to raise capital from selling those assets to reinvest and realign their cereal and healthier snack business."
While Kellogg might not want these sweet snacks, it is truly a buyer's market for any company looking to pick some up. Campbell Soup is also selling its Arnott's cookie and snack brands, though it's based outside of the U.S. Earlier this year, Nestlé sold its U.S. confectionery business to Nutella maker Ferrero Group for $2.8 billion. Tyson sold the Sara Lee frozen bakery brand to private equity firm Kohlberg & Company for an undisclosed amount. And Smucker sold the Pillsbury baking mix business to private equity firm Brynwood Partners for $375 million.
It remains to be seen who may be interested in buying the Keebler business, but there is still money to be made in sweet snacking. As consumer trends shift away from this kind of packaged cookie, the next owner needs to be someone ready to do an uncommonly good job of innovating in this sector — and not be a company struggling to keep afloat on other troubled product segments.
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