Splitting off its snacking division will help the Kellogg Company better compete against other food makers, CEO Steve Cahillane said at The Wall Street Journal’s Global Food Forum in Chicago last week.
The executive said his company’s snacking division — which gets 80% of its sales from brands such as Cheez-It, Pop-Tarts and Pringles — has not received recognition from investors despite growing sales 26% year-over-year in its most recent quarter. But the CEO said he’s still optimistic.
“I’m not happy with our stock price performance, but go back and look at our results, it's been exceptional,” Cahillane said.
Since Cahillane took over as CEO in 2017, he’s been evaluating Kellogg’s portfolio. This led to the company’s announcement last June that it planned to split its business. Cahillane previously told Food Dive he expects the separation to be completed by the end of this year.
Kellanova, the new name of its snacks business, will focus on products with and without a health halo — such as Rice Krispies Treats and RXBar — for various consumer occasions, he said. Kellogg previously said it is relying on the strength of its iconic brands to grow in the space.
When asked at the WSJ conference how Kellogg’s new snacking business will tackle concerns over “ultra-processed foods” in its products, Cahillane said offering choice while promoting active lifestyles is more effective than trying to find a single answer.
“It’s not a simple solution where it’s just processed foods or soft drinks, or you name your villain of the moment,” Cahillane said. “If we as a country start to tell people the only way you can eat healthy is eating what you grow in your backyard, we’re not going to solve any problems.”
Recovering from the plant-based ‘implosion’
Cahillane said at the WSJ event the decision to retain its plant-based business, led by MorningStar Farms — after initially saying it would split the division off — came after a dramatic “implosion” of the meat alternative sector. He said the “irrational exuberance” and high valuations in the space drove its initial decision-making.
“This category, when we looked at spinning off MorningStar Farms, was completely different than it is today,” Cahillane said. “We saw peers with valuations that were 30 times greater than what they are right now.”
Cahillane said Kellogg believes plant based is a strong asset to keep under Kellanova. Kellogg plans to maintain MorningStar’s high household penetration as competitors in the space “that really never should have gained the distribution ... go away,” he said.
When asked how Kellogg’s decision to discontinue its Incogmeato burger earlier this year bodes for its broader innovation strategy, Cahillane said it was a “good idea at the wrong time,” given disruptions in the plant-based refrigerated space in 2020.
“If you’re afraid to take a swing in this, you’re not going to innovate very well,” he said.
Tackling decades-high inflation
Cahillane emphasized the importance of maintaining margins to Kellogg. He said inflation during the last two years has prevented it from benefiting from its strong margin growth.
“We make no excuses or apologies for trying to protect our margins because the underlying health of a business can really be seen in its gross margin,” Cahillane said at the WSJ event.
After being questioned whether the prices of its products will go down if supply chain conditions improve, the executive said it remains to be seen. He added that getting to an equation where volume and value are more balanced is a priority.
“Pop-Tarts and Corn Flakes cost more than they did 50 years ago,” Cahillane said. “Inflation comes in cycles, and this is a cycle we haven’t seen for 40 years.”