WK Kellogg Co, the new cereal division emerging from the Kellogg split which includes a portfolio containing Frosted Flakes and Froot Loops, isn’t planning to rest on its laurels.
The new company’s CEO Gary Pilnick is a 23 year veteran of Kellogg, most recently serving for seven years as its chief legal officer. In an interview Tuesday, the executive told Food Dive it has a three year plan to expand after scaling up its cereal operations.
“During that time, we want to optimize this scaled cereal business and do things that we would not have done but for the spin,” Pilnick said. “Everything we’re going to do from morning till night is in service of cereal.”
The executive didn’t specify what other categories the company will be brought into but emphasized it sees a “future beyond cereal,” that it will work to enact within the next three years. WK Kellogg Co plans to first expand its margins from 9% to the mid-teens in order to generate cash, he said.
“That’s an awful lot of additional profit,” Pilnick said. “Once we get through that, we’ll be ready to move to that next horizon.”
But the state of cereal, seen by some as a stagnant and declining category, calls into question WK Kellogg Co’s big bet on the breakfast staple. Ready-to-eat cereal unit sales declined in both 2021 and 2022 by roughly 8.5% and 3.5%, respectively, according to Circana data shared this month by The Wall Street Journal. Critics cite declining interest in processed and sugary foods as factors in its decline.
Pilnick characterizes things differently, while acknowledging headwinds. The CEO said it is a durable $10 billion category that retailers value. Cereal shoppers, he said, consistently purchase their favorite offerings, whereas snack buyers are often more impulse-driven. As consumers hit with inflation curb spending, he said, cereal is still seen as an affordable option. Net sales of cereal products increased 11% and 6% in the first two quarters of this year, Kellogg said in its most recent quarterly earnings report. This was fueled by a 14.7% year-over-year increase in prices over the past year for all Kellogg products.
Roughly 80% of Kellogg's sales in recent years were in the snacking category, with brands like Cheez-It and Pringles taking a larger slice of the pie. Kellanova CEO Steve Cahillane, who previously led Kellogg, told Food Dive in 2022 the split will help both snacking and cereal grow their presence.
Back to basics
Kellogg’s cereal presence dates back to 1906, when Battle Creek Toasted Corn Flake Company was created by W.K. Kellogg, the namesake of the new cereal company. Pilnick said he is interested to see what will happen now that a trailblazer in the cereal business is solely focused on its original products again.
Modernizing its supply chain will be crucial to this endeavor. Pilnick said this includes a more streamlined digital Salesforce system for handling its operations. Making its manufacturing operations more efficient and reliable is also a key factor the company is focused on, having learned from the factory fire and strikes in late 2021 that hampered sales and allowed competitor General Mills to take the leading position in the cereal category.
A key part of the new company’s strategy will be leaning into its recognizable intellectual property, he said, including characters like Tony the Tiger and Toucan Sam. This includes its approach to acquisitions and new product development, as it plans to leverage its familiarity with consumers with new product creation.
“I’ve been doing company M&A and leading corporate developments for the last two decades at Kellogg, and I know what it means to transform a portfolio,” Pilnick said. “We’re going to be selective and disciplined, but we think there’s real opportunity for us.”