Kelloggs Faces Marketing Challenges as Consumer Preferences for Breakfast

Foods Evolve

02MondayMAR 2015
POSTED BY MARKETINGMANAGEMENT2E IN CHAPTER 13 - ADVERTISING; SALES PROMOTION;
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advertising, Brand Management, Consumer Trends, product
development, value proposition

Source: The Motley Fool

Kelloggss morning-foods division is experiencing consistently declining
sales
Bloomberg recently published an interesting and potentially alarming
article on Kelloggs morning-foods division. The companys U.S. morningfoods net sales fell 8 percent in the fourth quarter of 2014the divisions
seventh consecutive quarterly decline. Much of this is due to loss of cereal
sales: according to Consumer Edge Research, 19 of Kelloggs top 25
cereals eroded last year.In part due to changing consumer trends and
demand, the companys cereals are losing their share at the breakfast
table despite the $1 billion+ a year that Kelloggs spends on advertising.
In comparison, General Mills, a comparably sized competitor, spent $870
million on advertising and media in 2014. Americans are increasingly
eating breakfast on the go: granola bars, yogurt, fruit, and fast food
breakfast sandwiches have risen in popularity at the expense of cereal.
Whereas cereal was once considered convenient, these options are even
more so.
On the other hand, consumers who prefer to eat at home are
rediscovering hot meals such as oatmeal and eggs, which were up 3.5
percent in sales in the first half of 2014 and 7 percent in sales last year,
respectively. While Kelloggs benefits from its Eggo frozen waffle line that

addresses those consumers who desire hot, made-at-home breakfasts,

Eggo sales have not compensated for falling cereal sales.
Another consumer trend challenging cereal manufacturers is a desire to
eat healthier, which within the context of cereals means increased
concerns regarding the consumption of carbohydrates, GMOs (genetically
modified organisms which are found in processed and prepackaged
goods), and sugar. Kelloggs Honey Smacks, for instance, contains 56%
sugar by weight, which may raise red flags for health-conscious
consumers.
If Kelloggs sales are to be solely attributed to consumer trends, however,
then its reasonable to assume that the firms competitors would be
equally impacted over time. Conversely, General Mills cereal (such as
Lucky Charms and Cheerios) sales have fallen only half as much as
Kelloggs in 2014, while Post Holdings (owner of Honey Bunches of Oats)
managed a 2 percent increase. This begs the question: what else is
contributing to Kelloggs loss on breakfast? Has the company lost its
marketing abilities?
In order to attract consumers and overcome the cultural shifts explored
above, Kelloggs is adding more fruit and natural ingredients to its cereals
and cutting back on sugar by as much as 30%.
In comparison, General Mills Cheerios remain strong, as Cheerios are
marketed as a healthier alternative to traditional cereals (despite the fact
that one cup of Cheerios contains more sugar than three Chips Ahoy!
cookies). General Mills also took advantage of increased demand for
yogurt when it purchased Yoplait, the worlds second largest yogurt
producer. Meanwhile, Kelloggs purchased Pringles despite consumer
preferences for healthier snack alternatives and the 2 percent decline in
Kelloggs U.S. snacks division in 2014. This demonstrates General Mills
success at addressing consumer trends and demand as opposed to
Kelloggs seemingly non-strategic acquisition.
Kelloggs Special K brand has been one of its more successful lines.
Originally marketed as a diet brand, it is now marketed as a cereal for the
health-conscious consumer, highlighting new flavors such as Raisin Bran
with Cranberries. However, some doubt that this is sufficient to impact
Kelloggs performance in such a mature market in which competitors are
forced to focus on ways of taking market share from each other in order
to grow.
Kelloggs was boosted by Kashi when it purchased the health-food cereal
maker in 2000, but lately Kashi has been underperforming, with some of
its lines falling 30% in sales in 2014. Some claim that it has lost its value
proposition of a healthy brand: Kashi now makes butter cookies, frozen
pizzas, and other inorganic foods contrary to healthy, natural eating.
Kelloggs has also been criticized for indecisiveness regarding the division,

which has been moved around from Southern California to Battle Creek,
MI back to Ja Lolla, CA all since 2013. This has rid the brand of its local,
mom-and-pop persona. Kelloggs plans to restore Kashis credibility via its
15 GMO-free cereals now in stores.
As Kelloggs looks to develop products and position them to appeal to
shifting consumer preferences, gluten-free cereals present an opportunity
for Kelloggs: sales of gluten-free cereal are up 22 percent, according to a
recent Nielsen survey. While Kelloggs already makes some gluten-free
cereals such as gluten-free Rice Krispies and competes with specialty
health food companies in addition to its mainstream competitors, further
expansion into this market segment could prove to be lucrative.
All of these changes may come at the expense of Kelloggs older brands,
such as Frosted Flakes and Fruit Loops, which are being overwhelmed by
new products. Older cereals were traditionally advertised on television
using Disney-like cartoon characters that spoke directly to children.
However, todays children may not relate to Tony the Tiger or Toucan
Sam, although their images are ingrained in adults minds. Indeed,
Kelloggs was able to increase Fruit Loops sales by 3% by marketing to
adults. General Mills has taken a similar approach by running TV
advertisements showing an adult couple enjoying Lucky Charms together.
From a marketing management perspective here are some questions to
consider:

Consumer Edges Robert Dickerson believes that Kelloggs main

problem is reduced demand. How would you, as the CMO of Kelloggs,
address this challenge?
What tools in the promotions mix do you feel are most appropriate
when promoting Kelloggs breakfast cereals? What kind of metrics
would you look at to validate the performance of your related
recommendations?
In a Bloomberg article, author Matthew Boyle states, Kelloggs
created breakfast flakes and foresaw the power of TV advertising.
There must be some way for his successors to sell breakfast food to
working parents and their children who are now watching YouTube
instead of Saturday morning cartoons. What are your thoughts on
accomplishing this goal?