Kellogg frozen foods on the fast track

by Eric Schroeder
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BATTLE CREEK, MICH. — Anchored by strong brands that are growing in attractive, on-trend categories, the Kellogg Co.’s frozen foods business in the United States is one of the company’s fastest growing segments, said Michael Allen, president of U.S. Frozen Foods at Kellogg.

In a Feb. 5 conference call with analysts to discuss fiscal 2012 financial results, Mr. Allen highlighted a number of factors that contributed to full-year sales growth of nearly 11% in the company’s frozen foods business. Specifically, the company has experienced significant rates of growth in the three frozen food categories in which it operates: breakfast, vegetables, and natural and organic.

In the frozen breakfast category, which includes waffles, pancakes, breakfast sandwiches and entrees, Kellogg posted consumption growth of 3.4% in fiscal 2012, Mr. Allen said.

“These products provide convenience, and, in the case of our new Special K flatbread sandwiches, protein and relatively fewer calories,” he said. “Our flatbreads have only recently been introduced, but we’ve seen great retail acceptance, and strong velocity.”

Another breakfast item contributing to growth has been the Eggo brand, which Mr. Allen said has exhibited “very strong rates of all family consumption.”

“This has been increased by the introduction of several innovations, including thick and fluffy waffles, which have been a huge success, and more recently, Wafflers,” he said. “These are really strong results, and they are a testament to all the hard work the team did last year.”

Despite offering fewer stock-keeping units than it has in the past, Mr. Allen said Eggo’s share of the waffle category is at an all-time high.

“Eggo is a very attractive brand that responds very well to brand building,” he said. “As a result, we’re continuing to make significant investments, including in the digital space. Eggo is one of the strongest equities at Kellogg, and we continue to see penetration upside. This brand has grown historically behind the line of ‘Leggo My Eggo.’ And because the brand is so popular, we get great support from our customers.”

He added most of Eggo’s sales are base sales.

“In fact, this is a category that has very low level of incremental activity, and we see very little seasonal effect, unlike many other categories,” he said.

Several new products on tap for 2013 include S’mores Eggo waffles, Special K Red Berries waffles and Egg Drizzlers in blueberry and strawberry flavors.

Consumers opting for Kellogg’s frozen vegetable options over meat options helped drive consumption growth of more than 7% in the company’s frozen vegetable category during 2012, Mr. Allen said. He said consumers are not necessarily converts to vegetarian diets, but rather people who continue to view meat as an option.

“Our products provide alternatives for consumers without requiring them to give up any of the taste or protein that they love,” he said.

Mr. Allen said Kellogg ramped up brand building in the MorningStar Farm brand in May 2012 and experienced a significant response in sales as a result.

“Innovation is important in this segment as well,” he explained. “Existing consumers like the choice alternatives, and new consumers can be drawn into the category by innovative new products. For these reasons, variety is important, and we’ve done a very good job of expanding our offerings. The avoidance of meat is an important consumer trend, and we’re well positioned to benefit and even drive the category.”

For 2013, the company plans to introduce a Mediterranean Chicken Burger.

The final frozen category in which Kellogg competes — natural and organic — grew more than 10% last year, driven by the combination of convenience and increased demand for natural and organic foods.

“Our Kashi brand plays very well in this space,” Mr. Allen said. “It’s a brand that consumers know and trust, and we’ve added innovations to our existing pizza and entrée businesses. In 2012, we launched Kashi steamed meals, a convenient and easy way to get delicious, natural meals.”

Kellogg’s success in frozen is in contrast to many other companies that have lost steam over the past several years. Recent research from Mintel International, Chicago, showed frozen sales have stagnated or declined. In the conference call, Mr. Allen pointed out Kellogg’s growth in fiscal 2012 was not the industry norm.

“It’s interesting to note that our nearest competitor … is actually a combination of private label manufacturers, and we grew at almost twice their rate,” he said. “So, we’re in the right segments of the category, and we’re executing well.”
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