Global cereal opportunities abound for Kellogg

by Eric Schroeder
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BOCA RATON, FLA. — Emerging markets — specifically Turkey, Russia and China — stand as important gateways for future growth at Kellogg Co., company executives explained Feb. 17 at the Consumer Analyst Group of New York (CAGNY) conference in Boca Raton.

Cereal, which accounts for more than 50% of Kellogg’s global sales, may provide some of the biggest opportunities for growth in international markets.

In Turkey, a joint venture agreed to with Ulker in 2005 has helped Kellogg raise its cereal market share in the country to 28% from 2% in four years time, said John Bryant, chief operating officer. The growth has come at a time when the overall category has grown strong double digits, and the prospects for future growth are good, he added.

“Turkey, we believe, could be a very exciting cereal market long term,” Mr. Bryant said. “It’s a country of roughly 70 million people, so (there is a) relatively large population base, good economics, and a very exciting opportunity for us. Also what I think it does is it provides us with a blueprint for how we can partner with strong local companies in joint ventures to open up some of these emerging markets in a way that does not require us to necessarily go out and make acquisitions or to buy smaller companies and combine them to create something that we want to have long term.”

Kellogg boosted its presence in Russia in 2008 when it acquired United Bakers, which is the largest cracker maker in Russia and the No. 2 cereal and No. 2 cookie company. Mr. Bryant said Kellogg sees great potential in what is becoming a large cereal category.

“The reason that Russia has that great potential for us is because there is currently a very large hot cereal market in Russia called Kasha,” he said. “It’s essentially boiled buckwheat. It takes 20 to 30 minutes to prepare, and we believe over time we can migrate people from that hot cereal category to a cold cereal consumption habit.”

Snacks account for more than 40% of Kellogg’s global sales, and Russia offers a great opportunity to grow this side of Kellogg’s business as well, Mr. Bryant said.

Although Russia is a highly developed cookie market, Mr. Bryant said most cookies in the country are sold in large boxes in open markets. Kellogg’s plans call for trying to get consumers to migrate away from buying in bulk and instead gravitate toward buying branded cookies. He said that while the company is having some success on the transition, Kellogg does not anticipate dramatically swinging the pendulum on consumers’ buying habits.

Another important emerging market mentioned by Mr. Bryant was China. While optimistic that China will provide a large cereal and healthy snack business, he said the process of getting there will take much longer than in Russia or Turkey. Currently, China is about a $30 million to $40 million business, he said.

“China is a little bit more complicated from a cereal perspective than Russia,” he said. “There is not the same hot cereal breakfast consumption habit, so it’s harder to move the core habit in China to cold cereal. It will take us a longer period of time.

“One element that is positive for us here, though, is a lot of cookies are actually consumed at the breakfast occasion. They are fortified with vitamins the same way you fortify cereal. And so there is potential for us to get the same benefits from cereal into a cookie and have a breakfast cookie, which is very similar to what we would sell elsewhere in the world but as a cereal opportunity.”

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