Innovation back in play

by Eric Schroeder
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Reformulation and health and wellness took center stage within the ready-to-eat cereal category in late 2009 and much of 2010, and three-quarters of the way through 2011 that focus has continued along with a return toward traditional new product introductions.

Leading the way in the cereal category is the Kellogg Co., Battle Creek, Mich. Company executives have said the company expects to launch products that will generate about $800 million of additional sales in 2011, and several R.-T.-E. cereals are expected to contribute, including Crunchy Nut, FiberPlus Caramel Pecan Crunch and Rice Krispies Gluten Free.

In a September pres-entation at the Barclays Capital Back to School Consumer Conference, Mark Baynes, senior vice-pres-ident and chief marketing officer, said Kellogg’s focus is on “ensuring we get the right balance of ideas across the breadth of our portfolios and plans.”

To that end, Kellogg has introduced products geared toward millenials and Hispanics, as well as shifted focus on certain brands in international markets.

Mr. Bayne said Kellogg has restaged the Special K brand in Mexico to a point that it now is achieving strong double-digit growth, while Coco Pops has been relaunched with fiber, whole grain and reduced sugar, a move that has allowed Kellogg to support the brand and drive growth. He also said Kellogg’s ability to transfer the momentum behind Crunchy Nut in the United Kingdom into the United States has been a success.

Kellogg has experienced strong demand for its Rice Krispies Gluten Free cereal, which was launched in June. The cereal eliminates barley malt (the source of gluten in the original Rice Krispies cereal) and is made with whole grain brown rice to differentiate it from the original and for flavor. Each serving of the new gluten-free cereal contains 120 calories, less than 1 gram of sugar, 1 gram each of fat and fiber, 3 grams of protein and 190 mg of sodium.

Kellogg is producing the cereal in a separate facility that has been making gluten-free products for nearly a decade. Each batch of cereal is tested to ensure its gluten-free status, as is the production line, Kellogg said.

General Mills likes growth prospects

At Minneapolis-based General Mills, Inc., dollar and unit sales eased 1.4% and 1.2%, respectively, in the 52 weeks ended Aug. 7, according to SymphonyIRI. But as fiscal 2012 gets under way, company executives are optimistic that improving category trends that began in the fourth quarter of fiscal 2011 will continue.

“First-quarter sales for our cereal business grew 2% in measured channels,” Ian Friendly, executive vice-president and chief operating officer of U.S. Retail at General Mills, said during a Sept. 21 conference call with financial analysts. “Our new items — Fiber One 80 Calories Squares, Cocoa Puffs Brownie Crunch and Cascadian Farm French Vanilla Almond Granola — are all off to a great start. And we continue to see incremental sales from Cinnamon Burst Cheerios, which launched in January.

“We had strong performance on es-tablished brands as well. Honey Nut Cheerios is America’s best selling cereal. We featured this message in new advertising driving retail sales for this brand up 5% in the quarter. The gluten-free benefits of our Chex line of cereals continued to resonate with consumers. Quarterly dollar sales of this franchise were terrific, up 29%. And targeted Hispanic messaging drove strong growth for Cinnamon Toast Crunch with retail sales up 8% in the quarter.

“The cereal category responds to innovation and product news, so we like the chances for good category sales growth in 2012 and with continued product news on many of our established cereal brands, plus bigger and better new product introductions coming in the second half, we are expecting our cereal business to show good sales growth, too.”

Uncertainty at Post

The Post cereal business of Ralcorp Holdings, Inc., St. Louis, ranks as the No. 3 branded ready-to-eat cereal business with dollar sales of $734,019,400 in the 52 weeks ended Aug. 7, according to SymphonyIRI Group, but the fate of the business remains very much up in the air.

Dollar and unit sales were down 10% and 16%, respectively, in the 52-week period, but more pressing is what the future holds for Post. On multiple occasions this past year, Ralcorp rebuffed overtures from Omaha-based ConAgra Foods, Inc. to acquire the company, the latest offer being a bid of $94 per share in cash. But Ralcorp’s board of directors remains steadfast in its decision to separate Ralcorp and Post Foods in a tax-free spin-off to Ralcorp shareholders.

As part of the separation, Post Foods will issue between $1.1 billion to $1.2 billion of debt with the net cash proceeds of about $1 billion going to Ralcorp. Ralcorp’s board of directors intends to use the proceeds to reduce debt, pursue private brand acquisitions and pursue additional share repurchases under the company’s remaining share repurchase authorization of about 5 million shares.

“Post Foods’ main asset is its great brand name — it has untapped potential,” said William Stiritz, chairman of Ralcorp. “Looking forward, the management of this valuable asset will not be a combination of the past, but rather it will be creative, imaginative and adaptive in pursuit of shareholder value creation – nothing is off the table. I look forward to spending 100% of my time for as long as it takes to ensure that Post Foods meets its potential with a solid record of success.”

Ralcorp purchased the Post cereals business from Kraft Foods Inc. in 2008. The merger was valued at approximately $2.6 billion.

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