Kellogg aims for cereal market share recovery after strikes, supply woes

Dive Brief:

• Kellogg’s net cereal sales declined 10% year-over-year in the first quarter, partially due to a series of strikes and fires at some of its factories last year, which hampered its already tight supply of cereal, CEO Steve Cahillane said in an earnings call last week.
• Cahillane said the company’s cereal supply is gradually getting back to normal levels, as it has been replenishing its inventory quicker than it anticipated in the quarter.
• Despite enacting a recovery plan, some issues linger, such as the ongoing Ukraine crisis, which Cahillane said has caused the company to reconsider where it sources some key ingredients. 

Dive Insight:

Kellogg is aiming to regain its market share in the cereal space by the second half of the year, attempting to offset ground it has lost to competitors, General Mills and Post Holdings, whose executives have acknowledged benefiting from Kellogg’s struggles in earnings calls this past winter.

Amit Banati, Kellogg’s CFO, said in the earnings call the company adjusted its advertising and marketing spending in the last quarter because of low inventory, and that spending in the sector will pick up later in the year as supply improves.

The cereal and snacks giant has navigated a series of issues since the start of the pandemic. For one, cereal demand boomed during lockdowns as people spent more time at home, triggering a supply crisis that remains today.

Then in July 2021, the company experienced a fire at its Memphis ready-to-eat cereal facility, which Cahillane said “impeded our ability to build inventory” as it struggled to meet high cereal demand in a previous earnings call.

Toward the end of last year, a series of labor strikes at four of its ready-to-eat cereal factories attracted national attention and triggered a boycott of the companies’ cereals, ending after 11 weeks when workers agreed to a new contract with improved benefits. During the strikes, President Joe Biden publicly sided with the striking workers, calling Kellogg’s one-time plan to replace striking workers “an essential attack on the union and its members’ jobs and livelihoods.”

In Kellogg’s earnings call, while touting stronger momentum in categories like snacks, Cahillane said the company is looking at “sequential recovery” for its standing in the cereal segment, which he said is still trying to recover from the impact the labor activity and the factory fire had on its supply. He predicted that by the end of the year, it could rebuild its market share.

“We’re pleased about the progress to date, but we remain very aggressive in terms of making sure that we continue the progress that we’ve seen so far,” Cahillane said.

The company largely continues to see the supply chain crisis as hindering its cereal business, which it said has been compounded by the additional issues at its facilities, along with the Ukraine crisis. When questioned by an investor why the company’s cereal sales volume was still lower than investors anticipated in the quarter, Cahillane said that it was still slightly better than the situation the company had predicted. In the earnings call, he commended factory workers for helping the company attempt to meet demand after the strikes subsided.

“I give a real tip of the cap to our four cereal plants that came back to work, came back motivated and are building inventory ahead of plan,” Cahillane said.