Kellogg downplays volume drop

Posted by Josette Dunn on 8th February 2010

Kellogg has played down the significance of declining fourth-quarter sales volumes, which came in spite of the cereal giant’s increased investment in advertising during the period.The world’s largest cereal maker posted a 1.7% drop in fourth-quarter earnings yesterday (4 February) after revenue fell 1% on the back of a 1.4% decline in volumes.

Nevertheless, speaking on a conference call to analysts, management insisted that the group’s strategy to drive brand value through increased marketing activity was paying off.

“Our belief in advertising is that we have to invest in our brand to keep the brand equity strong, continue to reinforce the value, the quality of the products we sell. Particularly in an environment where consumers need to be reminded of these things on an ongoing basis,” president and CEO David Mackay asserted.

“Strong advertising and brand building is a fundamental part of our beliefs that underpins our ability to drive sustainable and dependable performance, so that’s something you’re going to see every year.”

cereal energy

However, Mackay insisted that Kellogg’s investment in advertising was alleviating some competitive pressures, which might otherwise force the company to drive down prices and rely more heavily on promotional activity.

Mackay said Kellogg will continue to ramp up its advertising spend in the coming fiscal year but added that he expects to see “minimal pricing” during the period.

According to COO John Bryant, the majority of the volume decline in the quarter can be attributed to three factors – changing mix in China and Russia and issues at the groups Eggo frozen waffle business.

“In both China and Russia we’re trying to move our business to a higher margin, to premium packaged foods business from lower margin or bulk business. What that is doing actually means that we are moving away from some pretty big chunks of volume,” Bryant revealed.

Meanwhile, production issues at Eggo, which were caused by flooding in Atlanta and equipment issues at other facilities, hit sales by 1-2%, the company said.

“If you could strip those out, our volume was actually very healthy in the quarter, in fact our cereal volume was up 3-4%,” Bryant concluded.

just-food is the world’s leading portal for the global pre-packaged food and retail industries. Its daily mix of breaking news, views, analysis and research serves over 100,000 food executives each month.