Kellogg one of many looking to China for growth

Posted by Editorial on 1st July 2008

Leading cereal manufacturer Kellogg Company announced overnight that one of its majority-owned subsidiaries has acquired all of the assets of Zhenghang Food Company Ltd. (“Navigable Foods”), a manufacturer of cookies and crackers in the north and northeastern regions of China.

Terms of the transaction were not disclosed by either party.

Kellogg CEO David Mackay indicates that Kellogg is seeking to grow and China provides a perfect expansion opportunity. “Geographic expansion in high-growth markets like China will help Kellogg Company continue to deliver sustainable growth,” he said. “Navigable Foods’ biscuit products are a strong, strategic fit within the Kellogg portfolio and will further build our presence in China.” Kellogg has been selling cereal in China for over a decade but the purchase of a biscuit manufacturer will enable an enhanced presence and product-line in the country.

Founded in 1993, Navigable Foods is one of the major biscuit manufacturers in China, providing consumers with a large variety of cookie and cracker products under the ZhengHang brand. Their 2007 net sales were approximately $US50 million, which pale in comparison to the $12 billion of Kellogg Company.

The purchase by Kellogg is indicative of a trend which has seen many multinational companies try their luck in the booming Chinese marketplace. Many have failed due to a lack of understanding of the marketplace and, consequently, purchases of already established companies in the country are becoming more prevalent due to the reduction of risk. Kellogg can now attempt to leverage its brand-building and innovation expertise, its understanding of the biscuit category, as well as Navigable Foods’ existing manufacturing, sales and distribution infrastructure, to drive growth of their newly acquired business.