Kellogg Case Study

INTRODUCTION

Kellogg has been a leading producer of grain-based breakfast cereals for more than 100 years. It is a leading producer of convenience food, including cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, and vegetarian food. Kellogg products are manufactured in 18 countries and marketed in more than 180 nations around the world. In addition to the high sales revenue, Kellogg has also committed itself to social responsibility by operating the W.K. Kellogg Foundation, which is one of the world’s largest philanthropic organizations. Kellogg is a successful company that has become one of the most familiar brands in the world. Its individual brands, such as Rice Krispies and Special K, have become one of the most recognized household choices. In 2011 Kellogg was rated the 7th brand on Forbes magazine’s “Top Brands” online survey. That same year, Kellogg had a strong sales performance, exceeding its long-term targets for growth, and the company increased its share positions in many of the categories in which it competes. In addition, during 2011, Kellogg increased the scale of its pre-existing supply-chain-improvement program, expanding the review to all its North American production facilities. This improvement led Kellogg to significantly increase the cost of the program by $70 million. Furthermore, the operating profit declined, reflecting continued high commodity inflation. Kellogg’s primary competitor in ready to eat breakfasts is General Mills; it also faces challenges from various private-label cereals from companies such as Wal-Mart and A&P, which offer everyday low pricing and free consumers from cutting out coupons.  

General Mills is one of the largest consumer food processors in the world that develops different packaged food products such as snacks, cereals, and cookies. The company has more than 100 years of history, and along the way, it developed its unique corporate culture of making lives healthier, easier and richer. General Mills’ main goals are to meet consumers’ needs and preferences while generating superior returns by delivering consistent growth in sales and earnings, coupled with an attractive dividend yield. General Mills boasts well over 100 leading U.S. brands and employs nearly 30,000 workers around the world. General Mills’ most well known brands are Betty Crocker, Hagen-Dazs, Green Giant, Lucky Charms and Cheerios. In 2011, General Mills had a 2% increase on sales and a 20% increase on diluted earnings per share growth, in spite of the challenging economic environment for food manufacturers. In addition to Kellogg, Kraft Foods is another primary competitor of General Mills.

HORIZONTAL ANALYSIS OF KELLOGG COMPANY

See Exhibit 1 for a horizontal analysis of Kellogg Company.

DATA ANALYSIS

From the analysis, we believe “Total Cost of Sales” and “Net Income” are significant and warrant further attention.

Total Cost of Sales: In 2011, Kellogg has a total cost of sales of $7,750, a 9.03% increase compared to last year’s total cost of sales of $7,108. The sharp rise of the total cost of sales is unfavorable because it greatly reduces the ability of the company to make profit. However, in the long run, with more money spent on advertisement, consumers around the world will recognize Kellogg. The increase in the total cost of sales indicates the company’s strategy of expanding its industry and this will lead to more benefits in the future.