Kellogg's Company: history, market position, and competitive challenges

Kellogg's Company

When the Kellogg name it is pronounced, everybody instinctively thinks of tradition, since this company has been a leading one on the cereal market for more than one hundred years. The idea of the business 1890, when John Kellogg and his brother, W.K. Kellogg, who worked in a hospital, noticed that the patients preferred to eat cereals in form of flakes rather than in solid form. As a follow-up to this event, W.K. Kellogg left the Sanitarium, the hospital where he used to work, in 1906 in order to put the basis of the Battle Creek Corn Flakes Company. The name was changed into Kellogg Company in 1922. International trade of the cereals occurred in1914 with Canada, followed by Australia -1924- and England-1938-and, after the World War II the expansion continued in Europe and Asia. Nowadays, the products of the company are manufactured in 17 countries and marketed in more than 180 countries. Nowadays, Kellogg Company is organized din four geographic areas: North America, Europe, Latin America and Asia Pacific. The statistics showed that, in 2004, N America has been the most prosperous market for the Kellogg Company which is divided here into Retail Cereal, Retail Snacks, and Frozen and Specialty Channels.

Nowadays, one of the main problems Kellogg Company it is confronting with, like the most of the others food companies, is represented by the high pricing pressure which comes from the part of the big clients, such as Wall mart, "which sells 14% of the company's products, from 12% in 2001." On the other hand, the small rates of inflation from the last years made it difficult to increase the prices, and the coupons and discounts were another difficulty which had to be faced by the company.

As the years have passed, the competition has increased as well and new food companies appeared, like the divisions of Pepsi Co., Kraft Foods or General Mills.

A brief financial analysis significant fact for the Kellogg Company is that the net sales on the previous year have surpassed 10 billions dollars, which has brought it on the position of the world's leading producer of cereals and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles and cereal bars.

On the other hand, as I have stated above, the competition is very tough. One of the main competitors is Pepsi Co., with two of its divisions, Frito Lay, which has the dominant share in the salty snack market, and Quaker Oats; another important competitor is represented by the Kraft Company, with its division, Nabisco, an important producer in the cookies and crackers domain. The most important Kellogg's competitor, though, is General Mills, a company which became famous on the market during the 70s as a toys, games and seafood producer and specialized itself during the 80s on the cereals domain. In 1989, General Mills, together with Nestle, entered the European cereal market as Cereal partners World Wide Joint Venture and their annual registered sales are somewhere around $50billion.

Even more of a concern for Kellogg is the fact that on the Hoover's 100 List, the named company is situated on the 100th place, while as its main competitors, Kraft and General Mills, are above in the top, the former being situated on the 29th place and the latter on the 58th.

The Competitive Profile Matrix

In order to put into evidence the differences between Kellogg and its competitors, I decided to develop a Competitive Profile Matrix:

Kellogg's

Competitors

What are the competitors' objectives?

How vulnerable is Kellogg to its competitors' strategies?

Where are its competitors located?

What are the strengths of its competitors?

What are the weak points of its competitors?

Pepsi Co.

Frito Lay and Quaker Oats) understand the role of advertising and brand building its fame might endanger Kellogg

Europe, North America more famous than Kellogg all over the world it is not as developed as Kellogg all over the world

Kraft Foods to become the number one in the food industry it is a much smaller company than Crafts all over the world situated on the 28th place in "Hoover's 100 List" not so developed on the cereals' market, but rather on coffee, sweets

General Mills (Nestle brand) product marketing development projects for various consumer groups"

Less developed than the Nestle brand all over the world commercializes an entire breakfast cereal line not a very united team"

The Internal Factor Evaluation Matrix

The Internal Factor Evaluation Matrix of the Kellogg Brand comprises its strengths and weaknesses:

strengths tradition of more than 100 years situated on the 100th position in the Top of the Most Developed American Companies strong brand name weaknesses the brand is less developed than its main competitors, Pepsi Co., Kraft Foods and General Mills the unsuccessful attempt in the past to broaden its portfolio with a range of snacks and convenience foods.

The External Factor Evaluation Matrix

The External Factor Evaluation Matrix of the Kellogg Brand comprises its opportunities and threats:

opportunities its products are in their greatest part, organic, a thing which cannot be said about all the products of its competitors there are many parts of the food area which can be conquered: for example, the energizer bars the development of the cookies' and crackers' brand Keebler the fame of the brand is growing more and more, since almost all the food market is covered by Kellogg threats the General Mills and Nestle products are preferred by the most part of the cereals consumers the emergence of substitute products, under the brand name of its competitors

The SWOT Matrix

The SWOT Matrix will put together the elements of the Internal Factor Evaluation Matrix and of the External Factor Evaluation Matrix:

Strengths tradition of more than 100 years situated on the 100th position in the Top of the Most Developed American Companies strong brand name the value of the sales in 2005 were more than $10 billion

Weaknesses the brand is less developed than its main competitors, Pepsi Co., Kraft Foods and General Mills the unsuccessful attempt in the past to broaden its portfolio with a range of snacks and convenience foods.

Opportunities its products are in their greatest part, organic, a thing which cannot be said about all the products of its competitors there are many parts of the food area which can be conquered: for example, the energizer bars the development of the cookies' and crackers' brand Keebler the fame of the brand is growing more and more, since almost all the food market is covered by Kellogg

Threats the Nestle products are preferred by the most part of the cereals consumers the emergence of substitute products, under the brand name of its competitors

The BCG Matrix

This kind of matrix is usually used in order to analyze the internal situation of a brand and its products, more exactly, which are profitable and which are not. Moreover, in order to discover the pluses and minuses of the Kellogg Company, I decided to apply this exercise to its production line. Therefore, the model of the BCG matrix is the following: 1. stars- the products which use high amounts of cash and have a high growth and high market share; 2. cash cows- characterized by low growth and high market share; 3. dogs-low growth, low market share; 4.question marks- high growth, low market share; "the products introduced in these category have the worst characteristics of all, because they have high cash demands and generate low returns, because of their low market share."

Stars ready-to eat cereals portable grain snacks

Question marks specialty channels

Cows

Keebler's cookies and crackers

The QSPM Matrix

Having all these in mind, the main two directions I could identify for the Kellogg Company to follow are represented by a potential enlargement of its company in Europe -where for example, the sugar free chocolate chips cannot be found- or by a diversification of the products line in the North America, the most productive area from its point-of-view. A good advice in this perspective for the Kellogg Company would be to start manufacturing ice-cream based on flakes- just as Nestle and General Mills did with the Nesquik ice cream.

Enlargement

Diversification in Europe in U.S.

Key Factors Weight AS TAS

Opportunities

1. One European currency-Euro.10 4.40 2.20

2. Rising health consciousness in selecting foods.15 4.60 3.45

3. The products are in their greatest part, organic

4. Many parts of the food area which can be conquered.15 3.45 4.60

5. NAFTA.OS?

Threats

1. Food revenues increasing only 1% annually.10 3.30 4.40

2. Unstable economies in Europe.10 4.40 1.10

3. The emergence of substitute products, under the brand

05?

Name of its competitors

5. Low value of the dollar.15 1.30 4.60

Strengths

1. Profits rose.10 4.40 4.40

2. A tradition of more than 100 years.10 2-20 2 20

3. Situated on the 100th position in the Top.10 2.20 4.40 of the Most Developed American Companies

4. Strong brand name.05 4.20 3.15

5. The value of the sales in 2005 were more than $10 billion

05?

Weaknesses

1. The brand is less developed than its main competitors.05 2.20 2.20

2. The unsuccessful attempt in the past to broaden its

Portfolio with a range of snacks and convenience foods

Sum Total Attractiveness Score 1.0-3.85 4.10

AS = Attractiveness Score; TAS = Total Attractiveness Score

Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 = most acceptable.

The QSPM successfully shows that the best solution for the Kellogg Company would be the diversification of its products line in the U.S. rather than an enlargement of the company in Europe.

Recommendations

As it might be obvious, the main recommendations I could make are also those proposed for the QSPM Analysis:

the diversification of its products line for the U.S., since the occurrence of Keebler promoted Kellogg on the 37th place on the advertiser's list; and an enlargement of the company in Europe, as this represents an important point in the competence field, since General Mills and Nesquik are the main providers of cereals in Europe,. In other words the commercializing of all the Kellogg's products throughout Europe would drastically change the force report in this competition.

In, my opinion, a re-orientation of the foods' line would also be welcomed. What it might be easily noticed nowadays is the fact that "people have oriented towards healthier food and, implicitly, towards low-fat food." Similarly, I consider that Kellogg should do the same and improve its fat-free products line. If it was to be taken only the example of sweets, it would be easily to notice that most of the fat persons and women, in generally, prefer those who have written on their labels the magic words "fat-free."

One the other hand, I do not think that the leaders of the company are aware of the fact that the publicity made for the products Kellogg manufactures is enough. For example, few of the peoples of the 180 countries in which its products are commercialized are aware of the strong brand which lies behind the image of the item they consume. Therefore, a broader publicity line will surely improve the sales. In addition, the continuation of the collaboration with the big customers, such as Wall mart, would surely prove to be prolific on the long-term, since "all the customers are attracted by lower prices." Moreover, this maneuver would keep the loyal customers and would also attract new ones. As a consequence, the relationship with the hypermarkets should be maintained, no matter the discounts they practice and, even more than that, an attempt to eliminate the competitors' products from their shelves should be made and this only through practicing lower prices than those of the competitors.

All of these should be kept in mind because, as the surveys shows, the sales have decreased since the last year. And I consider this fact is in direct relationship with the good behavior of its competitors on the market. For example, in 2004 General Mills has launched an entire whole grain breakfast cereal line, and this occurred after the appearance of triple-pack breakfast cereals in the supermarkets, during the same year. In addition, Kraft Foods revenues on the third quarter of 2006 increased with 2.3% to $8.2 billion.

Even though, this does not mean that Kellogg's cause is lost: it just has to improve its methods in order to become the best. What it should also be done is the attempt to awaken in the people's conscience the long tradition of the brand, since "people usually trust into all that is old is associated to all that is good, in people's imagination."

All in all, it seems that the Kellogg Company has great chances to become even more famous than it is; all that is needed is a more developed marketing plan and a stronger attempt to adapt to the market needs. If we were to look back into the history, we would notice that Kellogg has face all the important forms of government: the authoritarian, the liberal and the democratic one and, in the capitalist era, which norms were adopted by the economic market once with the democratic regimes, the consumer is the one who dictates and makes the rules.