Supplier insights: what lasting benefits will the COVID-19 pandemic deliver for Kellogg?

Date : 12 February 2021

Stewart Samuel

Program Director - Canada

We look at how the Kellogg Company plans to take the momentum of 2020 into 2021, building on the lessons learnt, and changes made, in response to the COVID-19 pandemic

1. Increased consumer communication

The pandemic provided the company with a “sampling event like none other,” gaining millions of new households. Last year it shifted much of its advertising and promotions budget into the second half, given the challenges of executing during the highpoint of the crisis in March and April. To retain its expanded customer base, it is using advanced data and analytics to target households around specific occasions, providing a significant benefit into 2021 and beyond.

2. Elevated digital sales, playing to its strengths

Last year, the company experienced triple-digit ecommerce growth as online shopping experienced a step-change in performance. The company’s growth was enabled by its recent investment in infrastructure and capabilities, and the brands in its portfolio. The company is well positioned given the expectations globally around continued ecommerce growth.

Source: IGD Research

3. Improved supply chain operations

The pandemic drove the company to improve supply chain agility and reduce complexity. Range rationalisation was a key part of this, with Kellogg exiting non-core product lines and long-tail items. It also enabled it to expand capacity in areas which were already tight ahead of the crisis.

4. Enhanced financial flexibility

Improved cash flow generation and the prioritisation of debt reduction enabled the company to deleverage its balance sheet ahead of schedule. This provides it with better financial flexibility and the ability to resume dividend increases and share repurchases earlier than previously planned.

5. Solid underlying growth platform

Despite the noise and uncertainty caused by the pandemic, alongside solid sales growth, the company has remained focused on improving gross profit margin, increasing the return on brand building investments and cost discipline. The company estimates that the pandemic contributed around half of the 6% growth in organic next sales in 2020. This indicates the strength of the underlying business. This year, the company expects organic net sales to be down 1%, but up 2.5% on a two-year CAGR basis. This is in line with its long-term strategic plan.

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