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Making the case for Kellogg’s three-way split

The move separates the “cash cow brands” from its growth brands, said Aaron Sorensen, partner at Axiom Consulting Partners.
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Illustration: Francis Scialabba, Photo: airborne77/Adobe Stock

· 3 min read

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Although romcoms tell us otherwise, not everything lasts forever. Take Kellogg, which is splitting up…well, into three businesses. On Tuesday, the company said that by the end of 2023, its snacking, cereal, and plant-based divisions will run as three separate public companies.

Separate ways: The news comes a decade after Kellogg bought Pringles, a decision that has helped it grow its ever profitable global snacking division that scored $11.4 billion—out of $14.2 billion—in revenue last year. By contrast, Kellogg’s core cereal biz has been lagging and only accounted for $2.4 billion of its sales last year.

As such, splitting up the company seems like a smart decision, as it separates the “cash cow brands” from its growth brands, Aaron Sorensen, partner at Axiom Consulting Partners, told Retail Brew.

  • Kellogg CEO Steve Cahillane made a similar pitch to Food Dive: “[If you] look at the three businesses and look at the sum of the parts, you’d say that yes, we’re not getting the value for the breadth and scale, for our snacking business for sure,” he said. “The best way to drive these three businesses forward is through their independence.”

Shifting consumer preferences also lends itself to the decision as the company is “reinventing itself in order to stay relevant,” Sorensen added. “I would applaud the decision, because the brands that are going to be the billion-dollar brands are probably not the same brands that they have today.”

Flashback: The Kellogg split is one of the most high-profile in the food biz since Kraft Foods separated to create Mondelez International—its international snack business—in 2011. Earlier this week, Mondelez also announced that it would acquire Clif Bar for $2.9 billion.

Planting the seeds: While the snacking division has been enjoying all the glory, Sorensen said long-term growth might be in Kellogg’s plant-based foods biz.

“If you look at as a shareholder where future growth is going to come from, I think that plant division in particular may drive greater growth, given where the consumer is headed in terms of wellness and the types of products that they’re going to offer,” he said.

  • Kellogg said it will rely on Morningstar Farms as its anchor brand for its plant-based division, which accounted for $340 million in net sales in 2021. (Though the plant biz might be up for an eventual sale.)
  • Overall, the plant-based food market is expected to be valued at $162 billion in the next 10 years, per Bloomberg Intelligence.

“While I don't think it's going to be the largest driver, maybe in a year or two years, this is very much a long-term play,” Sorensen said. “They’re gonna get more growth eventually from plant-based foods…It’s a very classic example of a portfolio management application of using cash cows to fund new growth businesses.”—JS

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