With the chips down, Kellogg reaches for Pringles
Hoping to offset soggy cereal sales, the maker of Corn Flakes and Froot Loops will pay $2.7 billion in cash for Procter & Gamble's crispy potato snacks.
Cereal maker Kellogg (K) announced Wednesday that it plans to buy Pringles from Procter & Gamble (PG) for $2.7 billion in cash. The move will help Kellog offset softening sales in its core century-old cereal business.
Indeed, during the fourth quarter, Kellogg's cereal business in North America was a laggard, posting an anemic sales growth of 1.5%. Internal net sales in Kellogg's North American snacks unit, meanwhile, rose 8.1%, and revenue at the North America frozen and specialty channels surged by 13.5%.
If the company broke down sales of its ready-to-eat cereal brands -- the stuff that you pour into a bowl -- the picture wouldn't be pretty. Last year, I reported on several well-known brands, such as Kellogg's Corn Flakes, that have been in decline for years. The CEO of Dean Foods (DF), a leading food and beverage company, complained that lackluster cereal sales were depressing demand for milk.
Kellogg and other cereal companies are being hurt by America's changing breakfast habits. Market research shows the average person spends about 15 minutes preparing and consuming what nutritionists call the most important meal of the day. Americans are increasingly eating breakfast on the run, as evidenced by the soaring sales of breakfast sandwiches at fast-food chains.
Kellogg and its rivals have added products such as cereal bars and Special K Cracker Chips Southwest Ranch to appeal to today's consumers. Now Kellogg is betting big on snacks, because that's what offers the biggest potential for growth.
Pringles will be a good fit alongside Kellogg's other offerings, such as Pop-Tart toaster pastries, Eggo waffles and Fruity Snacks, that star in the pantries of most college dorms. Whether it will be a winner for Kellogg remains to be seen.
Jonathan Berr enjoys his Cinnamon Toast Crunch. He owns no shares of the companies listed here.
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