2020 Growth Plan
STRATEGY: 2020 GROWTH PLAN
2020 Growth Plan: Turning Strategy into Action
With the launch of our 2020 Growth Plan, we are putting strategy into action throughout our Kellogg world. Our strategy is built on four primary pillars of strength and opportunity: winning in breakfast, being a global snacking powerhouse, doubling our emerging markets engine and winning where the shoppers shop. While we have faced challenges in many parts of our business over the past few years, we are encouraged by the progress we made in 2015.
Win in Breakfast. Breakfast remains a growing meal occasion that generates more than $400 billion in sales globally each year. It also comprises about 45 percent of our global sales. We know that tastes and preferences for breakfast have been changing, which we view as an opportunity for our business. During the past year, we have focused on our four largest cereal markets, namely the U.S., Canada, U.K. and Australia. We have made strides in delivering foods our customers want, improving the relevance of the cereal category, and reinventing the in-store experience.
Beyond our core markets, we have worked hard to accelerate cereal growth in emerging markets, where vast potential exists. Today, we have a billion-dollar cereal business in these markets — which grew at 6.5 percent in 2015.* We believe the strong category development model we’ve put in place will allow us to double the size of this business by the end of 2020.
We have also taken important steps to realize our full potential, taking advantage of one of the largest opportunities in the category: expanding out-of-breakfast cereal consumption. Because cereal has such a strong breakfast position and is usually in the pantry, many people also eat it as a snack. In fact, you could argue that the benefits of eating cereal at breakfast — it’s healthy, tasty, light and convenient — are even more compelling when compared to foods typically considered to be snacks. This is why more than 30 percent of all cereal in the U.S. is eaten as a snack. Although that number is only 10-20 percent in the U.K., Canada and Australia, cereal eaten as a snack is already a billion snacking business for us in these markets.
If we can drive snacking on cereal to U.S. levels not only in our developed markets, but in emerging markets as well, it would be one of our biggest growth areas in all of breakfast. We have begun targeting our brand messaging on special occasions and have expanded the availability of convenient cup and on-the-go packaging, which is allowing us to drive cereal-as-snack growth in both developed and emerging markets.
Be a Global Snacks Powerhouse. The snack foods market has been another important focus of our strategy for very good reasons. Snacks generate $230 billion in total worldwide sales annually and represent almost 50 percent of our global sales. The good news is that Kellogg has already begun to unleash the untapped growth potential in this space. A perfect example of our how we’re fulfilling our mission to become a global snacking powerhouse can be found in our growing Pringles business, our largest brand today. With great innovations like Pringles Tortillas, we expect continued great rates of growth from this business. Though we excelled in 2015, we know we’ve barely scratched the surface of Pringles’ growth potential.
Wholesome Snacks is another area of focus for us. Last year we renovated our snack foods to be more on trend with consumer preferences. People are looking for healthier, natural, all-day snacking choices with visible ingredients such as granola, fruits and nuts. This should allow us to improve our performance in developed markets while unlocking new opportunities in emerging markets with exciting new food innovations and more attractive pricing and packaging options.
An important part of our snacks strategy has focused on accelerating growth in our U.S. cookies and crackers business. Our goal is to accelerate further the growth of our Cheez-It brand, while expanding on-the-go offerings across our entire cracker portfolio. We are well on our way, taking an ever bigger bite of the snacks category with our increasingly popular brands.
Build a $1 Billion Next-Generation Natural Business. A natural next step for Kellogg is our plan to create a sustainable, global next-generation natural (NGN) foods business spanning both cereal and snacks. We aim to leverage new and existing assets — primarily our U.S.-based Kashi business, but also regional assets where they exist, such as our Be Natural brand in Australia — to create a portfolio of NGN products that meet the needs of Food Forward consumers around the world.
Because it is at least a $1 billion opportunity by 2020 and is growing in size, next-generation natural is an important part of our 2020 Growth Plan.
An important focus of our strategy is to meet the changing tastes of our consumers. This includes “Food Forwards,” a unique group that seeks out very progressive food forms, ingredients and even packaging. These consumers represent 30 percent of the adult population, so we have taken action. Food Forwards are typically well-informed, highly engaged, and active in the digital space — in fact, many are digital natives — and they demand full transparency regarding where the foods they eat come from and how they are made. Successfully differentiating ourselves and creating a competitive advantage will hinge on our ability to deliver market-leading food innovation, become thought leaders with NGN customers and leverage an engaged exposure marketing model in which consumers become direct participants in creating and evolving the brand experience.
Double Our Emerging Market Engine. As I’ve already mentioned, emerging markets hold untold potential for our business. That is why our Growth Plan sets a goal of essentially doubling our emerging markets business by 2020. This is possible because 80 percent of our sales today comes from a mere 20 percent of the global population, which translates into tremendous growth opportunity.
For instance, we are working to triple our business in Arabia, while doubling it in Russia. Recent acquisitions in Egypt, such as Bisco Misr and Mass Foods Group, are providing us with the manufacturing capabilities, talent and an established go-to-market infrastructure needed to bolster our iconic brand portfolio and position us to grow in Egypt and other North African countries. And in 2015, the Russian team grew market share and consistently delivered on its operating profit targets.
As for our Asian business, we enjoyed strong double‐digit growth over the past year, something we expect to continue. Our businesses in Japan, South Korea, and Southeast Asia all posted double-digit currency-neutral comparable sales growth in 2015. As the needs of consumers in the region continue to evolve, we feel there is significant opportunity for growth with our portfolio of breakfast and snack foods that are healthy, grain-based, tasty, convenient and affordable.
With a billion potential consumers in the African marketplace, we see enormous growth opportunities throughout the continent over the next decade. We have a great existing business in South Africa and we are making great strides in expanding our presence into North Africa and Arabia, as well in the sub-Saharan region.
In September, we announced that we had invested in a 50 percent stake in Multipro, a premier sales and distribution company in Nigeria and Ghana. We also announced the creation of a joint venture with Tolaram Africa, one of the largest food companies in West Africa. This region is experiencing explosive growth with a growing middle class. Given that Nigeria alone has Africa’s largest population and economy, we envision our investments across Africa having a transformational impact on our business in the years to come.
Mexico is another focus of our growth plan. We intend to continue to grow our Mexican business by targeting high-frequency stores, which is where most breakfast items are purchased. We are also looking to unlock our potential in Brazil, where a robust economy and large population base offer ample opportunity for dramatic growth.
Win Where the Shopper Shops. Changing consumer tastes and shopping preferences are fueling our emphasis on winning where the shoppers shop. We know we need to make our products available everywhere people may be looking to purchase and consume our foods. Cereal has historically been the heart of our business. As our cereal and snack businesses have reached sales parity, we are evolving as a company. Cereal has also become increasingly popular as a snacking option, which is changing the paradigm.
Success in the world of snacks is all about making certain our products are within arm’s reach. With this in mind, we have begun to rethink how we connect our food with our customers. From high-frequency stores in emerging markets to impulse and specialty channels in our developed markets, we are making sure Kellogg products can be found wherever people shop worldwide. It’s true, we have long been very good at serving large grocery stores, but the changing marketplace has us focused on being equally great in serving other growing channels that cater to snacks. We’ve also been hard at work powering up our business in the e-commerce space, so that we can achieve a leading share of the online marketplace.
*Currency-neutral comparable net sales