What's going on?
Food giant Kellogg announced on Tuesday that it’s planning to split into three separate companies.
What does this mean?
Americans have been starting their days right with a frosty bowl of Corn Flakes since 1894. But given that their expectation of flavor back then was limited to mildew, rickets, and cod liver oil, the cereal was always going to fly off the shelves. Americans today, however, have a lot more choice available to them, and they’ve been turning to snacks and fast-food chains for breakfast instead. That’s caused sales growth of Kellogg’s North American cereal segment – and cereals more generally – to drop off.
Still, the food giant has kept up with the times, focusing on building out a faster-growing snack business that includes brands like Pringles, Cheez-Its, and Pop-Tarts. The segment made $11.4 billion last year, representing 80% of the company’s total sales. Kellogg, then, is doubling down, with plans to spin off its North American cereal and plant-based segments – which make up the other 20% – to create three independent companies by the end of 2023.
Why should I care?
For markets: It’s a win-win.
The move should allow each company to innovate more and grow faster, since they won’t have to compete with one another for internal resources. What’s more, it’ll create an already-profitable plant-based play for investors – a nice change from Beyond Meat, which hasn’t turned a profit in nearly three years. The prospect went down like a warm bowl of milk, with investors sending Kellogg’s shares up 7% after the news.
Zooming out: Snacktion stations, everyone.
Kellogg isn’t the only one capitalizing on this unsung snack boom: Mondelez International – maker of Oreos and Cadbury chocolates – announced this week that it’s agreed to buy energy-bar maker Clif Bar for $2.9 billion. The move will expand Mondelez’s global snack business even more, and marks the company’s ninth deal since 2018.