and some of the makers of our favorite snacks are
shaking things up, Kellogg recently announced it plans to
snap its company into three independent businesses with separate enterprises
for its snacking, cereal and plant based products.
What comes as the company isn't seen much crackle or
pop when it comes to its legacy brands. The
catalog is not alone, although the pandemic led to
consumers revisiting pantry staples like cereal and soup. Many
are now returning to their pre pandemic diets. Food
companies are once again seeing pre pandemic trends of business
being dragged down by their more traditional products and are
being forced to find new ways to continue to grow
. So joining me now, is Greg Portal lead
partner of the global consumer industries retail practice at the
global management consulting firm Kearney Greg thanks so much for
coming on the show. Let's kick things off with
Kellogg here, what do you think of this company's
plan to split into three? A lot of the
design of these companies really comes back to what level
of transparency versus management influence do you want to see
? And if you look at a company like Kellogg's
or any of these big food conglomerates, they have
exposure to a lot of different categories that have different
growth rates. So, this type of split really
gives investors clarity about what's driving growth versus what's driving
cash flow. So this is really a move about
transparency from an investor perspective, more than anything else
at this stage. So I'm some Jpmorgan analysts saying
that profit margins could actually decline from losing the shared
services, splitting up into three separate entities. Greg
, do you agree with that? Well, there's
going, there's always a dis synergies that happens when
you split these companies off there, there's a sweet
spot that companies try to maintain between this efficiency element
versus becoming too generic. So when you have companies
that are spread across as many categories as a company
like Kellogg's is or some of their other peers,
the question becomes, what is a differentiating shared service
, such as procurement, for example, where they
can use some scale and use some synergies for being
a bigger company versus something that really is less less
important in terms of driving the creative nature of the
business, There have been other analysts on the street
. Greg who have said, General Mills, also
a cereal company, also snacks business like Kellogg might
follow suit, see how it goes with Kellogg and
actually split its own business. Do you think that
might happen? And do you think it'd be a
good idea? Well, what's happened in the last
10 years, is that not only do investors care
what the outcome of a particular earnings quarter is,
they also care how management gets there. So when
you think about these multi portfolio, large portfolio based
companies, there needs to be a management story that
says why they work better together things such as scale
, things that, such as leverage with the retailers
the ability to drive innovation and branding across categories.
Those are all incredibly valuable as a company becomes much
more focused and narrowly defined, that gives investors that
visibility they want, but it also limits the control
that management has in terms of producing the outcome.
So really the question for all of these larger portfolio
companies is how is management using the scale to its
advantage? And as long as they can answer that
question, investors should be satisfied with the results.
I am interested though, speaking about Kela Greg,
every business is dramatically different and I think about the
cereal business which was so successful for so long.
I had that major workers strike in the last three
months of last year and that impacted sales here at
impacted profits certainly in the first quarter of this year
and at the end of last year as well.
So it seems like catalog might be sort of in
this unique position. Whereas the serial business, do
you think that it is strong enough simply to stand
on its own after the strike that only recently happened
? Well, any sort of discontinuity in terms of
supply chain manufacturing recalls things like that are one time
events that as long as the company can move through
it, you end up with a stable ongoing business
. The advantage of a company with a portfolio that
is just singular category, like the cereal category is
it's fairly, it's fairly predictable that allows investors to
put their money behind that predictability versus something like their
Morningstar farms, which is all built on growth,
where investors can take the money and put it on
a growth stock that may or may not produce the
type of results they want for 345, 10 years
down the road. It's very different portfolio and allows
the investors to invest where they are expecting a particular
type of return, whether it's stability or growth.
Okay, Greg portal, we gotta leave it there
. Greg's the lead partner of the global Consumer Industries
retail practice at Kearney. Thank you.