KELLOGGS

William Campbell Amber Huggins Jason Webb Christine Werfelman

History

February 19th 1906 - John Harvey Kellogg and Will Keith Kellogg also known as W.K Kellogg founded the Battle Creek Toasted Corn Flake Company in Battle Creek, Michigan. 1914 The production of the Kelloggs Corn Flakes expanded world wide. 1922 The Battle Creek Toasted Corn Flake Company changed there name to The Kellogg Company.

History Continued

1938 The company continued to expand and build plants in England and Australia. 1951 W.K. Kellogg died. The Kellogg Company continued to expand and build plants in Latin America and Asia. 1964 Kelloggs Pop Tarts are introduced. 1976 Acquisition of Mrs. Smiths Pie Company.

History Continued

1999 Acquisition of Worthington Foods. 2000 Acquisition of Kashi 2001 Kellogg acquires Keebler, its largest acquisition. 2006 With almost 11 Billion, Kelloggs is the worlds leading producer of cereal and other convenience foods.

Brand Names

Kelloggs Keebler Nutri-grain Pop-Tarts Eggo Cheez-It Special K

Rice Krispies Morningstar Farms Kashi Murray Austin Famous Amos

Product Lines

Cereal Crackers Cookies

Snacks Frozen Foods Water

Environmental Assessment

Economics

Consumer Segment Products are manufactured in 17 countries and are marketed in more than 180 countries. Top Revenue Regions (Dollars are in Millions): North America $6,807.8 67% Europe $2,013.6 20% Latin America $822.2 8% Asia Pacific $533.6 5% Total $10,177.2 100%

Consumer Economic Indicators

Unemployment Rate Discretionary Spending Saving Rate Consumer Debt

Installment Revolving

Capabilities Analysis

Kelloggs Financial Trends

Operating Margin Trend
Operating Margin (as a percent)

20 15 10 5 0
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06

Year Kellogg's General Mills

Kelloggs Financial Trends

ROE trend
ROE (as percent)
100 80 60 40 20 0

19 97

19 98

19 99

20 00

20 01

20 02

20 03

20 04

20 05

Year Kellogg's General Mills

20 06

Kelloggs Financial Trends

ROI trend
ROI (as a percent)
50 40 30 20 10 0

19 97

19 98

19 99

20 00

20 01

20 02

20 03

20 04

20 05

Year Kellogg's General Mills

20 06

Kelloggs Financial Trends

Leverage Trends
120 100 80 60 40 20 0
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06

Leverage Ratio

Year Kellogg's General Mills

Kelloggs Financial Goals

Projected Sales
Projected Sales (in billions)
16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11
Year

Projected Operating Margin (as a percent)

10 15 20 25 0 5

Kelloggs Financial Goals

Projected Operating Margin

Year

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

Projected ROI (as a percent)

10 20 30 40 50 0

Kelloggs Financial Goals

Projected ROI

Year

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

Projected ROE (as a percent)

100 20 40 60 80 0

1997 1998 1999 2000 2001 2002 2003

Year

Projected ROE

2004 2005 2006 2007 2008 2009 2010 2011

Kelloggs Financial Goals

Projected Leverage (as a percent)

100 20 40 60 80 0

Projected Leverage

Kelloggs Financial Goals

Year

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

Critical Success Factors

Purchasing power Distribution Market Research:

Demographic analysis Consumer/ Multinational taste

Product Development:

Baking Innovators Nutritionists

Critical Failure Factors

Strong Balance Sheet Media Competence

Television / Radio broadcasts Packaging

Foreign Markets Distribution

Location

CSF: Report Card

Company Name Kellogg's General Mills Ralcorp Market Research A A D Product Development A A C Strong Balance Sheet A A B Process Development A A A Advertising/ Marketing A A D Overall A A C GPA 4.0 4.0 2.2

Suppliers Bargaining Power

Low

No commodity control (Wheat)

Government

regulation

Power over processed food Farmers negotiate prices

Buyers Bargaining Power

High

Grocery Stores Historically low Private label options Codependent buyer relationship

Pricing Power

The cost index and the gross margin are closely correlated Cost Price

Insulated industry Strength with purchasing power

GDP Growth Rate 2007

Annual Percent Rate
10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

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Countries

Ja

In d

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Population (millions)

1,000 800

1,200

400 200

600

l Ca na da M ex ico Ja pa n In di a US A UK

Br az i

Population 2006

Countries

Global Matrix Structure

N.A. Europe Latin A. Asia P.

RTE Cereal

Snack foods

Meat Alt.

Frozen foods

Porters 5 Forces Applied to Kelloggs

Michael Porters theory of an industry being influenced by 5 forces, which include Supplier Power, Barriers to Entry, Buyer Power, Threat of Substitutes, and Degree of Rivalry. Lets now take at the theory and how it applies to Kelloggs.

Kelloggs and Supplier Power

Kelloggs posesses only medium power when buying from suppliers. Wheat for example will vary in price because of extensive forces and that cost will be passed onto customers of Kelloggs.

Buyer Power and Kelloggs

Buyers of Kelloggs are mostly grocery stores and supermarkets. They hold the power because they set the price. They ultimately hold the power of the industry in its hands.

Substitutes and Kelloggs

Kelloggs is basically a breakfast company therefore anything that is popular to consume at breakfast time is a substitute to Kelloggs. This includes fruit, bars, doughnuts, toast, etc. Private labeling brands pose a threat as well.

Barriers to Entry and Kelloggs

The Barriers to Enter into the Breakfast Cereal is medium at the moment. While a startup company would find trouble getting in, there are two companies that at anytime could strike and take away a large amount of market share from both Kelloggs and General Mills. PepsiCo and Kraft are also in the Cereal business and have the money to aggressively strike at anytime to wreck havoc on the breakfast cereal industry.

Degree of Rivalry and Kelloggs

At the moment Kelloggs is at a dead heat with rival General Mills. The companies are both in the mature stage as is most their products. Trying to find that smoking gun that will catch the market share has become a game of cat and mouse between the two entities.

Summary of Porters 5 Forces

Supplier Power: Medium Buyer Power: High Substitutes: High Barriers to Entry: Medium-High Degree of Rivalry: Very High

Kelloggs Critical Success Factors

Critcal Success Factors (CSF) include things within a company that ensure that your company will succeed.

Kelloggs CSF: Tradition

Kelloggs has been in the business since 1906. That kind of tradition will buy some equity when it comes to selling a product.

Kelloggs CSF: Innovation

Kelloggs has developed many new products over the years trying to get hold of the majority of the market share in the industry.

Kelloggs CSF: Baking

They have innovated many products but one thing has stayed the same in the 101 years of business. The core competence of Kelloggs is baking.

Kelloggs CSF: New Markets

Seeing that there are more people in the world that need ready-to-eat cereal and other baked goods Kelloggs entered into foreign markets, again, trying to get the majority of the market share in the industry. Latin America, Europe, and Asia Pacific are markets that Kelloggs have entered into.

Kelloggs CSF: Imagination

Over the years, Kelloggs has introduced a wide range of characters that have served as mascots for their respected cereals. Tony the Tiger, Snap, Crackle, and Pop, Toucan Sam, Dig Em, and Cornelius are the more popular characters in the mix.

Kelloggs CSF: R&D Department

America went through a cultural change recently and shifted to wanting more healthy foods. The responsibility then was in the hands of the producers, like Kelloggs. Making healthy foods meant R&D was needed and Kelloggs answered with their line of foods for the health conscience.

Kelloggs CSF: Shelf Placement

When stores put Kelloggs products on the shelf the employees arent just throwing them in a vacant space. Kelloggs placement on the shelf is methodical and strategic and comes at a price.

Kelloggs Strengths
Baking: When it comes to skills this is one thing that Kelloggs knows and does best. Innovation: With the rivalry with GM at a stalemate Kelloggs must be looking for new ways to get more share with any new product and also appease the public with healthy products.

Kelloggs Strengths (Cont.)

Distribution: Kelloggs currently has manufacturing plants in 17 different countries. Brand: Kelloggs is a very recognizable American product. Tony the Tiger, Dig Em, Snap, Crackle, and Pop are all embedded in pop culture.

Kelloggs Strengths (Cont.)

Social Responsibility: Kelloggs welcomes social responsibility and notes the environment, advocating healthy lifestyles, and promoting diversity as its main responsibilities.

Kelloggs Weaknesses
Maturity: Many products that Kelloggs offer are in the mature stage and are at a peak when it comes to profitbility. Broad Market: Kelloggs has many demographically different customers which means many different focuses. This may cause a conflict when it comes to public opinion.

Kelloggs Weaknesses
Debt: As of Dec. 30th, 2006 Kelloggs had a debt of 5.04 billion dollars. In their Annual Report they admit that their high Leverage may put them in a competitive disadvantage. Need For Gas: Other than trucks needing to deliver their product, many of the ovens that bake the cereal also run off gas.