Founded in 1906, Kellogg (NYSE: K ) is a leading global producer and marketer of cereal, cookies, crackers, and other convenience foods. The company's offerings are manufactured in 18 countries and marketed in more than 180 countries.
Kellogg's product portfolio includes well-known brands such as Special K, Frosted Flakes, Corn Flakes, Rice Krispies, Pop-Tarts, Eggo, Keebler, and Morningstar Farms. In addition, the company acquired the Pringles brand from Procter & Gamble last year. International sales account for about one-third of the company's consolidated total.
Due to the relatively high maturity of Kellogg's core breakfast cereals, especially in developed markets, the company must look internationally and embrace the developing markets. The Latin American business reported net sales growth of 11.3% and internal net sales growth of 5% in the second quarter. The European business posted net sales growth of 17.9%, but internal net sales decreased by 0.3% due to the difficult operating environment in the region.
In the Asia Pacific region, net sales increased by 10% and internal net sales increased by 4.1%. The strong double-digit growth in both South East Asia and India are positive signs going forward, and I expect similar growth numbers in the coming quarters.
Last year, the company rolled out a wide range of new products under its snack brands and announced plans to relaunch some old favorites from the Pringles stable, which was fully integrated in June 2012. It has launched snacks -- including cereal bars, crackers, crisps, and cookies -- under the Pringles, Cheez-it, Special K, Keebler, and Nutri-Grain brands.
In this operating environment, Kellogg's strategy of heavy investment in scale and innovation has ensured stronger-than-market-level revenue growth. This intense product development should continue to be the focus for sustainable long-term growth.
The company has already launched mini-versions of Pop-Tarts and Eggo. It has also expanded Special K into sweet and savory snacks. But still greater potential exists in this category. Morningstar Farms in frozen processed food and Kashi both have potential to cater to the demand for snacks with a stronger health profile. An expansion of snack-sized appetizer products within Morningstar Farms, which targets vegetarians, as well as further flavors within the Kashi biscuits range, are all possible options.
Top 10 global packaged food companies performance -- 2013
The large presence of companies such as Nestle, PepsiCo (NYSE: PEP ) and Danone in emerging markets has led to healthy year-over-year growth for these companies. In the second quarter of 2013, PepsiCo saw its revenue jump 14% in AMEA (Asia, the Middle East and Africa) on an organic basis, helped by higher beverage and snacks volumes. Reported net sales grew 6%, and core operating profit in the region was up 25%. A key of PepsiCo's success is their Asian R&D center. This center develops new, locally relevant products.
Also, Mondelez International (NASDAQ: MDLZ ) is set to post 6% year-over-year growth this year. In August the company appointed Timothy P. Cofer as the new emerging markets chief. Cofer led the successful integration of Cadbury in 2010, and from 2003 to 2006 Cofer was the architect of the company's European chocolate strategy.
The other week, Shanahan Chua, previously global communications capability manager of Unilever, joined Mondelez International, He will be taking up the role of communications and government affairs manager for Asia Pacific. In the role, his main responsibility is to support the design and execution of the regional external communications strategy for Mondelez in Asia Pacific. It seems that Mondelez is taking the necessary steps to expand their business there.
Although Kellogg's acquisition of Pringles in 2012 has significantly enhanced the company's consumer base in emerging markets, especially in the Middle East, Africa, and Southeast Asia, still only around one-fifth of its global retail value food sales are generated in emerging markets.
Going forward, capturing a wider consumer base in emerging markets and new frontier markets with less intense international competition has to be Kellogg's focus.
PepsiCo and Kellogg are both benefiting from the dynamic growth in sweet and savory snacks, a category that is significantly profiting from growing popularity in the Asia Pacific region. The combination of long-standing nutritional trends and snacking is expected to drive growth over the short-to-medium term. Targets for expansion are expected to include snack products, which cater to a range of health trends, from weight management and digestive health to immune system and brain health.
Kellogg has brought in individuals from outside the organization to head up the Asia-Pacific and Latin American business units who possess significant experience garnered from other global consumer product firms, including at Cadbury and Colgate-Palmolive. In addition, Kellogg recently announced it formed a joint venture with Wilmar International -- a Singaporean agribusiness firm with nearly $45 billion in annual sales and a mix of offerings that span the merchandising, processing, and sale of agricultural products for the local food industry.
Acquiring local firms or taking part in joint ventures with native companies that understand the domestic market helps to minimize the risk inherent in international expansion, and Kellogg could pursue similar agreements as it looks to build out its operations around the world.
Expanding the company's international footprint and understanding the local food market will be the key for success and growth.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.