Kellogg Sees Inflation-Concerned Consumers Sticking to the Basics

As ongoing food inflation continues to impact consumers’ behavior, Kellogg is seeing changes not in which brands shoppers are purchasing but in how much they buy.

The Kellogg Company, owner of many popular food brands including its self-titled line, Pringles, Cheez-It, and many others, outlined on a call with analysts Thursday (Aug. 3), discussing its second-quarter 2023 earnings results, how rising food prices are affecting its customers.

“In terms of consumer behavior, I’d say the shift that we’re starting to see is consumers … closely managing their household inventories, their pantry inventories, zealously guarding against waste,” Kellogg Chairman and CEO Steve Cahillane said on a call with analysts. “…And so, we haven’t seen shifts out of our category, really. We haven’t seen meaningful moves into private label or anything like that. … We would expect [these behaviors] to continue moving forward.”

PYMNTS research bears out that the most common shift grocery shoppers are making in response to inflation is cutting back on nonessential spending, although the data suggests that trade-down to lower-priced brands is a more common behavior than Kellogg maintains.

Findings from PYMNTS’ study “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down” revealed that 57% of consumers reported having cut down on nonessential grocery spending. The same study showed that 47% said they have switched to sellers that offer better prices on groceries.

Plus, data from last fall’s study, “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” indicated that 37% of grocery shoppers are purchasing lower-quality products to reduce their expenses in the face of inflation.

Food inflation remains high, especially in cereal. U.S. Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) data showed that while grocery prices are up 4.7% across categories, cereals and bakery product prices have increased nearly twice as much, with inflation in this category at 8.8%.

Additionally, The Kellogg Company is gearing up for a major change: its forthcoming split into two companies, WK Kellogg Co (which includes cereals in the U.S., Canada and the Caribbean) and Kellanova (cereals in other markets, snacks around the world and frozen food in North America). Last week, the firm announced the filing of its Form 10 registration statement with the Securities and Exchange Commission (SEC) in connection with the split.

The company noted in a presentation shared with analysts that WK Kellogg Co’s category is seeing growth in the high single digits, while Kellanova’s categories are growing between low single digits and double digits, depending on the segment.

Cahillane noted that by spinning off the North American cereals business, the new company will be better positioned to drive growth in the category.

“You’ll have a sales organization that’s 100% focused on North American cereal, and they’ll have goals that are ambitious and I think very achievable as we continue to look forward for North American cereal and what its true potential is.”