Kellogg Files for Split as Food Companies Bite Off More Than They Can Chew

The Kellogg Company is getting closer to splitting off its cereal company, as packaged food giants become so massive that it can be hard to keep every part of the business up to speed.

On Monday (July 24) evening, the firm announced the filing of its Form 10 registration statement with the U.S. Securities and Exchange Commission (SEC) as part of its 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).

“Today’s Form 10 filing marks another important step toward our planned separation into two established and special businesses,” Kellogg Company Chairman and Chief Executive Officer Steve Cahillane said in the announcement. “As stand-alone companies, Kellanova and WK Kellogg Co will benefit from an enhanced focus that will enable them to better direct their resources toward their distinct strategic priorities, unlocking value for shareowners.”

The Kellogg company initially announced the split last year. At the time, there were three planned spinoff companies, and the names were different — Global Snacking Co. (snacks, noodles and more), North America Cereal Co. (now WK Kellogg Co) and Plant Co. (plant-based foods). It seems Plant Co.’s would-be portfolio has been added to Kellanova’s.

“The Kellanova portfolio is already geared toward growth, demonstrating underlying momentum,” Cahillane said. “What is notably exciting is that this performance will be enhanced by a refreshed strategy, higher profit margins, and a portfolio that is even more oriented toward advantaged markets, categories, and brands.”

The move to spin out the cereal company and focus Kellanova more on snacking and other categories comes as cereal inflation outpaces the already-elevated overall food inflation. Consumer Price Index (CPI) data from the Bureau of Labor Statistics (BLS) showed that, in June, while grocery prices overall rose 4.7% year over year, prices for cereals and bakery products were up a significantly higher 8.8%.

The Kellogg Company’s move to create two more focused companies comes as leading players food and beverage space stretch their portfolios, risking inefficiencies that could eat into margins.

Take, for instance, Nestlé, which does everything from bottled water to candy to coffee to baby food to pet food, among other categories. Similarly, competitor Mars also has its extensive portfolio of candies and snacks, its pet food brands and its grain brands, and others. Additionally, PepsiCo’s portfolio ranges from soft drinks to hummus to cereal and more. The list continues.

Indeed, Kellogg is not the only food company streamlining its portfolio.

“In Q1 2023, volume development was impacted by active and deliberate choices to reduce the number of low-growth and low-margin products,” François-Xavier Roger, chief financial officer of Nestlé S.A., told analysts on the company’s last earnings call. “We are starting to see the first expected benefits of this program with higher service levels for the company overall and particularly for high-rotation products.”

Meanwhile, PepsiCo is looking to boost its margins not so much by streamlining its portfolio but rather by leveraging technology to boost efficiency.

“We’ve made these investments in digitalization,” PepsiCo CFO Hugh Johnston told analysts on a call earlier this month. “We’ve made these investments in automation. We’ve been investing in building out a global business services operation. … The margins will improve, I think, on a sustained basis and it will be driven by productivity.”