WK Kellogg Co to close Nebraska cereal plant as profits plunge

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Brief description of the dive:

W.K. Kellogg Co. will close its breakfast cereal plant in Omaha, Nebraska, and reduce production at its Memphis, Tennessee, plant by the end of 2025 as the cereal maker streamlines its supply chain, the company announced Tuesday. The closure of the Omaha plant will result in the loss of 550 jobs.
The company said the plan, estimated to cost $450 million to $500 million, will also include increasing production at plants in Michigan, Pennsylvania and Ontario, Canada.
The Rice Krispies maker’s restructuring comes after the company reported a 2.7% year-over-year decline in sales in its latest quarter. The overall breakfast cereal category fell 2% in the quarter, CEO Gary Pilnick said during WK Kellogg’s earnings conference call.

Diving Insight:

WK Kellogg debuted as a standalone company nearly a year ago, bringing such traditional brands as Frosted Flakes and Apple Jacks under the control of a cereal-focused entity. The company is facing pressure as it looks to boost sales growth in a category that is facing long-term decline.

Demand for the industry has been declining for years as consumers cut back on sugar and carbohydrates, two traits long associated with grains, in favor of protein-rich and more portable products.

CEO Pilnick told Food Dive last fall that his company would focus on “premiumization” to drive growth in its breakfast cereals. WK Kellogg recently introduced better-for-you offerings like Special K Zero and Eat Your Mouth Off, breakfast cereals with 22 grams of protein per serving.

During WK Kellogg’s earnings conference call Tuesday, Pilnick said both the company and the cereal category are “declining in terms of innovation.” He pointed to private-label offerings gaining market share as consumers rein in spending. Pilnick touted new product launches this year and in 2025.

“Innovation is a big driver of this category, and as consumers seek greater certainty, innovation simply isn’t working as well as it has in the past,” Pilnick said.

The CEO said nine of the 11 brands have gained share this year. Despite this, WK Kellogg Co.’s market share in the breakfast cereal category remains at its current 28%. However, the company saw its year-over-year volume decline in the latest quarter by 4.8%, Pilnick which was attributed to lower than expected consumption of Special K drink.

According to the CEO, W.K. Kellogg believes the change in production will allow it to increase production and reduce costs. He told investors that the company’s new supply chain will be more reliable and resilient.

“The best way to think about it is to move production from the oldest facilities to more efficient ones, and from older, more rigid platforms to newer, more flexible technologies,” Pilnick said.

The cereal giant’s announcement regarding its supply chain follows similar moves by food and beverage giants this year, including PepsiCo and Campbell Soup, as the companies look for ways to cut costs while dealing with cash-strapped consumers who are buying fewer of their products. Last week, Sara Lee and Wonderbread owners Flowers Foods and Bimbo Bakeries USA, respectively, announced they would close plants and cut hundreds of jobs.