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CASE STUDY: KELLOGG

Kellogg is a global company committed to building long-term growth in volume and profit and to enhancing its worldwide leadership position by providing nutritious food products of superior value. Kellogg is headquartered in Battle Creek, Michigan, where the company was started in 1906. Kellogg's common stock is traded on the New York Stock Exchange under the symbol K. Kellogg is the world's largest producer of ready-to-eat cereals and a leading producer of cookies and snacks, also known as convenience foods.

Kellogg manufactures products in 17 countries and markets them in over 180 countries. Kellogg has a long history of international operations. It started marketing its products in Canada, England, and Australia before World War II and then entered the Latin American, European, and Asian markets. Despite its emphasis on international operations, Kellogg receives about two-thirds of its sales and pre-tax income from North America.

Kellogg's primary competition in ready-to-eat cereals comes from General Mills, headquartered in Minneapolis, Minnesota. Kellogg also competes with the Post unit of Kraft Foods and the Quaker Oats unit of PepsiCo in the ready-to-eat cereal market. General Mills' Cheerios is the world's best selling cereal. When Kellogg's market share briefly fell behind that of General Mills in 2001, Kellogg responded quickly to regain the lead. Kellogg's primary competitors in convenience foods are the Frito- Lay unit of PepsiCo and the Nabisco unit of Kraft Foods. Frito-Lay is the largest maker of salty snacks (Lay's potato chips, Doritos) while Nabisco is the largest maker of cookies and crackers. Thus in each of its major product lines, Kellogg faces firms that are at least as large as it is and have the resources to spend to grow their brands, develop new products, and make acquisitions. Kellogg also faces competition from vastly improved store brand products which sell for less than brand name products since they don't require much spending for advertising or promotion.

Until the 1980s, Kellogg distributed its products through grocery stores and was largely able to set its own price. Now Kellogg's largest customers are cost-conscious discount merchandisers such as Wal-Mart and Target. Since Wal-Mart and Target are much larger than Kellogg, they can exert pricing pressure on Kellogg. Wal-Mart accounted for 14 percent of Kellogg's sales in 2004, up from 12 percent in 2002. 

One of Kellogg's ongoing problems is that most of its best known products (Corn Flakes, Rice Krispies, Bran Flakes) were developed over 50 years ago. Its last major in-house product was Pop-Tarts, developed in the 1960s.

Kellogg in 2006 is further reducing and eliminating the trans fatty acids and saturated fats in its products by using genetically modified soybeans. The company has begun to use Vistive, an oil made from St. Louis-based Monsanto Co.'s genetically modified soybeans that is low in linolenic acid, an essential fatty acid. Kellogg is one of the first large food manufacturers to use the oil to lower levels of trans fat and saturated fats in its products. Due to a shortage of soybean oil that is low in linolenic acid, Kellogg will also work with the Bunge/DuPont Biotech Alliance to increase production of Nutrium, another low-linolenic soybean oil made from genetically modified soybeans. Kellogg will begin using Nutrium in 2007.

In January 2006, shares of breakfast cereal maker Kellogg Co. climbed to over $50 as earnings climbed. Kellogg has been gaining market share from rivals General Mills and Kraft Foods Inc., parent of Post cereals. Kellogg is likely to retain its No. 1 position in the U.S. ready-to-eat cereal market for the foreseeable future.

(Adapted from case study by Henry Beam,

Western Michigan University & Forest David, Francis Marion University)

 Question 1 & 2 are based on the Case Study: Kellogg

1. (a) As mentioned in the case study above, Kellogg is going through a challenging time. Perform an external audit on Kellogg. Discuss the opportunities and threats facing the company.

(b) Apply Porter's Five Forces Model to assess the competitive position of Kellogg. Justify assumption made, if any.

2. (a) Should Kellogg attempt to acquire Quaker Oats from PepsiCo? Would Quaker Oats be a good strategic fit for Kellogg?

(b) In order to strengthen the strategic fit with Quaker Oats, discuss the key issues that Kellogg should focus on to make the acquisition a success.

3. What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls and describe them.

4. Discuss the five steps involved in performing an IFE Matrix.

5. Define and explain three intensive strategies and give an example for each strategy.

6. Compare and contrast the IE Matrix with the BCG Matrix.

7. Describe the seven-step process of effective contingency planning in strategy evaluation.