Kellogg Says Embracing E-Commerce Helped it Weather the Pandemic

“There are trade agreements that allow for brands to sell on Amazon,” Bowerman says. “It varies by retailer and manufacturer how those trade agreements are structured.”

On the business-to-business side, allowing retailers to use digital ordering enables Kellogg sales teams to understand retailers better and deal with them more strategically, Bowerman said. Using data it collects, Kellogg learns more about each retailer—such as its ordering cadence and which products sell best in its stores—and than it otherwise would.

Kellogg sells a limited number of products directly to consumers, mostly outside the U.S., Bowerman says. In most cases, she says, Kellogg does DTC when it makes strategic sense, such as selling personalized products or using a subscription-based model, she says. For example, Kellogg sells its MWELL Microbiome Powder—a supplement intended to promote gut health—directly to consumers in the United Kingdom. Consumers can make one-time purchases of the product or sign up for a subscription in exchange for a 15% discount. In the U.S., Kellogg sells its RXbar nutrition bars in a similar manner, though it also sells the brand via retailers.

The COVID-19 impact on Kellogg’s online sales

The online strategy started showing benefits by the end of 2019, Bowerman says, without revealing more. But when the pandemic hit, the new capabilities became a critical part of how Kellogg responded when online demand for basics like breakfast cereal, snacks, and other groceries reached all-time highs during early 2020. The technology helped Kellogg deal efficiently with retailers, she says. And the digital business-to-business capabilities allowed Kellogg to serve its business customers at times when COVID-based restrictions kept its salespeople from physically calling on retailers.

“The pandemic literally upended our plans, forcing us to go into crisis management mode, but it also created an opportunity to rise to the occasion and to take steps that will make us stronger in the future,” Kellogg chairman and CEO Steven Cahillane said during the Barclays Global Consumer Staples Virtual Conference in early September.

The opportunity presented by COVID-19 turned out to be a good one—not just online but also for the business. As consumers stocked up on staple goods and started eating more meals at home, Kellogg exceeded its previous expectations. The company boosted its full-year financial outlook in both the second quarter ended June 27 and the third quarter ended Sept. 26.

At an Oct. 29 conference call to discuss third-party results, Kellogg announced it expects year-over-year net sales growth of roughly 6% for fiscal 2020, up from its previous guidance of around 5%. Kellogg also expects its operating profit (on a currency-neutral basis) to beat last year’s by about 2%, compared with its expectation of a decline of about 1%. Kellogg attributes that to its ability to capitalize on consumer trends. 

In the U.S., consumption changes include a rise in eating meals at home, especially breakfast. According to a survey conducted over the summer by consumer packaged goods (CPG) sales and marketing agency Acosta Inc., 55% of shoppers reported eating at home more often since the pandemic began. Also, 44% of shoppers reported eating breakfast at home every day, compared with 33% before the pandemic. In addition, 31% were eating lunch at home every day, compared with 18% pre-COVID-19 and 33% of shoppers are eating dinner at home every day, up from 21% pre-COVID-19, Acosta found.

Acosta’s numbers came from its Custom Shoppers Community online survey of about 500 consumers, conducted July 8-15, 2020.

Kellogg’s investments in ecommerce paid off well in 2020, says Brian Gioia, director of product strategy at Scrum50, an agency specializing in helping brands sell products online. “When you have a product catalog as extensive as Kellogg, it really is a major effort to get all of that right. They were clearly prepared so that when lockdowns went into effect, their product listings were solid,” Gioia says. Kellogs excels at product assortment, he says.

It can be challenging for brands to create products they can profitably ship in two days and are “pantry friendly,” meaning meaning consumers don’t have order months-long supplies to qualify for free shipping, Gioia says. “I see several variety packs and three-packs offered by Kellogg that can reasonably fit into a family’s cupboard and also hit the profitably sweet spot of $15 to $20,” he says.

He also likes Kellogg’s commitment to training, the quality of its online content and the way the manufacturer uses paid search marketing, including paid search on Amazon.com and Walmart.com.

“Search ‘cereal’ on Amazon or Walmart and the first row of products includes multiple sponsored listings from Kellogg,” Gioia says. “This demonstrates an understanding of how to win on these platforms. Increasingly, the top search rows are reserved for sponsored listings, and it looks like Kellogg has a smart, aggressive strategy on these two platforms.”

One weakness, Gioia says, is Kellogg’s performance in organic (non-paid) search results. If consumers search “cereal” on the websites of large retailers, he says, the first organic search listings are almost always General Mills, likely reflecting sales numbers on each of the platforms. “The good news is that breakfast foods is a category with a lot of branded searches, and Kellogg has very strong brands,” Gioia says.

In 2021, Kellogg’s Bowerman says she believes the sales upward growth and adoption trends for online sales will continue—even if they don’t match the surge seen early on in the pandemic. Her goals going forward include maintaining sales growth for its products that exceeds that of each product’s category—while achieving profitability equal to or greater than sales in brick-and-mortar stores. Another focus will be maintaining “brand health” by monitoring and addressing ratings provided by customers in online reviews and other indicators of brand reputation.

W.K. Kellogg founded the company that would become Kellogg Co. in 1906, initially selling only toasted cornflakes. Still best known for its breakfast cereals, Kellogg grew into a multi-brand, multinational corporation that makes and sells products around the world. Its non-cereal brands include the MorningStar Farms and Gardenburger lines of plant-based protein products, Pringles potato chips, and the Carr’s and Town House and Austin cracker brands.