Chewing over the Kellogg Co. split: why now?
It’s a breakup at the breakfast table — Eggo will go one way, Corn Flakes another — as Kellogg Co. says it will cut its massive food business into three: one for the fast-growing snack and frozen food segment, a second for North American cereals and a third for its plant-based brands like Morningstar Farms. Processed foods saw a surge in popularity during the pandemic, but lately food companies have faced rising costs due to labor and supply chain issues.
But what could the split mean for the companies and consumers?
“It, as we say, lets the sun shine on those businesses that deserve more attention,” said Kathryn Rudie Harrigan, a professor at Columbia Business School.
While one big Kellogg Co. might have spread resources and attention too thin over its wide variety of products, splitting the business up like a nicely partitioned toaster waffle could provide better return on investment, according to Emilie Feldman at the University of Pennsylvania’s Wharton School.
“To me, this is an illustration of a company that has different businesses that have pretty different growth rates and pretty different future prospects,” Feldman said.
Snacks grow and change quickly with new trends, cereals are slow and steady, and plant-based foods are still finding their way.
“This is a company that’s separating businesses that just have different future trajectories and that just aren’t fitting together within the same corporate household, and we see this all the time,” Feldman said.
Last year, General Electric and Johnson & Johnson said they’d split their businesses, and before that Kraft Foods spun off international snacks into Mondelēz International.
But breaking up a business doesn’t always make it more profitable, said Arun Sundaram, an analyst with CFRA Research.
“If Kellogg had just one accounting department, now they’re going to have three accounting departments,” Sundaram said. “So there could be a lot of inefficiencies over the near term.”
As for those prices in the supermarket, he said a move like this could heat up competition on the snack aisle, and that would be good for consumers — well, good for their wallets at least.
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