Kellogg Strategic Audit Version 1

• 1. DanielleBurnettColby CornettStefan DurrLuis Terron1

2. Current Situation3 3. Current SituationOverview Operates in more than 180 countries 54 manufacturing plants in 18 countries Global leaders in cereals, cookies/crackers, andsnacksCurrent Performance Continues to increase Currently ranked 5th Recent decline in ROI but still higher thancompetitor 4 4. Current Situation- Strategic Posture Vision - To enrich and delight the world through foods and brands that matter Mission Nourishing families so they can flourish and thrive5 5. Current Situation- Objectives North AmericaStrategicExpand emerging market potentialCategory expansion in health & wellnessContinue commercial leversInnovationFinancialExpect to see DD% growth in 4 sectors of health & wellness 6 6. Current Situation- ObjectivesInternationalStrategic Accelerate cereal consumption Unlock the potential of snacksFinancial Growth %s in ALL markets in cereal business Continued CAGR growth in cereals7 7. Current Situation-StrategiesCorporate : Mixture of Parenting & Directional 4 Components : Global Cereal Leader Global Snacks Player Category Expansion Global Footprint Diversification Level: Related Constrained 8 8. Current Situation-StrategiesBusiness Generic: Intergraded Cost Leadership/ Differentiation Examples: Porridge in South Africa, Saffron Cornflakes andCarry bags in India Competitive: Offensive: Other Category Expansion and AcquisitionKraveKeebler and Pringles Defensive: Harvest Strategic ActionsAcquisitions of product lines and manufacturing plants globally Tactical ActionsDifferentiation of plants production operations9 9. Current Situation-StrategiesFunctional Production is being optimized Marketing R&D focus on innovationOperational Structural Location Choice of processInfrastructural Quality Workforce ( Diversity & Inclusion Program) Procurement10 10. Current Situation-PoliciesK ValuesSocial ResponsibilityDiversity & Inclusion 11 11. Corporate Governance 12 12. Corporate Governance Board of Directors Chairman of the Board: James M. JennessPresident, CEO, Member, Board of Directors John A. Bryant 13 13. Board of DirectorsBenjamin S. Carson, M.D. Gordon GundDonald R. Knauss John T. DillionSterling Speirn Ann McLaughlin KorologosRogelio M. Rebolled Dorothy A. JohnsonJohn L. Zabriskie14 14. Top Management Margaret Bath Senior VP Research, Quality and TechnologyMark R. BaynesSenior VP, Global CMOKris Charles Vice President Global Communications and Philanthropy 15 15. Top ManagementBrad J. DavidsonSenior VP, President Kellogg North America Ronald L. DissingerCFOAlistair HirstBrigitte Schmidt Gwyn Senior VP, Global Supply ChainVice President Government Relation16 16. Top Management Paul Norman Senior VP, President Kellogg International Gary H. Plinick Senior VP General Counsel, Corpora Development and SecurityDennis ShulerBrian S. Rice Senior VP Global Human ResourcesSenior VP, CIO17 17. External Environment:Opportunities and Threats18 18. External Environment:Opportunities and Threats - Societal Environment Demographic: Opportunities Increasing global population AgingPopulation is increasing Futurechange in US demographicsAsian and Hispanic population is growing 19 19. External Environment:Opportunities and Threats - Societal Environment Demographics: Threats Obesity and Diabetes are increasing at alarming rates Parents might steer clear of unhealthy snack food and breakfast cereals 20 20. External Environment:Opportunities and Threats - Societal EnvironmentEconomic Opportunities: Current Administrationhas offered $400million in a Healthy Food FinancingInitiative Invest in research and advertising aseconomy is in a downturn 21 21. External Environment:Opportunities and Threats - Societal EnvironmentEconomic Threats: Cost-Conscious consumers aresubstituting name brand products togeneric or store brand products 22 22. External Environment:Opportunities and Threats - Societal Environment Political-Legal Sector opportunities: Companies are urging Congress to improve government regulation on food safety Emphasize and inform parents about proper nutrition and exerciseMaking foods more affordable and accessible for families 23 23. External Environment:Opportunities and Threats - Societal Environment Socio-cultural opportunities: 78% of Americans want clear nutritional info and clear ingredient list on the back of food products (39) Increasing trends in healthy eating and living Reduce risk of heart disease, highcholesterol, high blood pressure etc. 24 24. External Environment:Opportunities and Threats - Societal Environment Socio-Cultural Threats: Immigrants in Europe are showing an increased risk for diet related diseases as they adjust to western food Anysweet foods has the potential to be labeled as junk food 25 25. External Environment:Opportunities and Threats - Societal Environment Technological opportunities: Taking advantage of mobile apps; a key discipline of its brand planning, marketing and customer relationship management SmartAgriculture: taking initiatives to reduce waste, GHG and conserving water and energy 26 26. External Environment:Opportunities and Threats - Societal Environment Global Opportunities: Expand into new markets Reachmore consumers through growth and strategic expansion 27 27. External Environment:Opportunities and Threats - Societal Environment Global Threats: Adjusting accordingly to local tastes and preferences Taking account various food and drug regulations in various countries 28 28. External Environment:Opportunities and Threats Competitive Forces Threat of new entrants Bargaining power of buyers Threat of substitute products and services Bargaining power of suppliers Rivalry among competing firms 29 29. External Environment:Opportunities and Threats Competitive ForcesThreat of new Entrants Limited threat of new entrants into the industry (2) Kelloggs is a well-established brand in the industry Cereals are also already well-established Difficult for new entrants to pose a real threat 30 30. External Environment:Opportunities and Threats Competitive ForcesBargaining Power of Buyers Kelloggsmain buyers consist of wholesalers, grocery stores and supermarkets (4) These buyers have great amounts of power They determine prices and whether to hold Kellogg products etc.31 31. External Environment:Opportunities and Threats Competitive ForcesThreat of Substitute Products or Services High Threat of substitute products (4) Consumerscan choose fromcountless cereal, cookie and snackalternatives Consumers can also choose fromvarious cereal, cookie and snacktypes and brands32 32. External Environment:Opportunities and Threats Competitive ForcesBargaining Power of Suppliers Suppliershave medium bargainingpower with respect to Kellogg (3) Kellogg has contracts with theirfarmers Pricesof wheat, corn and oil aredetermined by various forces 33 33. External Environment:Opportunities and Threats Competitive Forces Rivalry among Competing Firms High degree of Rivalry (5) GeneralMills and Kraft pose biggest threats by competitors High degree of rivalry in the cereal and snacks/convenience food markets 34 34. External Environment:Opportunities and Threats Driving Forces Rising agricultural commodity prices Competitive Pricing Environment DecreasedConsumer Spending Healthy Living benefits 35 35. External Environment:Opportunities and Threats Strategic Group MaphighKelloggPrice/quality rangeGeneral MillsKraftlowlow Product Lines (food)high 36 36. External Environment: Boston Consulting Group Matrix High North America LowHighStarsQuestion Industry Growth RateMarksLow Cash Cows Dogs Relative Market Share 37 37. External Environment: Boston Consulting Group Matrix HighInternational LowHighStarsQuestion Industry Growth RateMarksLowCash CowsDogsRelative Market Share38 38. External Environment:Opportunities and Threats Competitor Analysis39 39. External Environment:Opportunities and Threats Competitor AnalysisGeneral Mills:Investing in innovation Innovation IntersectionPost (Cereal):Kids initiatives linking education and theme parks with food40 40. External Environment:Opportunities and Threats Key Success Factors Continue catering towards consumertrends and preferences Takeadvantage of global opportunitiesin order to grow global brands Promote innovation and marketing inorder to stay ahead of the competition41 41. External Environment:Opportunities and Threats IndustryAttractiveness 42 42. Kelloggs Internal Environment Corporate Structure 43 43. Kelloggs InternalEnvironment -Corporate StructureDecision- Making AuthorityKellogg is based around a centralizedstructure where employees listen theirdepartment managers. The managers andemployees decisions need to match upwith the CEOs strategy and the missionand vision of the company.44 44. Kelloggs InternalEnvironment -Corporate StructureOrganizational StructureKellogg has a Cooperative Form ofMultidivisional Structure.45 45. Kelloggs Corporate Structure46 46. Kelloggs InternalEnvironment - Corporate Culture Kelloggoperates under a mission culture. The company has a clear vision of organizational purpose. Kelloggs Vision: To enrich and delight the world through foods and brands that matter Kellogg evaluates performance with two metrics: Sustainable Growth Investments (people & brands) Kelloggfocuses highly on its values, their competition and becoming more efficient.47 47. Kelloggs InternalEnvironment - Corporate ResourcesMarketingI.Marketing Objectives To maintain large retail customers To supply Kellogg products globallyII. Marketing Strategy (general) Build demand with global costumers which leaded to retail grocery stores ordering Kellogg productsIII. Marketing Strategy (specific) Kellogg pursues a multi-segment strategy where it manufactures and markets ready-to- eat cereal and convenience foods48 48. Kelloggs InternalEnvironment - Corporate ResourcesMarketingIV. Marketing Mix Product Kellogg manufactures ready-to-eat cereal and conveniencefoods Price Kelloggs products are market based. Kellogg analyzes similarproducts and tries to capitalize with pricing strategies Place Headquartered in Battle Creek Michigan but the channels anddistribution points are in retail grocery and convenience storesglobally Promotion Kellogg promotes its products by TV Ads & PromotionalPrograms49 49. Kelloggs InternalEnvironment - Corporate ResourcesFinanceFinancial Situation 5 yearsA. RevenueNet sales growth of 12%The results exceeded the target of 5% This reflects Kelloggs focus on introducing innovative products and investing in brand buildingB. Operating Profit- (2011) decreased 1%This was below the long term target of single digit internal growth.This results from the shares that were repurchasedKelloggs long term goal is to increase earnings per share at a high single digit rate/50 50. Kelloggs InternalEnvironment - Corporate Resources Total Sales- 12% Increase 51 51. Kelloggs InternalEnvironment - Corporate ResourcesOperating Profit- 5% Increase52 52. Kelloggs InternalEnvironment - Corporate ResourcesFinance Financial Situation 5 yearsC. Cash Flow-$1.5 BillionFund the dividend- $1.72 annual dividend (2011)Maintain target levels of debtFund share repurchases- $798M (2011)Pursue complementary acquisitions Kellogg has returned a total of $6 billion to shareholders over the last 5 years.D. Acquisition(s)Bought Pringles for $2 billion from Procter & Gamble Co (2011)/ 53 53. Kelloggs Internal Environment - Corporate Resources Industry Ratios http://www.mergentonline.com.ezproxy.shsu.edu/companyfinancials.php?pagetype=ratios&compnumber=4686 60 54. Kelloggs InternalEnvironment - Corporate ResourcesB. Finance Altmans Z Z= 1.2(-2%)+ 1.4(55%)+ 3.3(10%)+ .6(171%)+1(1.08) X1 -2%Z= 3.191 X2 55%The score shows Kellogg is a X3 10% healthy organization and does X4 171%not have any significant X5 1.08problems financially 62 55. Kelloggs InternalEnvironment - Corporate ResourcesC. Operations Management Location- products produced in 18 countries Products sold in180 countries 64 56. Kelloggs InternalEnvironment - Corporate ResourcesD.Research and DesignLook for ways to brighten the consumers future Better ingredients Labels that encourage a healthier tomorrow Kellogg is on a constant journey to improve the nutrition of their foods without forgetting the things that consumers love most about us: taste and goodness66 57. Kelloggs InternalEnvironment - Corporate ResourcesE. Human Resource Management Ensuring diversity Values building a great relationship with their employees Kellogg knows goodness shines from the inside out. Foster a safe work culture for our employees Support health and wellness with the benefits programs. 67 58. Kelloggs InternalEnvironmentSummary of Internal FactorsCore competencies:Brand NameEmployee LoyaltyDistinctive competenciesEffective Supply Chain Management 68 59. Analysis of Strategic Factors69 60. Analysis ofStrategic Factors Situational AnalysisOpportunitiesIncrease World PopulationAgeing DemographicWeaknessStrengthsSmart AgricultureIncrease in debt due toAcquisition Strong corporate cultureAgility to satisfy customerdemandThreatsIncrease consumer Health awarenessGeneric Substitutes70 61. Analysis of Strategic Factors OpportunitiesTurnaroundWeakness Strengths Offensive DiversificationDefensive Threats 71 62. Analysis of Strategic FactorsReview of Mission and ObjectivesVision - To enrich and delight the world through foods and brands that matterMission Nourishing families so they can flourish and thrive Objectives: Large Variety of Products Strong Financial Position Growing Markets72 63. Analysis of Strategic FactorsAnalysis Of Strategic Issues1. How will Kellogg deal with the diverting of corn for human consumption to animal feed production? Rising costs / diminishing resources Developing nations vs. Developed nations2. How will Kellogg deal with rising transportation costs involved with food distribution? Larger distribution centers closer to customers More mid-size distribution centers closer to customers 73 64. Analysis of Strategic FactorsAnalysis Of Strategic Issues3. How will Kellogg deal with the growing number of generic substitutes for their most popular cereals? Introduce generic brand to compete Lower prices of brands4. How will Kellogg deal with the expansion into non westerncultures? Coco Puffs vs. Century eggs Change the concept of breakfast 74 65. Strategic Alternatives andRecommended Strategy A. Strategic Alternatives1. Corporate Strategies Linked Diversification Economies of scope Unrelated Diversification - Improved financial resources2. Business StrategiesA. Generic Strategies Focused differention Low cost leadershipB. Competitive Strategies Flank Attack Frontal Attack Leapfrog 75 66. Strategic Alternatives andRecommended Strategy B. Recommended Strategy 1. Recommended Corporate Strategy Linked Diversification 2. Recommended Business Strategy Focused Differention on a particular competitive segment ( health foods) 3. Recommended Competitive Strategy Flank attack against the competitors weakness of having either no or "low" health foods market share76 67. Implementation 77 68. ImplementationExercising Strategic Leadership Efficient and effective management of the firmsresources Sustain an effective organizational culture CEO and Top Management Building capable OrganizationContinuing investing in supply chain and information technology infrastructure CEOand Top Management, Shareholders78 69. ImplementationAllocating Resources Align budget requirements to turn question marksto stars Lower debt CFOShaping Corporate Culture to Fit Strategy Maintain policies, standards and training to keepnew companies in line with core companyphilosophy CEO and all of the company s leadership79 70. Evaluation and Control 80 71. Evaluation and ControlOrganizational controls / evaluation Customer taste tests and consumer satisfaction surveys Labor efficiency and productivityFinancial controls / evaluation Quantitative metrics Incentive rewards 81 72. Lessons Learned82 73. Lessons Learned Colby Need to continue decreasing its debt position and figure out an effective way to handle its pension program Danielle Kelloggs rose to the market leader through expansions and acquisitions Stefan Globally there are great opportunities to increase brand awareness and introduce Kelloggs products as well as their benefits to consumers Luis Need for a better developed plan to capture non western markets 83 74. 84