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Dive Briefing:
- WK Kellogg Co. said Tuesday it will close its cereal plant in Omaha, Nebraska, and reduce production at its Memphis, Tennessee, plant starting in late 2025 as the cereal maker streamlines its supply chain. The Omaha closure will eliminate 550 jobs.
- The company said the plan, which it estimates will cost between $450 million and $500 million, would also include increasing production at its plants in Michigan, Pennsylvania and Ontario, Canada.
- The restructuring at the Rice Krispies maker comes after the company reported a 2.7% year-over-year sales decline in its most recent quarter. CEO Gary Pilnick said on WK Kellogg’s earnings call that the overall cereal category was down 2% in the quarter.
Dive Insight:
WK Kellogg debuted as a standalone company nearly a year ago, putting established brands like Frosted Flakes and Apple Jacks under the cereal-centric company’s control. The company has been under pressure as it tries to drive sales growth in a category that has been in long-term decline.
Demand for this category has been declining for years as consumers cut back on the sugar and carbohydrates long associated with cereal and opt for protein-packed, portable options.
CEO Phil Nick told Food Dive last fall that the company would focus on “premiumization” to drive cereal growth. WK Kellogg has recently introduced healthier options like Special K Zero and Eat Your Mouth Off, a puffed cereal with 22 grams of protein per serving.
On WK Kellogg’s earnings call Tuesday, Pilnick said “innovation performance has been down” for the company and its cereal category. He noted that private label products are gaining market share as consumers spend less. Pilnick teased new products coming this year and into 2025.
“Innovation is a huge driver for this category, and when consumers want more certainty, innovation isn’t performing as well as it used to,” Pilnick said.
Executives said nine of the 11 brands gained share this year. Still, WK Kellogg Co.’s cereal category market share currently stands at 28%. The company reported a 4.8% volume decline in the last quarter compared to a year earlier. Philnic This appears to be due to lower-than-expected consumption of Special K.
According to the CEO, WK Kellogg believes the manufacturing shift will allow it to increase production and cut costs. He told investors that the company's new supply chain will be more stable and resilient.
“The best way to think about it is moving production from our oldest facilities to more efficient facilities, and from more rigid older platforms to newer, more agile technologies,” Pilnick said.
The cereal giant’s supply chain announcement follows similar moves by food and beverage giants including PepsiCo and Campbell Soup this year, as companies look for ways to cut costs as cash-strapped consumers buy less of their products. Last week, Flowers Foods and Bimbo Bakeries USA, owners of Sara Lee and Wonderbread, respectively, announced they would close plants and cut hundreds of jobs.
