150 Part 2: Strategic Actions: Strategy Formulation
Does Kellogg Have the Tiger by the Tail or Is It the Reverse?
Strategic Focus
Kellogg Company has been the leading and largest cereal
maker in the U.S. market for some time. It once had 45 percent
of the U. S. cereal market. Thus, for a number of years, Kellogg
was flying high with its “Tony the Tiger” advertisements and
its leading cereals of Frosted Flakes, Frosted Mini-Wheats, and
Special K cereals, among others. That is no longer the case,
especially with the changes in the breakfast food market. In
fact, cereal, which at one time comprised approximately 38
percent of the breakfast foods in the United States, currently
accounts for about 28 percent of the breakfast food sales.
United States consumers are moving away from processed
foods and carbohydrates to fruit, yogurt, and protein such as
eggs for breakfast meals. As a result, Kellogg’s sales of its cereals
are slumping, profits are slipping, and its stock price is declin-
ing. A recent survey of analysts found that 90 percent recom-
mended selling or putting a hold on Kellogg stock, with only
10 percent recommending that investors buy it.
In 2014, sales for 19 of Kellogg’s top 25 cereals declined.
While other major cereal makers also struggled, General Mills’
(e.g., Cheerios, Lucky Charms) sales were 50 percent better
than Kellogg’s. And, Post’s sales in 2014 even net a two percent
increase. So, Kellogg’s competitors seem to be weathering the
crisis better than it is able to do. To deal with the declining sales,
Kellogg acquired Pringles for $2.7 billion. Yet, Pringles clearly
represents processed foods which the consumer is beginning
to resist. Alternatively, General Mills acquired a controlling own-
ership position in Yoplait, the second-largest manufacturer of
yogurt in the world. This acquisition strengthened General Mill’s
market position with the increasing demand for yogurt. Kellogg
is also trying to revive its Special K and Kashi sales by adding
fruit and other items. Some believe that these actions will gen-
erate few positive returns. In addition, Kellogg invests heavily in
advertising with outlays of more than $1 billion annually.
Obviously, Kellogg is losing market share to its major rivals
in the cereal market, but it is also losing to other firms that are
providing different breakfast foods increasingly desired by the
United States consumer. Kellogg’s breakfast cereal sales declined
by 6 percent in 2014, and their outlook is not good. Yet, Kellogg
is investing in special advertising campaigns to encourage con-
sumers to eat more cereal for breakfast. At one time, Kellogg
had an advantage because of its size; it could invest more
resources in advertising and marketing in general, thereby build-
ing relations with retailers (and consumers). Today, its large size
appears to be hurting the firm. Kellogg seems unable to make
the major changes required to respond to the new demands in
the breakfast food market. Its competitors are responding more
effectively, suggesting a dark future for Kellogg.ElinaManninen/Getty Images
Perhaps Kellogg would do well to promote
a healthy breakfast that includes cereal
(e.g., along with fruit, milk, juice and egg).Sources: J. Kell, 2014, Decline in cereal sales bites into Kellogg’s results, Fortune,
http://www.fortune.com, October 30; A. A. Newman, 2014, With a night campaign,
Kellogg’s aims for snappier sales, New York Times, http://www.nytimes.com, December 17;
S. Danshkhu and S. Neville, 2015, Food companies give frosty reception to labour
sugar clamp, Financial Times, http://www.ft.com, January 15; M. Badkar, 2015, Kellogg
loses ground after forecasts cut, Financial Times, http://www.ft.com, February 12; S. A.
Gasparro, 2015, Kellogg posts loss, cautions on outlook, Wall Street Journal, http://www.
wsj.com, February 12; S. Strom, 2015, A sharp loss for Kellogg as sales of cereal
falter, New York Times, http://www.nytimes.com, February 12; 2015, Kellogg cuts long-term
outlook on sluggish cereal, snack sales, Fortune, http://www.fortune.com, February 12; D.
Leonard, 2015, Bad news in cereal city, Bloomberg Business, March 2–6, pp. 42–47.5-3 Drivers of Competitive Behavior
Market commonality and resource similarity influence the drivers (awareness, motiva-
tion, and ability) of competitive behavior (see Figure 5.2). In turn, the drivers influence
the firm’s actual competitive behavior, as revealed by the actions and responses it takes
while engaged in competitive rivalry.^35