Kellogg Co.: CEO Talks Consumer Behavior, Food Safety

Aug. 13, 2009
Says private labels concern investors; sees opportunity for food protection training center

The recession may be pulling consumers away from common brand-name food products and toward generic store offerings, according to Kellogg Co. CEO David Mackay.

Mackay commented on current consumer spending habits in a conference call with analysts after discussing the company's second-quarter results, according to a July 30 Associated Press report.

"I think one of the issues that investors have had is a concern about the growth in private label," Mackay said in the Associated Press report. "The one thing that we started to see is the growth in many categories, not only in the U.S. but around the world. We would call it a sequentially flat whether looking at cereal, crackers waffles. (In) Australia (and) Canada private label is down."

Mackay said he believes the growth spurt is beginning level off but that "consumers still have a mindset of looking for value and trying to extract as much value as they can out of every dollar they spend."

For Kellogg, one silver lining in the economic downturn could be a consumer shift of people trying to save money by eating at home more often, which has helped the packaged-food business, Mackay told Reuters news service.

Kellogg Corp.
At A Glance

Kellogg Corp.
Battle Creek, Mich.
Primary Industry: Food
Number of Employees: 32,400
2008 In Review
Revenue: $12.82 billion
Profit Margin: 8.95%
Sales Turnover: 1.17
Inventory Turnover: 8.19
Revenue Growth: 8.88%
Return On Assets: 10.07%
Return On Equity: 45.45%
The Battle Creek, Mich., company's profit rose 13% to $353 million, or 92 cents a share, up from $312 million, or 82 cents per share, during the year-earlier period. The results were "better-than-expected, despite ongoing cost pressures and the challenging economic environment," the company said in its quarterly report.

Earlier in the year, the maker of iconic cereal and snack brands, including Keebler and Rice Krispies, was part of a massive peanut products recall after Peanut Corp. of America was linked to a salmonella outbreak.

The recall led to Mackay's call for tighter food inspection standards and the formation of the International Food Protection Training Institute funded by a grant from the W.K. Kellogg Foundation. Mackay told the Kalamazoo Gazette that Battle Creek could be the site for a food safety hub if the federal government selects the city as the site for the training institute and the National Center for Food Protection. The project proposal includes training opportunities at Kellogg plants, according to the Gazette.

Kellogg recalled more than 7 million cases of Austin and Keebler peanut butter sandwich crackers in January, costing the company between $65 million and $70 million, said Mackay when testifying on March 19 in front of a House Energy and Commerce subcommittee hearing.

During the testimony, Mackay called for the creation of a single food and safety authority under the Health and Human Services department, a requirement that every food company conduct a risk analysis and document their preventive controls and testing results in a food safety plan and a single food safety standard for evaluating facilities with appropriate training for auditors.

After the recall, Kellogg established new cross-functional audit teams that incorporated the company's quality, food safety and materials management groups to assess suppliers who provide the company with "high-risk" ingredients, according to a transcript of Mackay's March 19 testimony.

The company also has begun requiring suppliers to conduct environmental testing and monitoring in their plants to help identify and correct potential contamination before it occurs, Mackay said.

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