🧠 The Logic Behind Kellogg's Break Up
🧠 The Logic Behind Kellogg's Break Up
One of the world's premier cereal brands is breaking up. Here's our take on why the move makes sense.
"Jack of all trades, master of none, but still better than the master of one."
For years, major conglomerates have followed this proverb religiously, bringing in several businesses under one roof.
But off lately, they have been realising that sometimes being the master of one is good for business.
The latest company to come to this realisation is Kellogg's.
It has decided to split up its business into three parts: cereals division, snacks division, and plant-based meat division.
Wondering why? ReadOn.
💭 Making Sense of Kellogg's Decision
Over the years Kellogg's has managed to make a space for itself in almost every shelf and every heart.
For many of us, our day begins with Kellogg's cereals.
But a lot of us are now done with this breakfast option.
According to research, an average American consumer has had less than 14 bowls of cereal per year in the last 28 years.
A major reason for this is that more and more fast-food places have started offering easy and cheap breakfast options in America.
Plus, Instagram has made aesthetic breakfast options like avocado toast and smoothies more popular.
Moreover, a lot of people are now conscious of their sugar and gluten intake, so they are also quitting cereals.
In India also, the company had been unable to make much of a difference with its cereals and had to pivot to selling more Indian breakfast items.
All of this has been impacting Kellogg's sales since 2009.
In fact, the only reason the company has been doing well at all is because it bought Pringles in 2012 and launched a snacks business.
The snacks business now accounts for 80% of Kellogg's sales.
It also has a plant-based meat division which has great potential.
And now, it is planning on separating these three divisions into three different companies.
This move will help each division be more efficient and play to its strengths.
The fast-growing snacks and the plant-based meat division will no longer have to share resources with the dying cereal business.
Separating the cereal division could help boost the snack division's stock prices, at least.
The news of the split has already raised Kellogg's share prices by 2%.
However, the separation will also increase the company's costs.
Just setting up three different companies with their own workforces and plants could cost the company 2% of its current sales.
👍🏻Small is In
But small seems to be the new big now. Several major conglomerates like Johnson & Johnson, General Electric, and Toshiba have taken similar steps lately to increase efficiency and profits.
It helps companies analyse what their most profitable venture is and focus their efforts on growing that, instead of spreading money and attention equally across divisions.
Also, a lot of times these conglomerates are difficult to value properly.
So, splitting up could definitely unlock the true value of the stock.
All in all, the move seems to be a great way for Kellogg's to expand its snack business without pouring extra money into the cereal venture.
Only time will tell if the split will help the company reach new heights or will it fall flat.
⚡In a line: Kellogg’s is splitting up to make sure its snack division and its stock price can grow in the future.
💡Quick question: Do you think India’s major conglomerates will also split up soon?
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