Kellogg Layoffs: The Unintended Consequence Of Changing Food Consumption Trends

The announcement on Wednesday that an iconic American food company, Kellogg, will be laying off around 1,000 workers by closing key distribution centers represents an unintended consequence of the changing trends from the American consumer. The harsh reality for those workers and their families translates into a difficult pathway forward in a job search in a competitive market.

The trend of shifting away from processed foods in America is a very positive one. The average consumer has more information now than at any point in the past, and they are making food product choices based on what they feel has the healthiest potential benefits.

However, that shift away from purchasing processed foods has taken a toll on the industry which produces those food products. The sales figures at Kellogg, Campbell Soup, General Mills, and Post have all been struggling with cutting costs to maintain profitability.

The challenge becomes how they can reinvent themselves in a new consumer environment where the public is far more educated of ingredients, chemicals, and GMOs than ever before. The major food companies mentioned before have been making the same products for decades. They have been utilizing certain suppliers and ingredients that maximize profit margins.

In the current environment, these companies are going to have a difficult task of recalibrating themselves to meet the demands of the new consumer purchasing priorities. The product lines would have to be reconfigured to include natural ingredients, non-GMO, and no chemical preservatives.

The cereal market is a good example of a product segment that is going to be particularly challenging for a company such as Kellogg to reinvigorate. The core staple ingredients in those products: corn, wheat, soy, and sugar beet are inherently GMO containing because of the sheer crop levels of those products that are genetically engineered. The seeds used in those crops are also genetically modified as well.

The number of organic crops of corn, wheat, soy, and sugar beet are not nearly enough to sustain the major mainstream processing capacity of Kellogg, Post, or General Mills. It will take years for a somewhat sustainable organic crop level to be produced. In the meantime, these companies have to determine ways in which they can sustain profits while rebooting their recipes to include products that will be perceived as “healthy” in the market place.

This news also comes at a time when McDonald’s announced yesterday that it is pursuing an expanded use of their delivery service which has done well in test marketed cities. The service is rolling out in New York City shortly, and the average delivery time is around 30 minutes. The fact that this concept has done well serves to indicate that the public perception of certain foods are different. The convenience factor of having an entire meal delivered might outweigh the perception of those foods being processed or unhealthy.

Another unintended consequence of this activity is merger and acquisition activity within the food industry. This trend is moving toward the larger companies purchasing smaller organic food companies and folding those brands into their product portfolio. This is often a more cost-effective method than the larger food producer spending the capital on developing their own organic brands from the ground floor.

The strategy at Kellogg is that by laying off these workers and closing the remaining major distribution centers they will save cost. They will change their model to one where their products will go from production to a warehouse instead of a distribution center. Then, the products will be taken from the warehouse to the distribution center operated by their retail customer, for example, Stop & Shop, would store the product in their distribution center.

The cost savings garnered by Kellogg will be used on spending to advertise the products more effectively. The media “buys” will most probably include a greater “new media” presence: a multi-platform approach between TV, radio, print, point of purchase, internet, and social media. The internet and social media presence will most certainly grow in order to reach new and younger customers with product messaging for notable brands such as Frosted Flakes and Eggo Waffles.

It remains to be seen if that strategy will be enough to offset the consumer sentiment that is moving away from the processed, GMO containing processed products. The strategy should improve some new product line extensions that capitalize on some of those consumer trends, if possible.

The menu changes at Panera Bread are a good example of adaptation to meet changing consumer demands. The “clean eating” movement initiated the shift in the menu at Panera to eliminate artificial colors, flavors, and preservatives and a move to natural food ingredients as well as “clean” recipes. Those recipes were stripped of any objectionable ingredients and marketed to the consumer in their advertising campaign.

The production of cereal, snack bars, and prepared breakfast foods is a different scenario. The capacity of the company to be willing to go “out of the box” and develop new formulations for certain core product lines could be expensive. The issue at hand could become a situation where if Kellogg does not adapt, they and the rest of their iconic brands could cease to exist.