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DanielleBurnettColby CornettStefan DurrLuis Terron 1

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Current Situation 3

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Current SituationOverview Operates in more than 180 countries 54 manufacturing plants in 18 countries Global leaders in cereals, cookies/crackers, and snacksCurrent Performance Continues to increase  Currently ranked 5th Recent decline in ROI but still higher than competitor 4

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Current Situation- Strategic Posture Vision - ―To enrich and delight the world through foods and brands that matter‖ Mission – ―Nourishing families so they can flourish and thrive‖ 5

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Current Situation- Objectives North AmericaStrategicExpand emerging market potentialCategory expansion in health & wellnessContinue commercial leversInnovationFinancialExpect to see DD% growth in 4 sectors of health & wellness 6

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Current Situation- Objectives InternationalStrategic Accelerate cereal consumption Unlock the potential of snacksFinancial Growth %s in ALL markets in cereal business Continued CAGR growth in cereals 7

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Current Situation- StrategiesCorporate :  Mixture of Parenting & Directional 4 Components :  Global Cereal Leader  Global Snacks Player  Category Expansion  Global Footprint Diversification Level: Related Constrained 8

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Current Situation- StrategiesBusiness Generic: Intergraded Cost Leadership/ Differentiation Examples: Porridge in South Africa, Saffron Cornflakes and Carry bags in India Competitive: Offensive: ―Other‖ Category Expansion and Acquisition Krave Keebler and Pringles Defensive: Harvest Strategic Actions Acquisitions of product lines and manufacturing plants globally Tactical Actions Differentiation of plant’s production operations 9

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Current Situation- StrategiesFunctional Production is being optimized Marketing R&D focus on innovationOperational Structural Location Choice of processInfrastructural Quality Workforce ( Diversity & Inclusion Program) Procurement 10

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Current Situation- PoliciesK ValuesSocial ResponsibilityDiversity & Inclusion 11

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Corporate Governance 12

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Corporate Governance Board of Directors Chairman of the Board: James M. JennessPresident, CEO, Member, Board of Directors John A. Bryant 13

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Board of DirectorsBenjamin S. Carson, M.D. Gordon Gund Donald R. Knauss John T. Dillion Sterling Speirn Ann McLaughlin Korologos Rogelio M. Rebolled Dorothy A. Johnson John L. Zabriskie 14

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Top Management Margaret Bath Senior VP Research, Quality and Technology Mark R. Baynes Senior VP, Global CMO Kris Charles Vice President Global Communications and Philanthropy 15

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Top Management Brad J. Davidson Senior VP, President Kellogg North America Ronald L. Dissinger CFOAlistair Hirst Brigitte Schmidt Gwyn Senior VP, Global Supply Chain Vice President Government Relation 16

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Top Management Paul Norman Senior VP, President Kellogg International Gary H. Plinick Senior VP General Counsel, Corpora Development and SecurityDennis Shuler Brian S. Rice Senior VP Global Human Resources Senior VP, CIO 17

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External Environment:Opportunities and Threats 18

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External Environment:Opportunities and Threats - Societal Environment Demographic: Opportunities  Increasing global population  Aging Population is increasing  Future change in US demographics Asian and Hispanic population is growing 19

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External Environment:Opportunities and Threats - Societal Environment Demographics: Threats  Obesity and Diabetes are increasing at alarming rates  Parents might steer clear of unhealthy snack food and breakfast cereals 20

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External Environment:Opportunities and Threats - Societal Environment Economic Opportunities:  Current Administration has offered $400 million in a Healthy Food Financing Initiative  Invest in research and advertising as economy is in a downturn 21

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External Environment:Opportunities and Threats - Societal Environment Economic Threats:  Cost-Conscious consumers are substituting name brand products to generic or store brand products 22

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External Environment:Opportunities and Threats - Societal Environment Political-Legal Sector opportunities:  Companies are urging Congress to improve government regulation on food safety  Emphasize and inform parents about proper nutrition and exercise Making foods more affordable and accessible for families 23

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External Environment:Opportunities and Threats - Societal Environment Socio-cultural opportunities:  78% of Americans want clear nutritional info and clear ingredient list on the back of food products (39)  Increasing trends in healthy eating and living Reduce risk of heart disease, high cholesterol, high blood pressure etc. 24

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External Environment:Opportunities and Threats - Societal Environment Socio-Cultural Threats:  Immigrants in Europe are showing an increased risk for diet related diseases as they adjust to western food  Any sweet foods has the potential to be labeled as junk food 25

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External Environment:Opportunities and Threats - Societal Environment Technological opportunities:  Taking advantage of mobile apps; a key discipline of its brand planning, marketing and customer relationship management  Smart Agriculture: taking initiatives to reduce waste, GHG and conserving water and energy 26

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External Environment:Opportunities and Threats - Societal Environment Global Opportunities:  Expand into new markets  Reach more consumers through growth and strategic expansion 27

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External Environment:Opportunities and Threats - Societal Environment Global Threats:  Adjusting accordingly to local tastes and preferences  Taking account various food and drug regulations in various countries 28

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External Environment:Opportunities and Threats – Competitive Forces  Threat of new entrants  Bargaining power of buyers  Threat of substitute products and services  Bargaining power of suppliers  Rivalry among competing firms 29

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External Environment:Opportunities and Threats – Competitive Forces Threat of new Entrants  Limited threat of new entrants into the industry (2)  Kelloggs is a well-established brand in the industry  Cereals are also already well-established  Difficult for new entrants to pose a real threat 30

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External Environment:Opportunities and Threats – Competitive Forces Bargaining Power of Buyers  Kellogg’smain buyers consist of wholesalers, grocery stores and supermarkets (4)  These buyers have great amounts of power  They determine prices and whether to hold Kellogg products etc. 31

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External Environment:Opportunities and Threats – Competitive Forces Threat of Substitute Products or Services High Threat of substitute products (4) Consumers can choose from countless cereal, cookie and snack alternatives Consumers can also choose from various cereal, cookie and snack types and brands 32

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External Environment:Opportunities and Threats – Competitive Forces Bargaining Power of Suppliers Suppliershave medium bargaining power with respect to Kellogg (3) Kellogg has contracts with their farmers Pricesof wheat, corn and oil are determined by various forces 33

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External Environment:Opportunities and Threats – Competitive Forces Rivalry among Competing Firms  High degree of Rivalry (5)  General Mills and Kraft pose biggest threats by competitors  High degree of rivalry in the cereal and snacks/convenience food markets 34

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External Environment:Opportunities and Threats – Driving Forces Rising agricultural commodity prices Competitive Pricing Environment Decreased Consumer Spending Healthy Living benefits 35

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External Environment:Opportunities and Threats – Strategic Group Map high KelloggPrice/quality range Genera l Mills Kraft low low Product Lines (food) high 36

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External Environment:– Boston Consulting Group Matrix High North America LowHigh Stars Question Industry Growth Rate MarksLow Cash Cows Dogs Relative Market Share 37

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External Environment:– Boston Consulting Group Matrix High International LowHigh Stars Question Industry Growth Rate MarksLow Cash Cows Dogs Relative Market Share 38

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External Environment:Opportunities and Threats – Competitor Analysis 39

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External Environment:Opportunities and Threats – Competitor AnalysisGeneral Mills: Investing in innovation ―Innovation Intersection‖Post (Cereal): Kids initiatives linking education and theme parks with food 40

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External Environment:Opportunities and Threats – Key Success Factors Continue catering towards consumer trends and preferences Take advantage of global opportunities in order to grow global brands Promote innovation and marketing in order to stay ahead of the competition 41

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External Environment:Opportunities and Threats – IndustryAttractiveness 42

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Kellogg’s Internal Environment Corporate Structure 43

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Kellogg’s InternalEnvironment -Corporate StructureDecision- Making Authority Kellogg is based around a centralized structure where employees listen their department managers. The managers and employee’s decisions need to match up with the CEO’s strategy and the mission and vision of the company. 44

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Kellogg’s InternalEnvironment -Corporate StructureOrganizational Structure Kellogg has a Cooperative Form of Multidivisional Structure. 45

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Kellogg’s Corporate Structure 46

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Kellogg’s InternalEnvironment - Corporate Culture Kelloggoperates under a mission culture. The company has a clear vision of organizational purpose. Kellogg’s Vision: ―To enrich and delight the world through foods and brands that matter‖ Kellogg evaluates performance with two metrics:  Sustainable Growth  Investments (people & brands) Kellogg focuses highly on its values, their competition and becoming more efficient. 47

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Kellogg’s InternalEnvironment - Corporate Resources Marketing I. Marketing Objectives  To maintain large retail customers  To supply Kellogg products globally II. Marketing Strategy (general)  Build demand with global costumers which leaded to retail grocery stores ordering Kellogg products III. Marketing Strategy (specific)  Kellogg pursues a multi-segment strategy where it manufactures and markets ready-to- eat cereal and convenience foods 48

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Kellogg’s InternalEnvironment - Corporate ResourcesMarketing IV. Marketing Mix  Product  Kellogg manufactures ready-to-eat cereal and convenience foods  Price  Kellogg’s products are market based. Kellogg analyzes similar products and tries to capitalize with pricing strategies  Place  Headquartered in Battle Creek Michigan but the channels and distribution points are in retail grocery and convenience stores globally  Promotion  Kellogg promotes its products by TV Ads & Promotional Programs 49

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Kellogg’s InternalEnvironment - Corporate ResourcesFinance Financial Situation 5 yearsA. RevenueNet sales growth of 12%The results exceeded the target of 5% This reflects Kelloggs focus on introducing innovative products and investing in brand buildingB. Operating Profit- (2011) decreased 1%This was below the long term target of single digit internal growth.This results from the shares that were repurchasedKelloggs long term goal is to increase earnings per share at a high single digit rate / 50

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Kellogg’s InternalEnvironment - Corporate Resources Total Sales- 12% Increase 51

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Kellogg’s InternalEnvironment - Corporate Resources Operating Profit- 5% Increase 52

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Kellogg’s InternalEnvironment - Corporate ResourcesFinance Financial Situation 5 yearsC. Cash Flow-$1.5 BillionFund the dividend- $1.72 annual dividend (2011)Maintain target levels of debtFund share repurchases- $798M (2011)Pursue complementary acquisitions Kellogg has returned a total of $6 billion to shareholders over the last 5 years.D. Acquisition(s)Bought Pringles for $2 billion from Procter & Gamble Co (2011) / 53

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Kellogg’s Internal Environment - Corporate Resources Industry Ratios http://www.mergentonline.com.ezproxy.shsu.edu/companyfinancials.php?pagetype=ratios&compnumber=4686 60

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Kellogg’s InternalEnvironment - Corporate ResourcesB. Finance Altman’s Z Z= 1.2(-2%)+ 1.4(55%)+ 3.3(10%)+ .6(171%)+1(1.08) X1 -2% Z= 3.191 X2 55% The score shows Kellogg is a X3 10% healthy organization and does X4 171% not have any significant X5 1.08 problems financially 62

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Kellogg’s InternalEnvironment - Corporate ResourcesC. Operations Management  Location- products produced in 18 countries  Products sold in180 countries 64

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Kellogg’s InternalEnvironment - Corporate Resources D. Research and Design  Look for ways to brighten the consumers future  Better ingredients  Labels that encourage a healthier tomorrow Kellogg is on a constant journey to improve the nutrition of their foods — without forgetting the things that consumers love most about us: taste and goodness 66

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Kellogg’s InternalEnvironment - Corporate ResourcesE. Human Resource Management  Ensuring diversity  Values building a great relationship with their employees — Kellogg knows goodness shines from the inside out.  Foster a safe work culture for our employees  Support health and wellness with the benefits programs. 67

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Kellogg’s InternalEnvironment Summary of Internal FactorsCore competencies: Brand Name Employee LoyaltyDistinctive competencies Effective Supply Chain Management 68

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Analysis of Strategic Factors 69

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Analysis of Strategic Factors Situational Analysis Opportunities Increase World Population Ageing Demographic Weakness Strengths Smart AgricultureIncrease in debt due toAcquisition Strong corporate culture Agility to satisfy customer demand Threats Increase consumer Health awareness Generic Substitutes 70

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Analysis of Strategic Factors Opportunities TurnaroundWeakness Strengths Offensive Diversification Defensive Threats 71

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Analysis of Strategic FactorsReview of Mission and Objectives Vision - ―To enrich and delight the world through foods and brands that matter‖ Mission – ―Nourishing families so they can flourish and thrive‖ Objectives:  Large Variety of Products  Strong Financial Position  Growing Markets 72

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Analysis of Strategic FactorsAnalysis Of Strategic Issues 1. How will Kellogg deal with the diverting of corn for human consumption to animal feed production?  Rising costs / diminishing resources  Developing nations vs. Developed nations 2. How will Kellogg deal with rising transportation costs involved with food distribution?  Larger distribution centers closer to customers  More mid-size distribution centers closer to customers 73

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Analysis of Strategic FactorsAnalysis Of Strategic Issues 3. How will Kellogg deal with the growing number of generic substitutes for their most popular cereals?  Introduce ―generic‖ brand to compete  Lower prices of brands 4. How will Kellogg deal with the expansion into non western cultures?  Coco Puffs vs. Century eggs  Change the concept of breakfast 74

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Strategic Alternatives andRecommended Strategy A. Strategic Alternatives1. Corporate Strategies  Linked Diversification Economies of scope  Unrelated Diversification - Improved financial resources2. Business Strategies A. Generic Strategies  Focused differention  Low cost leadership B. Competitive Strategies  Flank Attack  Frontal Attack  Leapfrog 75

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Strategic Alternatives andRecommended Strategy B. Recommended Strategy 1. Recommended Corporate Strategy  Linked Diversification 2. Recommended Business Strategy  Focused Differention on a particular competitive segment ( health foods) 3. Recommended Competitive Strategy  Flank attack against the competitors weakness of having either no or "low" health foods market share 76

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Implementation 77

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Implementation Exercising Strategic Leadership Efficient and effective management of the firm’s resources Sustain an effective organizational culture CEO and Top Management Building capable Organization Continuing investing in supply chain and information technology infrastructure CEO and Top Management, Shareholders 78

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Implementation Allocating Resources Align budget requirements to turn question marks to stars – Lower debt CFO Shaping Corporate Culture to Fit Strategy Maintain policies, standards and training to keep new companies in line with core company philosophy CEO and all of the company s leadership 79

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Evaluation and Control 80

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Evaluation and ControlOrganizational controls / evaluation Customer taste tests and consumer satisfaction surveys Labor efficiency and productivityFinancial controls / evaluation Quantitative metrics Incentive rewards 81

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Lessons Learned 82

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Lessons Learned Colby – Need to continue decreasing its debt position and figure out an effective way to handle its pension program Danielle – Kelloggs rose to the market leader through expansions and acquisitions Stefan – Globally there are great opportunities to increase brand awareness and introduce Kellogg’s products as well as their benefits to consumers Luis – Need for a better developed plan to capture non western markets 83

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