1998 Annual Report --
Contents || Corporate ListingsGrowth from a wider range of innovative Products
Kellogg Company is building on its leadership in both cereal and convenience foods. Making healthy, great-tasting foods from grain is what we do best, and consumer demand for these foods is broad. That spells opportunity and Kellogg Company is responding.
As one major step, we are widening the boundaries of the cereal category. A particularly substantial opportunity is to create unique cereals that appeal to consumers who prefer premium products in other categories, such as coffee and ice cream. We probed successfully into this new segment in 1998 with the introduction of Kellogg's® Smart Start® cereal in the United States.
Now, we are more fully defining this new upscale segment with the U.S. introduction of three flavors of Country Inn SpecialtiesTM cereal. These grain-fruit-and-nut indulgences were developed by Kellogg in association with leading bed-and-breakfast inns in Vermont, Georgia, and California. We believe their market potential fully matches their superior taste and texture.
Among other ways we are extending the cereal category are new Breakfast MatesTM cereal-and-milk packets in the U.S., which represent the first presence of our cereal products in the dairy section; Snack-Pak® single-serve bags in the U.S.; and new ChocosTM breakfast biscuits in India.
In convenience foods, we are broadening our Pop-Tarts® toaster pastries, Nutri-Grain® bars, and Rice Krispies TreatsTM squares franchises into multi-product powerhouses. Pop-Tarts® had a solid year in 1998 with the introduction of Pop-Tarts Pastry SwirlsTM and a Wild Tropical BlastTM flavor of frosted Pop-Tarts.® In early 1999, we are launching new Wild MagicburstTM Pop-Tarts,® with icing features that appear when the product is toasted.
New technology enabled us to create Nutri-Grain TwistsTM bars, which were introduced in 1998 in the U.S. and Canada.
The Rice Krispies TreatsTM line was broadened with a new chocolate flavor in Mexico in 1998. A new chocolate-peanut butter flavor will be rolled out in the U.S. in the spring of 1999.
Also in 1999, innovation is planned for our Lender's® Bagels family in the U.S., and our Asia-Pacific division will launch frozen waffles and bagels in Japan under the Kellogg's® BreadiaTM brand name.
Delivering growth by developing and marketing an increasing number of distinctive grain-based products will continue to be a core strategy for Kellogg Company.
Growth through Nutrition that makes a difference
Historically committed to nutrition, Kellogg Company is embarking on new programs to deliver more health-focused value to consumers - and more value to our shareowners - through grain-based products.
In the United States, our K-sentialsTM for Growth initiative has added calcium to four major cereal brands to provide a nutrition package that promotes the growth and development of children. Three other products, including top-selling Kellogg's Frosted Flakes® cereal, have been strengthened with our new K-sentialsTM for Energy. This nutrition package provides B vitamins, which are essential in converting carbohydrates to energy.
Because consumers also strongly desire calcium in non-cereal grain-based products, we have led the food industry by increasing the calcium fortification in both Nutri-Grain® bars and Eggo® waffles. Nutri-Grain® is the only cereal bar which is an excellent source of calcium, and each serving of Eggo® waffles now provides as much calcium as an eight-ounce glass of milk.
Superior nutrition fortification is a worldwide initiative for Kellogg Company. The growth and energy formulations labeled K-sentialsTM in the United States are being introduced under different, locally tailored names in other markets around the world. As examples, our growth formulation in Latin America, labeled Forticalcio,TM will be in 20 countries by the end of 1999. Our growth formulation has rolled out in Japan under the Be BigTM label. Our energy formulation will be on-shelf in more than 15 countries by the end of 1999. It already is marketed through Supercharged Kellogg's Frosted Flakes® in major markets such as the United States, the United Kingdom, and the Republic of Ireland.
We also continue to respond to specific nutritional needs in various regions of the world. For example, in Latin America, where up to 50 percent of children under age four suffer from iron deficiency, we are adding a patented, superior form of iron called iron EDTA to 75 percent of our cereal portfolio in 12 Latin American markets.
We continue to seek great-tasting ways of providing the goodness of dietary fiber to consumers. Two such initiatives in 1998 were the launches of Kellogg's® Special K® Fibre cereal in Canada and Kellogg's® Raisin Bran CrunchTM cereal in the U.S. In Australia, we have capitalized on the popularity of protein-rich soy by introducing new Kellogg's® All-Bran® Soy 'n Fibre cereal.
Finally, Kellogg Company is committed to developing products that go beyond basic nutrition and help consumers prevent and manage specific health conditions. Our new EnsembleTM foods include frozen entrees, bread, dry pasta, baked potato crisps, frozen breakfast and dessert mini-loaves, and cookies, as well as three new cereal flavors. Ensemble,TM now in regional distribution in the Midwest, is the first line of foods that actively works to lower cholesterol and the first food family made with natural soluble fiber from psyllium husk and oats. The U.S. Food and Drug Administration has approved specific health claims for these two ingredients.
EnsembleTM is just the latest example of your Company's ongoing commitment to growth through providing quality grain-based products for a healthier world
Growth by reaching consumers in new Places
One of Kellogg Company's greatest opportunities for growth is the expansion of our convenience foods business. We want our products to be at the fingertips of today's mobile, on-the-go consumers in markets around the world. To meet this challenge, we are expanding geographically as well as into new, high-potential channels of distribution.
Our geographic expansion strategy is to focus on the biggest and best ideas and move them quickly into multiple countries. By reducing the time from research and development to actual marketing on outstanding products such as Nutri-Grain® bars and Rice Krispies TreatsTM squares, we will achieve sales and profits more quickly from our best ideas.
Nutri-Grain® bars, now successfully marketed in five countries, are scheduled for launch in five additional countries in 1999. Rice Krispies TreatsTM squares, now also in five countries, are expected to expand to 10 new countries in 1999. Similarly aggressive launch schedules are being developed for our new Nutri-Grain TwistsTM bars and for other products in our new-product pipeline for 1999 and 2000.
To support this growth, we are developing a global convenience foods infrastructure, enhanced in 1998 by the opening of a new plant in Linares, Mexico; the addition of convenience foods capacity at our Wrexham cereal plant in the United Kingdom; the purchase of a convenience foods plant in Bangi, Malaysia; and the acquisition of Day Dawn, a producer of both convenience foods and cereal in Brisbane, Australia.
Going hand-in-hand with our geographic expansion of convenience foods is expansion into new channels of distribution. A particularly strong global opportunity is single-serve distribution - at gas stations, convenience stores, supermarket checkout counters, break stations, waiting rooms, and other places that lend themselves to on-the-spot, often unplanned purchases. In Mexico, for example, we have placed our products in nearly 100,000 single-serve outlets in just a year, with substantial further expansion under way in 1999. In the United States, our single-serve outlets will nearly double by the year 2000.
Single-serve expansion complements our strong foodservice business, which is positioned for growth in 1999, both inside and outside its traditional core markets of the United States, Canada, and the United Kingdom.
As eating on-the-run becomes more and more a way of life around the world, Kellogg's® nutritious, grain-based products will be available - whenever and wherever consumers desire a healthy, nourishing meal or snack. This at-your-fingertips availability will be a key driver of growth for Kellogg Company in 1999 and the new century.
Growth from simplicity, accountability, and Focus
A thorough work activity analysis in Kellogg's headquarters and North American operations during 1998 will generate significant cost savings. Equally significant, however, is how this analysis will result in changes that will increase the focus and accountability of our organization and simplify many aspects of our operations.
We have tightened our focus to fewer, higher-value projects and on more specifically defined business strategies. We want every Kellogg person focused on the largest, most important activities.
An accountable organization is an empowered organization. To increase accountability, we have more closely linked performance measures to actual business results. We also are drawing clearer distinctions between performance levels to reward our highest-performing employees. These revisions are designed to foster both individual and team achievement.
Seeking greater simplicity, we have delayered our entire headquarters and North American salaried organization so that there typically are no more than two levels between senior management and our front-line employees in any department.
In summary, Kellogg Company is committed to being a focused, results-oriented organization ready for the challenges of 1999 and the 21st century.
One other fundamental quality of the Kellogg organization is our commitment to a diverse workforce. We often have been recognized for leadership in providing equal opportunity in the workplace. Now, in the challenging environment of the global economy, diversity isn't just the right thing to do, it's a business imperative.
The composition of our Board of Directors reflects our recognition of this imperative. With six female and minority group members among its 14-member roster, we believe that our Board is one of the most gender and ethnically diverse in the business world.
Our commitment to diversity is strong and long-term. Simply put, companies that value and foster diversity will be advantaged in the marketplace of the 21st century, while companies that don't will be disadvantaged.
The seeking out, training, and retention of a diverse, highly talented workforce is central to Kellogg Company's commitment to be a results-oriented organization ready for the challenges of the future and focused on creating value for you, our shareowners.