A705PRESCRIBEDCASEFORMAT

University of San Jose –Recoletos

Accountancy and Finance Department

CASE NO. 2

Kelloggs

Submitted to
Dr.RosemarieV.Jacalan,CPAO
October 10, 2021

Submitted by
Group 6
Langbid, Denise Yannah
Loquinario, Kirstine Nadine
Lucero, William
Oliamot, Geraldine
Ondoy, Marielle Charisse

CASE ANALYSIS

Page 1of4
A705PRESCRIBEDCASEFORMAT

EXECUTIVESUMMARYSTATEMENT 1

Breakfast is the most important meal of the day; health experts recommend
that individuals who are healthy eat breakfast as their main meal in order to maintain
their weight. It is also critical that breakfast contains the necessary vitamins. Kellogg's
describes itself as a company that "makes breakfast cereal loved and enjoyed by the
whole family" as one of the market's leading providers of nutritional breakfast cereals.
This US-based company was founded in 1906 with the goal of providing breakfast
foods that were not only tasty but also healthy. The company was well-known for their
Rice Krispies, which were invented and first sold in the United States in 1928. The
original recipe called for a rice and sugar paste. This paste was then toasted,
producing the "snap, crackle, and pop" effect when milk was poured over it – a
signature for their product.

As the company grew, they began to sell their products in different countries,
and by 1923, Kellogg was selling their products in South Africa. Kellogg had launched
the "Breakfast for Better Days" campaign in South Africa by 2014, with the goal of
emphasizing the importance of eating a healthy breakfast. The company then began to
develop new products, launching a new product, Rice Krispies Vanilla, in South Africa
by August 2018. Customers, on the other hand, expressed dissatisfaction with the new
Rice Krispies Vanilla product and expressed a desire to purchase the original. Due to a
variety of factors, the company's new product and Kellogg began to receive negative
reactions and complaints.

1
Often in the business world, busy managers will refuse to read reports that are not accompanied by
suchsummaries.Furthermore, the busiest managers may not even read anything but the summaries of
reports.Regardlessoftheculture,thesummary,clearly,isimportant.

Page 2of4
A705PRESCRIBEDCASEFORMAT

1.0 STATEMENT of the PROBLEMS and STRATEGIC ISSUES

In August 2018, the company launched a new product in South Africa, the Rice
Krispies Vanilla, in an attempt to develop innovative products as part of their growth
strategy. To cater to South African tastes and palates, it was decided to change the
product formula only for the South African market. However, the company's innovative
strategy was met with negative feedback and complaints from customers. The
following issues have been raised in relation to the case of Kellogg’s:
 Dislike for the new product and an associated preference for the original
product (now discontinued)
 The lack of knowledge regarding the change to the formula
 Health concerns related to the new product
 A perception that Kellogg’s does not care about its customers and a question
with their quality of their responses towards customers
 Packaging misleading the customer

2.0 VISION and MISSION STATEMENTS and CORE VALUES/CORE

2.1 Existing Vision Statement

“A good and just world where people are not just fed but fulfilled.”

2.2 Existing Mission Statement

"Nourishing families so they can flourish and thrive."

2.3 Evaluation of the Existing Vision and Mission Statements and Core Values/Core
Principles

The company prioritizes serving trusted food brands to every family on their
tables. In order for. Kellogg has remained true to their goals and ideals, demonstrating
that the company is indeed each family to enjoy the most important meal of the day
while meeting their nutritional needs and cutting corners. Through their products, they
aim to improve the wellbeing of people one of promise and possibility.

2.4 Proposed Vision and Mission Statements and Core Values/Core Principles
N/A

3.0 STATEMENT of QUALITATIVE and QUANTITATIVE OBJECTIVES (that must

be time-bound)

3.1 Financial Objectives

N/A

3.2 Strategic Objectives

 Launching of new products as part of the company’s growth strategy

 Generating consumer demand
 Proper usage of resources to sponsor activities and run community-
based activities for its consumers and the general public

4.0 ANALYSIS of the EXTERNAL ENVIRONMENT

Page 3of4
A705PRESCRIBEDCASEFORMAT

4.1 Assessment of the Firm’s Current and Projected Opportunities and Threats

4.1.1 Economic Forces

Kellogg is a US-based firm that sells its products in South Africa, making it more
vulnerable to economic conditions in both countries as well as global economic
situations because it does not confine its sales to South Africa. The deliberate decision
by South Africa to help enhance the country's economy could also indicate that the
country's economy is a vital component in the company's long-term viability. It has the
competitive advantage of being able to help stimulate the economy by attempting to
import less goods, making it less subject to global economic situations and more
focused on South Africa's economic situation.

4.1.2 Social, Cultural, and Demographic Forces

The impact of societal culture on business is demonstrated in the article. One of

which is the country's health-consciousness influencing the company's product
innovation and how well it has been received by South African families. But when the
corporation failed to see the wider picture of how the original Rice Krispies shaped
their culture and how that culture did not mesh with Kellogg's new Rice Krispies Vanilla
product it had greatly impacted the reputation of the company. When the population's
common perceptions are not adequately understood, it can be harmful to the
company's image and financial standing.

4.1.3 Environmental/Ecological Factors

Kellog, which operates in South Africa having different environmental concerns

from the United States, should evaluate the legislation in place in South Africa. For
example, because the company is in the consumer goods sector, it is also responsible
for complying with South African waste legislation, which ranges from packaging waste
to food waste, and so on. It may not be apparent in the current circumstances, but if
the world's trash problem is not addressed, no corporation will be immune to the wrath
of the environment.

4.1.4 Political, Governmental, and Legal Forces

In the case of Kellog, to maintain a competitive edge over other firms in the
market they strongly complied standards for their suppliers. The Intellectual Property
Rights that are present in the country which they operated ensures the safety of their
patents. However, because of the recent issue of their new product Rice Krispies
Vanilla, they have received lawsuits because of its misleading product description and
advertisement that made their loyal customers disappointed.

4.1.5 Technological Forces

Technology is a great way to invest to enhance competitive advantage. In the

case of Kellogg it has the opportunity to improve its operations and research
development by upgrading its technology. Especially since it has been embroiled in
instances where its research and development has failed to provide the company with
value-adding knowledge, resulting in dissatisfaction among its devoted customers. The
presence of genetically modified organisms (GMOs) in its ingredients is also a sign
that technology is present which contributes to the company's success. However, it
should be remembered that these GMOs are for the advantage of the customers.

Page 4of4
A705PRESCRIBEDCASEFORMAT

4.1.6 Porter’s Five Forces

Threat of New Entrants. Medium. As the cereal market is growing, it is not

impossible for new companies to enter in the same industry and compete despite
Kellog’s high brand positioning and high quality products.

Threat of Substitute Products. Medium. Kellogg is the largest cereal producer

in the market and has a strong brand positioning and loyal customers. However, with
the recent problems they have encountered with their new products, they have broken
the trust of their loyal customers, making them no other choice but to choose another
substitute product.

Competitive Rivalry. High. Major competitors of Kellogg include General Mills,

Nestle, and Ralcorp Holdings Inc. Kellog faced an intense competition with General
Mills that they developed a wide range of brands and products just to satisfy their
consumers’ varying needs.

Bargaining Power of Supplier. Low. Major raw material to produce Kellogg’s

products includes corn and rice and there are a lot of suppliers abundant of those
supplies and this reduces the overall bargaining power of suppliers.

Bargaining Power of Buyers. Low. The products produced by Kellogg are of

high quality nutrition food products. Consumers nowadays would not hesitate to pay
any amount for a product which has a good quality, nutritious and healthy and this
lowers the bargaining powers of buyers as well.

4.2 The External Factor Evaluation (EFE) Matrix

Weighted
Opportunities Weight Rating Score
Market Expansion 0.10 3 0.30
Technological Advancement 0.10 2 0.20
Product Repositioning 0.10 1 0.10
Employment Rate 0.05 2 0.10
Consumer Preference (Nutritious Food) 0.10 3 0.30
Threats
Change of Consumer tastes 0.15 3 0.45
Low-Cost Substitute products 0.15 2 0.30
Consumer negative perceptions 0.15 2 0.30
Environmental Issues 0.05 2 0.10
Advertising Legislations 0.05 2 0.10
TOTAL 1 2.25

The corporation of Kellogg obtained a total weighted score of 2.25, which is

lower than the average of 2.5. This suggests that Kellogg's strategies were not well-
suited to fend against the risks the firm faced, and they were not competitively
structured to seize opportunities. The organization must consider how to execute
strategies that are appropriate for the issues and opportunities raised.

4.3 The Competitive Profile Matrix (CPM)

Page 5of4
A705PRESCRIBEDCASEFORMAT

KELLOGGS General Mills

Critical Success
Factor Weight Rating Score Rating Score
Sales 0.13 4 0.52 3 0.39
Brand Reputation 0.09 3 0.27 3 0.27
Product Lines 0.08 3 0.24 2 0.16
Product Quality 0.13 4 0.52 3 0.39
Service Quality 0.12 3 0.36 3 0.36
Customer Satisfaction 0.12 3 0.36 2 0.24
Research and
Development 0.11 3 0.33 3 0.33
Price 0.1 2 0.2 2 0.2
Advertising 0.12 2 0.24 2 0.24
Total 1 3.04 2.58

The Competitive Profile Matrix shows that Kellogg has a score of 3.04 while
General Mills (Kellogg’s top competitor) only got 2.58, this shows that Kellogg has a
higher competitive advantage than General Mills. Despite the growing competition for
the cereal industry, it also shows that Kellogg remains relatively stronger than its
competitor.

5.0 ASSESSMENT/ANALYSIS of the INTERNAL ENVIRONMENT

5.1 Profile of Current Strategy

5.1.1 Concept of Business

Battle Creek Toasted Corn Flake Company is a United States-based enterprise

that was founded in 1906, later known as Kellogg, that was established with the
objective of providing breakfast items that were not only delightful but also nutritious.
While the company began by selling goods in the United States, its cereals were
manufactured in countries like Australia, United Kingdom, and Mexico. Kellogg’s now
ranked fifth on the list of the top ten most essential food brands in the world in 2018. In
the United States, their brands are not exclusive to ready to eat cereals but also
include delicacies such as pop tarts and special protein drinks, as well as other
products. Their goods are now offered in 180 countries worldwide.

5.1.2 Concept of Competition

A total of 4.3 billion African rands was spent in 2016 on breakfast cereal in
South Africa, with three main companies dominating it: Tiger brands, Pioneer Foods,
and Kellogg’s. During that period, Pioneer Foods had a 32% market share, followed by
Kellogg’s 26%, Tiger Brands 18% and the remaining 14% was made up of smaller
firms. An average annual growth rate of 10.1% was recorded in the sector from 2012-
2017. The increase of consumer health consciousness, such as the need for lower-
sugar and gluten-free alternatives has prompted the development of new brands.
Health bars have also grown in popularity among customers, who were mostly under
time constraints. Because of the increasing expenses, several commitment companies
were forced to raise their Pricing, which made customers doubt their commitment to a
certain brand. In order to attract consumers, number of shops developed their own
unbranded cereals which were less expensive than those offered by competitors
Page 6of4
A705PRESCRIBEDCASEFORMAT

5.1.3 Company Self-Concept

The new product was taste-tested by 400 moms and children before it was
released by Kellogg’s. Half of the test subjects were regular Rice KrispiesVR users,
while the other half had either quit consuming or never used the product. The purpose
of testing separate groups was to see how existing customers reacted to the new
flavor, in hopes of luring back lapsed customers and convincing customers who had
never tasted the cereal before to give it a try. All of the customers who took part in the
study agreed that the product was much enjoyed, according to Kellogg’s South Africa’s
head of research, nutrition, and development. Xolile Mbatha. However, the study found
that people’s responses to food varied depending on their own preferences.

5.2 Assessment of the Firm’s Strengths and Weaknesses

5.2.1 Management Dimension

Consider a morning cereal without thinking about Kellogg's. This is mainly

attributable to the company's efficient marketing approach from its inception in 1906.
Each successful brand has a distinct "personality" that reflects the market's wants and
emotions. Kellogg's is the first firm to enter the market of ready-to-eat morning cereals.
Kellogg's is responsible for some of the world's most recognizable products, including
Froot Loops, Frosted Flakes, Special K, Rice Krispies, Pop Tarts, Eggo Waffles, and
Nutri-Grain Bars, as well as Kellogg's Corn Flakes, perhaps the most popular cereal
ever invented. To say that millions of youngsters grew up in homes that included a
Kellogg product is an understatement.

Despite its success, Kellogg's has suffered a setback. To resurrect the

company, management chose to shift toward expansion. One of their objectives is to
restructure the business via acquisitions and strategic investments and to sell items
that no longer satisfy the company's or consumers' requirements. Another objective is
to maintain the trend of organic net sales and to enhance consumption performance.
They want to invest in more robust ideas, increased return on investment, reviving
brands, and improving skills.

5.2.2 Marketing Dimension

Some of Kellogg's marketing has been called into question in the media
because customers have grown increasingly aware of the gap between the business's
marketing claims and the actual products they are purchasing, resulting in a negative
reputation for the corporation. Food bloggers have attacked cereal manufacturing
companies such as Kellogg's for their high amount of sugar content and use of
ingredients such as artificial sweeteners, causing the companies to reevaluate their
marketing tactics as a result. As of right now, Kellogg's has production sites in 18
countries, and its goods are sold in more than 180 of them. Just-in-time inventory
management and effective technology deployment are used by Kellogg's to ensure
efficient distribution and supply planning. Food and Drink Federation (FDF) has helped
establish long-term partnerships with the business by collaborating on environmental
performance.

Page 7of4
 A705PRESCRIBEDCASEFORMAT

5.2.3 Production/Operations/Technical Dimension

The Sanitas Food Company was established in 1900 by the brothers W.K. and
Dr. John H. Kellogg, who had discovered a technique for creating crispy, flavorful
flakes of processed grain that proved popular with patients at Dr. Kellogg's Battle
Creek Sanitarium. The business flourished as a result of creative advertising methods
and improvements to the cereals' quality.

For almost a decade, the Kellogg Company has utilized its planning system
(KPS), a large-scale, multiperiod linear program, to manage its cereal and
convenience food businesses' production and distribution choices. A weekly-level
operational version of KPS assists in determining where goods are manufactured and
how completed and in-process products are transported between factories and
distribution hubs. A tactical version of KPS, with monthly detail, aids in the
establishment of plant budgets and the decision-making process for capacity growth
and consolidation. In 1995, operational KPS saved an estimated $4.5 million on
manufacturing, inventory, and delivery expenses. Tactical KPS recently consolidated
manufacturing capacity, resulting in estimated annual savings of $35 to $40 million
(Brown, G., Keegan, J., Vigus, B., & Wood, K. (2001).

5.2.4 Financial/Accounting Dimension

a. Total Project Cost/Total Investment Cost

N/A
b. Financial Modelling, including Financial Projections
N/A
c. Vertical and Horizontal Analysis
N/A
d. Ratio Analysis
N/A

5.2.5 Research and Development Dimension

It is suggested that prior to releasing new goods, prototypes and new products
be tested among customers (Lamb et al., 2019). This is what the company did prior to
launching their new products through taste tests conducted on 400 moms and
children. These testers comprised individuals who were frequent Rice KrispiesVR
users (50%) and those who had discontinued or never eaten the product (50 per cent).
According to Xolile Mbatha, head of research, nutrition, and development at Kellogg's
South Africa, the findings showed that the product was "significantly liked" by all
customers surveyed (Knowler, 2018). However, the study recognized that there were
some variations in personal taste responses.

Kellogg's Research and Development Team based their decision on the

aforementioned product entirely on the results of their research, without considering
the possibility of prejudice, as the other customer said “I’m sure if a study were done
about testing, they will find that most people just say yes they like it, cause that is what
they think the marketer wants to hear.” When the backlash occurred, they lacked an
alternate product to compensate for the unsuccessful one.

5.2.6 Management Information System/s

N/A
Page 8of4
A705PRESCRIBEDCASEFORMAT

5.3 The Internal Factor Evaluation (IFE) Matrix

Key Internal Weight Rating Weighted

Factors Score
Strengths
Worldwide 0.12 3 0.36
Presence
Strategic 0.13 4 0.52
Acquisition
High Awareness 0.13 3 0.39
Marketing 0.12 2 0.24
Initiatives
Weaknesses
Questionable 0.13 1 0.13
Marketing
Campaigns
Slow 0.12 2 0.24
innovation
Customer 0.13 1 0.13
Service
Questionable 0.12 1 0.12
R&D
Total 1 2.13

6.0 The Strategic Agenda/Recommendations

6.1 Corporate Analysis of Matrices

6.1.1 SWOT Matrix

Strengths Weaknesses
Worldwide Presence Questionable Marketing
Campaigns
Strategic Acquisition Slow Innovation
HIgh Awareness Customer Service
Marketing Initiatives Questionable Research and
Development

Opportunities Threats
Market Penetration Intense Competition
Changing Lifestyle Government Regulation
Targeting Restaurants and Changing Lifestyle
Hotels
v

Page 9of4
A705PRESCRIBEDCASEFORMAT

6.1.2 SPACE Matrix

Internal Strategic
Position External Strategic Position
Competitive Advantage (CA) Industry Attractiveness (IA)
(-6 worst,-1 best) (+1 worst,+6 best)
-3 Market share 5 Growth potential
Product
-3 quality 5 Financial stability
Product life Resource
X - Axis

-2 cycle 4 utilization
Customer Ease of entry to
-3 loyalty 4 market
technology know-
5 how
Average -
Total score -11 2.75 Total score 23 Average 4.6
Total X - axis score 1.85
Financial Strength (FS) Environmental Stability (ES)
(+1 worst,+6 best) (-6 worst,-1 best)
Technological
5 ROI -3 changes
5 Liquidity -4 Inflation
Working
Y - Axis

6 capital -2 Demand variability

Risk involved in
6 Cash Flow -5 business
Competitive
-5 pressure
Total score 22 Average 5.5 Total score -20 Average -4
Total Y - axis score 1.5

Kellogg's takes an aggressive market position, as depicted in the illustration.

Because the company is regarded as one of the leaders in the production of cereals, it
Page 10of4
A705PRESCRIBEDCASEFORMAT

is appealing and sustainable in the market. As Kellogg's is open to producing new

varieties of products to be offered to consumers, it also has a strong stance on market
competitiveness against competitors.

6.1.3 BCG Matrix

Relative Market Share

High Low
High Star Question Mark
Kellogg's Corn Flakes® Pringles
Snack Bars & Bites Breakfast Favorites &
Treats
Market Growth

Kellogg's Nutri-Grain® Eggo®

Cereal and Granola Frozen Breakfast
MorningStar Farms® Protein Bar and Shakes
Plant-based Protein
Savory Snacks
Low Cash Cow Dog
Rice Krispies Vanilla

STARS: The products of Kellogg’s such Kellogg's Corn Flakes®, Snack Bars &
Bites, Kellogg's Nutri Grain®, Cereal and Granola, MorningStar, Farms®as are stars in
the BCG matrix. These products are considered to have a high growth and a high
relative market share. Kellogg should execute the following strategies, Product
development, market development and market penetration.

QUESTION MARK: The products of Kellogg’s such as Pringles, Breakfast

Favorites & Treats, Eggo®, Frozen, Breakfast, Protein Bar and Shakes, Plant-based
Protein and Savory Snacks. They are the products with high growth and low market
share. Industry witnessed high sales growth in 2016 but unfortunately, market share of
Kellogg company U.S morning foods and kashi segments declined by 6 %. Kellogg
should consider time to time market research to determine consumer psychology and
this might be the best strategy to convert Question marks to Stars or Cash cows.

DOG: Products of Kellogg such as Rice Krispies Vanilla is classified as Dog

because it has a low market share and low growth rate. Thus this product neither
generates a high amount of cash nor requires higher investments. Kelllogg can either
divest the product or they can make improvements with the product through
rebranding/innovation/adding features etc.

6.1.4 IE Matrix
Page 11of4
A705PRESCRIBEDCASEFORMAT

Weighted Average : IFE matrix: 2.13 EFE matrix: 2.25

The IFE Total Weighted Score

(Strong) (Average) (Weak)
4.0 3.0 2.0 1.0

I (grow & II (grow & III (hold &

The EFE Total Weighted Score

(High) 3.0
build) build) maintain)

IV (grow & V (hold & VI (harvest or

(Medium) 2.0
build) maintain) divest)

VII (hold & VIII (harvest or IX (harvest or

(Low) 1.0
maintain) divest) divest)

The IE matrix suggests that it should hold and maintain its business based on
the overall weighted average score of both internal and external factors of 2.25 and
2.13, respectively. It is proposed that the company expand, but not too aggressively,
promote its present product or try to modify it to raise market penetration and brand
awareness, and finally, but not least, pay attention to consumer complaints and
enhance strategic plans in addressing the company's weaknesses.

6.1.5 Grand Strategy Matrix

QUADRANT II QUADRANT I

QUADRANT III QUADRANT IV

Kellogg's brand is now well-known in the marketplace. Kellogg’s belongs to

Quadrant I which means its market is in rapid growth, along with active and rapid
Page 12of4
A705PRESCRIBEDCASEFORMAT

development in the industry, they also have a strong competitive position. Market
development, market penetration, and product development are all effective for long
term strategies for Kellogg.

6.2 Strategic Choices

The group decided to advise the result of the IE matrix based on the
results of the various matrices since it is the best appropriate strategy for
Kellogg's condition and also covers a few suggestions from the other matrices.
Since the company was rated average in both internal and external aspects, the
IE matrix suggests that it should hold and maintain its operations. The company
could expand its operations, particularly with respect to its major competitors,
but not too aggressively; it could also further penetrate the market for its
existing products by putting more effort into advertising their product, as many
people were unaware of the new product's significance; and it could modify the
new product to address customer concerns. It would be ideal if the company
could re-engage loyal customers by listening to their issues, as well as attract
new customers by increasing brand recognition.

7.0 Implications of the Strategic Agenda

7.1 Management

Kellogg's should implement a low-cost yet efficient supply chain, production,

and supplying strategy capable of addressing demand in a cost-effective manner.
Through innovation, the company must also be ready to embrace and integrate
emerging trends. Furthermore, it is critical that the company concentrates its efforts on
developing long-term strategies and plans for the company's management and
production.

7.2 Marketing

Kellogg's should concentrate mostly on producing cereals for places where

demand is increasing, such as their global locations where they conduct business. The
company should also consider how their products should be in accordance with
consumer trends. In order to prevent certain negative consumer backlash, the
company should also take careful note of how technical details on their food packaging
should be, as well as how they engage with consumers.

7.3 Production/Operations/Technical

The company should enhance their production plan while maintaining

their growth strategy through innovation – by manufacturing a broad array of products
while meeting the demands of customers. In order to ensure high product quality to
customers, the company must also take into account the importance of health and
appropriate product labelling and packaging.

7.4 Finance/Accounting

N/A

7.5 Research and Development

Page 13of4
A705PRESCRIBEDCASEFORMAT

Until recently, Kellogg has maintained a solid market position with its famous
goods. With the fast-paced sector in which they operate, it is unavoidable that they will
face many solid rivals and brand replacements. As a result, they must have well-
thought-out plans in place to maintain their market position.

It is recommended that it is best for Kellogg’s to execute these strategies,

product development, market development and market penetration in order to maintain
their products that have high growth and high relative market share. With regards to
their products that have high growth but low relative market share it is best that
Kellogg should consider time to time market research to determine consumer
psychology.

7.6 Management Information Systems

N/A

7.7 Corporate Social Responsibility

Kellogg's products are well-known for having one of the lowest sugar content
and supporting a healthy lifestyle by encouraging people to eat the most important
meal of the day, which is breakfast, which has the ideal diet for a person to consume.
By continuing to act in this manner, it has a different impact on people that it conducts
its business not only to maximize profit, but also to promote and sell healthful food. It's
unfortunate that the new product contains significantly more sugar than the previous
one, and many customers were disappointed about it. The mentioned problem was
explained as being in their threshold, but consumers were not aware of it. Following
the strategic choice may assist the organization in achieving its goal of promoting a
healthy lifestyle.

7.8 Environmental Concerns

Since it was mentioned that they sourced their key components from the
country rather than from other countries, Kellogg may want to pay greater attention to
the country's climate conditions. They should also be liable for packaging waste and
food waste because they are in the consumer goods sector, and their products have
packaging that contributes to global garbage. Promoting proper disposal may aid in
resolving environmental issues that have exist because of the problem of too much
non-biodegradable/recyclable garbage.

8.0 Financial Projections and Goal Settings

8.1 Projected Financial Statements with assumptions

N/A

8.2 Recommendations for annual goals and policy according to projections.

N/A

Page 14of4