“With all of the inflation that we’ve experienced across our industry,  is going to be another crazy year. We are planning for a very, I shouldn’t say uncertain environment, but certainly a volatile environment, relative to pricing, relative to supply chain, and COVID is still with us,” Chris Hood, president of Kellogg North America, told Consumer Brands Association president and CEO Geoff Freeman during the trade group’s CPG Speaks session this week.
With that in mind, he said, his “biggest watchword” for 2022 will be “flexibility,” including around “how do we make sure that we work our way through what are a number of uncertainties around what demand will actually look like, how we balance supply and demand appropriately, how we maintain our margins in the face of significantly increasing commodity costs and labor availability.”
One way that Kellogg plans to manage margins is by passing higher input costs through to consumers as price increases.
“Obviously, in this industry, usually we hedge to by ourselves some time and some certainty,” but even with that and with the price increases the company pushed through in 2021, “we’re anticipating we’re going to need to do more in 2022 … to make sure from an input standpoint, we are covering the cost of inputs,” Hood said.
He acknowledged that from a consumer standpoint the inflation in 2022 will be significantly higher than 2021, in part because of additional upcoming increases but also because many increases approved by retailers this year have yet to appear on store shelves.
More surprising and possibly more difficult to address concisely has been the labor shortage at all points in the supply chain, Hood said.
“The economic resurgence has been a lot stronger than I think most of us anticipated. That’s a big driver of pressure,” and multiple solutions are necessary to address the issue at different points in the supply chain, he explained.
For example, with regards to labor at Kellogg’s operations and truck driver availability, Hood said the upcoming end to some government assistance programs this month will provide some relief.
But, he added, businesses also have “fundamental work to do” to consider why people are less willing to work for them or fill jobs when other options are available.
“We need to improve the quality of the experience in our own operations so that the roles we offer are both attractive in terms of the day to day work, but also attractive in terms of the benefits and the financial remuneration that we offer, and we’re working on that,” he said.
Companies also need to better anticipate moves by the competition in the labor market.
For example, he said, if Amazon or another organization built a facility or distribution near one of Kellogg’s manufacturing plants and pulled from the same local talent pool, it would create labor challenges.
“So, we’re trying to get further ahead in anticipation of those types of moves,” Hood said.
In terms of freight and transportation challenges due to labor shortages or chip shortages constraining the availability of trucks, Hood did not offer a solution, but noted that he expects to “be wrestling with those for another six to nine months.”
Trendspotting: ecommerce, a bifurcation of wellness & indulgence and a blurring of eating occasions
As challenging as the pandemic continues to be for the CPG industry, Hood noted that it also opened the door for new areas of innovation and accelerated consumer trends that hold significant potential for business development.
One of the biggest trends to come out of the pandemic was the acceleration of ecommerce adoption for food and beverage, which Hood said more than doubled for Kellogg last year and is now up to 11-12% of the company’s sales in the US, “which is a massive business for us.”
“That’s just been huge and it’s really required us to pivot fundamentally in terms of the investments, and the capabilities that we’re trying to build in that space,” he said.
The blurring of eating occasions across the day while so many people stayed at home during the pandemic also create innovation opportunities for Kellogg, Hood said.
Finally, he noted, “a bifurcation of wellness and indulgence,” holds significant potential and flexibility for innovation.
“There’s a prevailing mindset out there that everything is headed in the wellness direction in the food industry, but you don’t have to look very far to find a lot of indulgent brands that are growing phenomenally and doing really, really well,” he said. “So, we’re keeping our eye on both of those things.”
Once pandemic restrictions ease, Hood anticipates that consumers will maintain several new habits that they have developed, including shopping more at small format stores.
“We’re finding people are using the convenience store now” for regular shopping missions, “whereas before it was much more of an impulse purchase” destination, Hood said, explaining, “many people are using the convenience store for primary shopping missions because it’s super easy to get in and out.”
As a result, he added, “convenience store operators are stocking larger sizes of packages in order to meet that demand,” which creates new opportunities for sales and marketing.
A more measured approach to innovation
As Kellogg navigates the emerging opportunities presented by the pandemic and the slow reopening of economies in the US, Hood said that the company is excited to introduce next year several “big innovations.”
But he also added that Kellogg will take a more measured approach to product development and testing – “challenging ourselves about whether or not they are really adding value,” and if they are not, then eliminating them. Whereas prior to the pandemic, the company might have provided more room and time for an idea to prove itself.
Among the ways that Kellogg is approaching innovation is through its new Menuation Center in Chicago, which it established in close partnership with the company’s away from home business and culinary teams.
Hood described this as an example of “agile collaboration” and noted that food service and restaurants allow for faster testing and iteration of ideas than the CPG space.
Kellogg also is investing in innovation through the establishment of its natural insurgent category, which houses Kashi, Rx Bar, Bare Naked and Pure Organic, and is an area where he expects to drive significant growth as the pandemic eases.
Finally, Hood said, Kellogg will continue to explore innovation through its 1894 capital fun that allows it to invest in companies innovating the next generation of food and food technology.
Ultimately, Hood noted, while the pandemic has been and continues to be challenging, he is also optimistic about the direction in which Kellogg is headed and the trends that have emerged in the past 18 months.