Kellogg is not ready for breakfast

The large American food company Kellogg, which has suspended the supply of Pringles chips to Russia, is preparing to completely leave the local market. The company plans to sell the production of biscuits and ready-made breakfasts under the Lyubyatovo brand to the Chernogolovka group of companies, which will be able to enter new product segments. So far, sales of ready-made breakfasts are declining, which is associated with consumer savings.

The manufacturer of biscuits and breakfast cereals Kellogg has agreed to sell its business in Russia to Chernogolovka Group of Companies, a Kommersant source among confectionery suppliers told Kommersant. Another interlocutor of Kommersant, who heard about it from the Russian Kellogg team, also knows about the deal. According to him, the buyer is a company that previously bought a plant from Kellogg in the village of Severskaya, Krasnodar Territory. This site is now part of the Chernogolovka Group of Companies.

The deal is expected to close in early 2023, one source says.

Chernogolovka and Kellogg did not provide comments.

Kellogg was founded in 1906 in the USA. Claims to be the largest producer of breakfast cereals and the second largest biscuit, cracker and salty snacks market in the world. The portfolio of brands includes Pringles, Pop-Tarts, Rice Krispies, etc. In the first three quarters of 2022, Kellogg’s net revenue grew by 6.7% year-on-year to $11.48 billion.

Kellogg entered Russia in 2008, having bought six enterprises from United Bakers. Now Kellogg operates three factories in Voronezh, Pskov and Vyazma, where it produces products under the Lyubyatovo brand. The capacity of the site in Voronezh at the end of 2016 was 47 thousand tons per year, local media wrote. Revenue of Kellogg Rus LLC in 2021 increased by 9.8%, to 13.96 billion rubles, net profit increased 1.7 times, to 888.39 million rubles. Part of the proceeds was probably provided by the distribution of Pringles chips, the import of which was stopped after the outbreak of hostilities in Ukraine.

One of Kommersant’s interlocutors in the market notes that Kellogg’s offer did not make a strong impression on profile players. And another source of Kommersant indicates that an extremely high price could become an obstacle. Dmitry Gabyshev, managing director of Peregrine Capital, estimated the possible cost of Kellogg’s business in Russia at 5-6 EBITDA, or 6-7 billion rubles. According to him, this corresponds approximately to 50% of the probable valuation before the CBO, and such a discount is usually considered by the commission on foreign investment control.

As Mr. Gabyshev notes, the production of ready-made breakfasts and cookies is a business with high profitability, and if there were several applicants for Kellogg’s assets, then the assessment could be quite high.

One of the founders of Famous Amazing Brands (Vanilla Flight and Anarchy drinks) Anton Stelmakov notes that Chernogolovka has been diversifying its business for a long time, trying to reduce its dependence on the category of drinks. In a deal with Kellogg, the group, among other things, could be attracted by the strong Lyubyatovo brand, which would perfectly complement the Chernogolovka portfolio, he points out. Today, food accounts for about 17% of its business, according to the group. Chernogolovka plans to increase this figure every year, a representative of the group said earlier to Kommersant.

In the breakfast cereal category, Lyubyatovo is likely to be among the main brands along with the brands of the Swiss Nestle, which previously suspended investments and advertising in Russia. According to the NielsenIQ retail audit, in January-October, sales of ready-made breakfasts decreased by 9.8% year-on-year in physical terms and increased by 7.6% in money terms. Sales of packaged sweet and salty biscuits in pieces grew by 1.3% and 0.7%, and in money terms – by 26.4% and 27.3%, respectively. Alexey Popovichev, Executive Director of Rusbrand, believes that sales of ready-made breakfasts, as well as a number of other categories, may decline under the influence of the trend towards consumer savings.

Anatoly Kostyrev