How Kellogg Company Chairman and CEO Steve Cahillane transformed an iconic 117-year-old organization.
Executing an industry-defying growth agenda
When Steve Cahillane joined Kellogg Company as CEO in 2017, the consumer packaged goods industry was overwhelmingly in cost-cutting mode. To ward off private equity takeovers, many had enacted zero-based budgeting—a policy that requires every division to justify every dollar of its budget every year. Companies that wanted to avoid a takeover instituted their own preemptive cost-cutting measures to make themselves less attractive targets.
Cahillane saw this industry trend—cutting costs at the expense of investment in brand building—as a grave mistake. “This company has tremendous brands,” he says. “When brands like ours have the right level of investment behind them, they respond.”
At first, the most pressing challenge in zigging against a zagging industry was getting others to believe in Cahillane’s vision of global growth. That meant telling a new story inside and outside the organization. The story Cahillane told was about a future at Kellogg that centered on growing brands, eating occasions and hiring initiatives. “Once you get a certain number of people believing, you get momentum,” Cahillane says. “There’s nothing more important in business than momentum, but you’ve got to create it.”
Planning for a spinoff
Creating that future would require bold decisions with complex executions. Most notably, it centered around Cahillane’s plan to separate the 117-year-old organization into two separate companies to transform Kellogg from an iconic American breakfast brand into a global snacking behemoth. “It’s the most consequential move in Kellogg’s history since Mr. Kellogg himself invented breakfast cereal,” says Cahillane on making the decision to do the spins. To help with this undertaking, Cahillane turned to Kellogg’s journey partner, EY.
“Steve and the Kellogg management team really entrusted us to work with them on their transformation, from design through execution,” says Julie Boland, EY’s U.S. Chair and America’s Managing Partner. “We partnered with Kellogg on every facet of their transformation to ensure success and open a new chapter in the legacy of this great company.”
One fundamental challenge of a spinoff is that in turning everyone’s attention toward executing the spin—and away from day-to-day commercial operations—critical momentum may be lost at exactly the wrong moment. By bringing in EY to oversee the timely execution of the transaction, Kellogg ensured that its internal teams could continue to focus on driving growth.
“EY brought market-leading expertise to the partnership, helping Kellogg execute their transformation so they could also focus on running the business successfully. From commercial analytics, portfolio transformation and ESG, our capabilities are helping Kellogg grow momentum, deliver for their consumers and power the next phase of growth,” says Dave Holloman, Global Client Service Partner for Kellogg at EY.
We have to continue to push ourselves so that we’re making bold moves, because momentum is a precious thing.
Other risks come from sheer complexity. Spinoffs of this magnitude are rare and can easily take even seasoned Fortune 500 companies into uncharted territory. When Kellogg Company announced its portfolio transformation on June 21, 2022, its leaders set a timeline for execution that would run through 2023. When that work involves separating IT infrastructure, warehousing, customer service teams, supply chains and human resources, among other areas, time is of the essence.
A company built for the future
Kellogg is known for tying environmental, social and governance (ESG) issues into its purpose and growth platform. Indeed, a key part of its “Deploy for Growth” strategy centers around ESG, from impact-oriented investments to the well-being of its employees. EY had the experience and resources to support Kellogg as it progresses toward those goals.
This transformation also aims to unlock greater growth potential for each line of business: North American Cereal Co., officially WK Kellogg Co., and Global Snacking Co., officially Kellanova. Take Kellanova: Pringles brand products generate more than $3 billion in annual sales and are growing at a double-digit rate, but there’s still more room to grow. Cahillane notes that Pringles’ share of the salty snacking category stands at less than 5%. The spinoff will allow Kellanova to focus on expanding brands like Pringles, Cheez-It and Pop-Tarts into new markets. “These are essentially just United States brands,” Cahillane says. “There’s no reason they can’t be international brands.”
At the same time, Cahillane sees this move opening up opportunities for WK Kellogg Co. to burnish its own classic brands. “You’re going to have a management team waking up every single day with one thing on their mind: ‘How do I win in cereal?’” Cahillane says.
EY sees this kind of refocusing through spinoffs or divestiture as a growing trend. “About 44% of CEOs are saying they will do some divestiture so they can focus their priorities and allocate capital differently,” Boland says. Business leaders who recognize the growth potential in paring down holdings and narrowing focus are well poised to navigate the current global economy. Kellogg’s spinoff will leave both resultant companies fitter for the marketplace.
For Cahillane, it all comes back to momentum and the danger of large companies becoming averse to risk when they focus more on not losing than on winning. “We have to continue to push ourselves so that we’re making bold moves, because momentum is a precious thing,” he says. “Once you have it, you have to keep it.”
This is part of Leadership in Action — a master class series featuring prominent CEOs highlighting the decisive moment where bold decision-making has made a material impact on their company and career.
