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Steve Cahillane says the three-way split is from "a position of strength."

Kellogg's CEO: Now is the right time to break up the company

Leadership

steve so great to see you again to talk about Kellogg and the big announcement that you made that you're splitting the company into three independent public companies, why did you decide to do this? You know this is the right time for us to take the next step in our transformational journey. And it started with the Pringles acquisition which made us a much more snacking oriented company and we see the best possible future for us as a global snacking company spinning off the north american serial business. So they can be singularly focused on how to win north in north american cereal. And then the plant based business set up to dedicate themselves solely to the plant based opportunity. So it's about focus and it's about setting these companies up to be more successful. What about the timing? Why did you decide to do this now? Was there some change in the marketplace that made you feel like we've got to do this now? Well we wanted to do this from a position of strength and the last time you and I talked, we were in the beginning of our turnaround journey and we have successfully turned the business around where we're growing our top line uh in a very meaningful way. So doing this from a position of strength sets us up for the next generation of growth. So the three new food businesses are global snacking which you just mentioned that's Pringles and pop tarts, North american cereal corn flakes, Froot loops of special K and the plant based food operations known by the Morningstar farms brand, what would you say these three companies are going to look like And let's say 34 years from now, If you think about global snacking company, think about one of the fastest growing, most international snacking companies out there. That's what that looks like. Think about north american cereal companies, think about a very high market share in a very stable business with iconic brands and you think about Plant Co, thinking about the Pioneer in a brand new space in a very fast growing environment. So three terrific businesses and all very different. Do you think that they will continue as stand alone companies or will they be bought up sold? I mean they are attractive acquisition targets. My expectation is they will remain independent. The global snacking business is a very large business that will become probably an acquirer in its own right. The global or the excuse me, the north american cereal company the same, that could be an acquirer of other similar brands and the plant business that could be acquired even before we spin it off, we're looking at other strategic alternatives for that. At the same time, we're contemplating spinning it off, you're going to be heading up the snacking business, You'll be ceo of that business is an $11 billion company. What are you picturing there in terms of the merger acquisitions will be, how much bigger will it get? It will get substantially bigger. We've got huge opportunities to take pop tarts cheez it and some of our other brands outside the United States, they should be global brands and they will be global brands. We also will become an acquirer of other snacking businesses over time. And so it's definitely an organic opportunity, but also an opportunity to grow through acquisition is clearly part of the strategy. Well, the big question, a lot of people are asking what happens to the Kellogg's name? I mean it's been around for 116 years, It's iconic. The most important thing to remember is the Kellogg name will continue to adorn cereal boxes and other food items around the world in perpetuity, that does not change the names of the companies will need to change obviously because there'll be three come, whereas before they were one and we're going through that process of deciding what those names are, as we speak. I understand that you've been getting suggestions from your employees, can you share any of the ideas that they've been giving to you? Well, I don't want to share necessarily some of the ideas, but I can tell you that they are absolutely inspiring. We've got an incredibly creative group of employees and the one thing that they've said is they want to be able to feel Mr Kellogg's name in the three companies and that's Part of our goal, make sure that Mr Kellogg and his legacy are felt through the names of these three companies, let's turn to talking about the economy and how the consumers feel about it as you know everyone is complaining about their expensive grocery bills. What's your take on household budgets and how people feel about spending so much more money on their food. Well, there's no question that we've not we've not seen inflation like this for many decades and we see it continuing into 2023. There's no question about that. And at the same time we see household budgets under more strain than they've been because the fiscal stimulus is obviously you know, run its course and so 2023 I think will be a challenging year. We see some positives in the back half of 2023 Kellogg has said that its charge retailers 14% more for its food items. And You've actually been very transparent about price increases and you said that it's going to continue to go up. Can you tell us for how much longer and how much higher? Well I think into 2023 for sure. And I think in the close to the double digits, maybe the low teens is what we're seeing in 2023 before it starts to abate. We haven't passed along all of our input cost inflation because we're still driving productivity because keeping our products and our brands affordable for households is our number one priority. Well are you surprised that because many consumers have been okay about paying higher prices for their favorite snacks and cereals so far so far? Yeah we we've been pleasantly surprised as I said we're working as hard as we can not to raise prices to the extent that we're seeing cost inflation happen. But right now you know the resilience of the consumer has been one of the surprising things but for us you know, we're also a fairly recession resistant type of product. You know people need to eat obviously and they want to turn to brands that they trust brands that they love. But we are mindful that the household budgets are under a tremendous amount of strain steve. I want to talk to you a little bit about leadership. You've been Ceo of Kellogg for five years now. What was it like for you to announce this historic split? It was big news. It was tremendous news. It was the biggest news in our company's history really since Mr Kellogg started the company. So It's it's something that none of us took lightly to be sure. And I said it's one of the most difficult decisions I've made. It wasn't a hard decision necessarily and that may seem like semantics but it was the right decision for the business which made it, you know, not a hard decision but it was difficult because when you're changing something that's 116 years old. It's not it's not necessarily something as I said you take lightly but you know our our reaction from our employees was resoundingly positive. So what do you think you need to do as the leader to successfully lead through all of this? What do you need to do to mode and inspire your employees? So they follow your lead. We have to keep painting a very bright picture of what the future can look like. We have to keep reminding people that we're doing this from a position of strength. We decided to do this. This was not something that was done to us and so therefore keeping people inspired about creating a better tomorrow for our company for themselves, for our future is what will inspire you know us to keep, you know keep going forward together. You know steve, you've been dealing with a lot of tough things, there was a pandemic record, high inflation supply chain bottlenecks, lots of shortages. What would you say has been the biggest lead come from all those experiences for you? I'd say one of the biggest lessons has been the importance of agility and and I mean that in terms of really being able to move fast when you have a big company like ours, people like to talk about agility, but when you have a pandemic, it's never happened before. You have to tear up your business plan that took six months to create and redo it in a matter of days, you have a war in europe and all of a sudden we lost the fastest growing business in our european portfolio. In one day we had to tear up the business plan and literally rewrite it in days. And companies our size, you know, they're just not known for doing that. So building that muscle to be able to actually act like a company that is a fraction of our size was so incredibly important and we were able to do it.

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