New Kellogg CEO thinks long-term - East Valley Tribune: Business

New Kellogg CEO thinks long-term

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Posted: Sunday, December 19, 2004 7:01 am | Updated: 4:59 pm, Thu Oct 6, 2011.

BATTLE CREEK, Mich. - When Kellogg Co. announced late last month that its board had tapped an outside director to become the cereal giant’s next chairman and chief executive officer, some financial analysts questioned the move.

They wondered whether Jim Jenness, a 58-year-old former advertising executive from Chicago, was chosen merely to keep the seat warm until the board was ready to turn over control of the company to David Mackay, a 49-year-old Australian who is Kellogg’s highly regarded president and chief operating officer.

Analysts at Deutsche Bank Securities downgraded Kellogg from ‘‘buy’’ to ‘‘hold’’ on Nov. 29, the day of Jenness’ appointment. The next day, John M. McMillin, an analyst with Prudential Equity Group, released a report acknowledging Jenness’ marketing acumen but saying his appointment ‘‘brings uncertainty.’’

Part of that is because Jenness has such a difficult act to follow.

Under the charismatic and approachable Carlos Gutierrez, 51, who left after President Bush picked him to succeed Donald Evans as the U.S. secretary of commerce, a struggling Kellogg made a remarkable turnaround.

After Gutierrez took over as CEO in 1999, Kellogg’s net sales rose from $6.2 billion that year to $8.8 billion last year, a 43 percent increase, and the company surpassed General Mills to be the nation’s largest cereal maker. Kellogg’s stock has doubled in value since early 2000 and now trades around $45 per share.

Gutierrez crafted an ambitious, three-year turnaround plan that in 2001 featured Kellogg’s acquisition of cookie and cracker maker Keebler Foods Co. and a complete restructuring of its global business units. Revenue and profits started climbing the following year and the company surpassed sales and earnings goals in 2003.

Suggesting he plans no major changes to Gutierrez’s game plan, Jenness told The Associated Press in an interview that the company will pursue the ‘‘terrific, smart, intelligent concepts and strategies’’ now in place.

‘‘We have momentum and when a company with great people, with great strategy and culture has momentum, you certainly anticipate trying to keep that going,’’ he said.

Jenness also dismisses speculative talk about his tenure, saying he plans to be around for a while. He also said he and Mackay work well together, as do the rest of Kellogg’s senior managers.

‘‘The team is fantastic and that’s one of the things, I’m sure, underlying why the board decided to have me come in at this particular time — it’s really to keep that team going, keep them moving along,’’ he said.

Mackay said in an interview that being elected to the board is a tremendous honor and views it as a learning opportunity. He also said he’s not upset about being passed over for the job of CEO and looks forward to working with Jenness.

‘‘This is a fantastic company and I feel fortunate to be part of what is a great global team,’’ Mackay says. As Kellogg competes for cereal market share against General Mills, Kraft Foods’ Post and PepsiCo’s Quaker, wholesale prices have been steady or somewhat down during the past five years after several years of price increases, said Richard Galanti, chief financial officer of Issaquah, Wash.-based Costco Wholesale Corp.

Costco, whose total annual sales now approach $50 billion, sells ‘‘well in excess of $200 million’’ worth of cereal every year, Galanti said. Unlike major supermarkets that may stock 70 or 80 different cereals in two or three box sizes each, Costco stocks about 15 cereals in just one size each.

Costco often carries such Kellogg cereals as Special K, Froot Loops and Frosted Mini-Wheats, but the warehouse club can go weeks without stocking certain brands.

While store brands of cereal have grown in popularity — Costco’s brand is called Kirkland Signature — they don’t threaten to overtake innovative major producers such as Kellogg, according to Tierney Remick, global managing director of the consumer market for Los Angelesbased executive recruiter Korn/Ferry International.

Mackay says there’s little concern at Kellogg that store brands and major competitors will push its products off retail shelves. He attributes that to the company’s proven business strategy.

‘‘We compete in some relatively large and very intense segments — cereals, cookies and crackers, healthy snacks, etc. — but we don’t envision any issues maintaining and hopefully increasing our presence with our trading partners,’’ he said.

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