Health, indulgence, convenience and new product innovation are driving sales at Kellogg Co. and its retail snacks business. In addition, effective brand-building of powerhouse names such as Cheez-It, Keebler, Nutri-Grain and Kashi have been propelling sales for the $11 billion company over the last few years.

In fact, the Battle Creek, Mich.-based company’s cookie, cracker and wholesome snack business together posted 9% growth for the second quarter ended June 30, 2007. That’s in line with the 9% increase in sales that the company as a whole experienced during the quarter. Overall, net earnings topped $300 million, up 13% from the same period last year. These numbers were better than expected, despite continued inflation and a difficult competitive environment, according to the company.

In a recent interview with Refrigerated & Frozen Foods, Snack Food & Wholesale Bakery’s sister publication, David Mackay, Kellogg’s president and CEO, talked about a wide variety of issues impacting the company. SF&WB piggybacked onto the interview and briefly asked Mackay about the acquisitions of Keebler and Sunshine, how the brands have been performing and how the retail snacks business is responding to trends impacting the industry. Here is what he had to say.

Snack Food & Wholesale Bakery: How has Kellogg’s snack division changed since you acquired Keebler and Sunshine?

David Mackay: Kellogg acquired Keebler and Sunshine six years ago. Since that time, the snacks category, like any other, has changed, and we’ve successfully adapted our businesses with new innovations and product packaging, strong brand building support, and excellent in-store execution to meet evolving consumer needs and trends and deliver growth.

For example, on the innovation front, we introduced a number of exciting snacks to the marketplace this year, including Keebler Dipping Delights sandwich cookies, Keebler Right Bites Fudge Shoppe Grasshopper cookies, Nutri-Grain Fruit and Nut Bars, All-Bran crackers, Cheez-It Stix crackers and Club Puffed crackers, to name a few.

SF&WB: How has the business changed from a marketing perspective? Specifically, how have you repositioned the Sunshine and Keebler brands over the past few years?

Mackay: In the cookie category, there are small but growing segments that appear to be responding to two opposing consumer macro trends: the desire for indulgence and the need for more balanced nutrition. While we see more indulgent, fudge- and chocolate-covered cookies growing, we also see growth in portion controlled 100-calorie cookie packs. Kellogg is well-positioned to address these growing trends. Kellogg’s Keebler brand is the share leader in the fudge-covered and shortbread segments. In the portion control/better-for-you nutrition arena, Keebler Right Bites 100-calorie cookie packs continue to outpace this segment’s growth and we continue to invest behind our Murray Sugar Free cookie brand, which is America’s #1 sugar-free cookie.

In the cracker category, we have strong brands in key segments. Our strategy has been to extend these successful brands selectively into new occasions. Cheez-It Crisps, Club Snack Sticks, Club Puffed and Town House Toppers are all new innovations that give consumers new usage occasions and reasons to enjoy the great taste they’ve come to expect from these brands. Cheez-It is our largest cracker brand that continues to grow. It’s a differentiated product because the cheese is baked in.

As with cookies, there are also some macro trends in the cracker category. On-the-go continues to be a key driver for crackers. Our caddies business is targeted here, and so are sandwich crackers and Gripz. All provide convenient ways for consumers to enjoy our crackers while consumers are busy or on-the-run. Healthier choices are also becoming important for crackers and we have responded successfully with All-Bran crackers, Club Multi-grain and our portion-controlled 100-calorie cracker packs. We have gained market share two years in a row in crackers, and we are well positioned — with our brands’ strength and innovation — to continue to drive future growth.

SF&WB: What is the strategic focus for the Snacks Division in terms of new products introductions?

Mackay: In each of our snacks businesses, packaging innovation, portability and portion control have been important contributors to sales growth. For example, our Right Bites 100-Calorie Packs, Gripz Cheez-It and Gripz Chips Deluxe snacks have been doing very well. The wholesome snacks category continues to grow and provide fertile ground for innovation. And we have more exciting product packaging innovations planned for 2008 across our cookie, cracker and wholesome snack portfolio.