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Kellogg Co. says it will cut 7% of its global workforce, or about 2,000 jobs, as part of a four-year cost-saving plan amid a persistent slowdown in breakfast items and snacks. The program, dubbed “Project K,” will result in pretax charges of $1.2 billion to $1.4 billion, the Battle Creek, Mich.-based company says. Kellogg had about 31,000 employees as of Dec. 29, 2012, according to regulatory filings.
Competitors such as J.M. Smucker Co., Kraft Foods Inc. and ConAgra Foods Inc. have battled to get consumers to stock up their shopping carts as unemployment and declining incomes make them spend less. With store promotions failing to spur sales growth, Kellogg has resorted to cost-cutting to boost profitability.
“It’s not worth discounting if you’re not driving volume,” reports Brian Yarbrough, an analyst for Edward Jones & Co., St. Louis. “You’ve got to retrench, you’ve got to look for cost savings, you’ve got to look for ways to be more productive, whether it’s through the supply chain or manufacturing.”
The challenge for manufacturers is figuring out how to get consumers shopping again, he adds.
The issue is hitting Kellogg particularly hard at the breakfast table. Sales growth for morning foods has slowed with the increased competition from growing options such as Greek yogurt and oatmeal bars. Net sales were little changed in the third quarter, hurt also by snacks, Kellogg also reports.
Cereal sales have slid particularly among baby boomers and higher income consumers as they try to eat healthier and reach for a broadening array of breakfast choices, says Kellogg CEO John Bryant. He plans to add more healthful ingredients such as Omega 3 fatty acids to compete with everything from eggs to yogurt, rather than focusing as much on creating new flavors.