The Kellogg Company Pestle Analysis The Kellogg Company Pestle Analysis Glossary Page Introduction3 Pestle 3 Political Influences4 Economic Influences5 Socio-Cultural Influences7 Technology Influences8 Legal Influences9 Ethical Influences11 References12 The Kellogg Company Pestle Analysis Introduction Will Keith (W. K. ) Kellogg was born April 7, 1860. In 1876 W. K. and his brother Dr John Harvey Kellogg, accidentally discovered the process of creating flaked cereal while experimenting with shredded wheat cereal.
While experimenting with different ways to cook and crush wheat to make it more palatable without losing its goodness, they inadvertently ran a batch of cooked wheat through the rollers that had been standing around for a day or so. In 1906, W. K. Kellogg entered the cereal business, as American eating habits began shifting from heavy, fat-laden breakfasts to lighter, more grain-based meals. Kellogg Company (Kellogg’s) was founded in 1906 as the Battle Creek Toasted Corn Flakes Company.
Kellogg Company of Great Britain Ltd, a subsidiary of the US Kellogg Company of Michigan, remains the dominant brand in the UK breakfast cereals market, with around 40% sales volume in 2000. The Group’s principal activities are to manufacture and market ready-to-eat cereal and convenience food products. PESTLE There are many environmental issues which should be looked at to get the broader picture of Kellogg’s Company. These issues can be grouped into six categories: political, economical, socio-cultural, technological, legal and ethical.
The acronym for this is a Pestle analysis. POLITICAL INFLUENCES The general economic, political conditions and taxation policies ride on a business’s succession. Customer and consumer demands are heavily affected by recessions, economic downturns and the financial and credit market. In the past the Kellogg Company have been victim to the vast economic and political changes which have affected the company worldwide, it is possible that Kellogg’s may remain victim to the changes in the future.
What also keeps the down turn in action is the performance of or rise in tariffs, including value added tax, or other changes in the application of existing taxes, in markets in which Kellogg’s are currently active or may be active in the future, or on specific products that they sell or with which their products compete, may have an adverse effect on the company or on their results of operations. The Kellogg Company hold assets and gain liabilities as well as earn revenue and pay expenses in a variety of currencies other than the U. S. dollar.
Because their consolidated financial statements are presented in U. S. dollars, Kellogg’s translate their assets, liabilities, revenue and expenses into U. S. dollars at then applicable exchange rates. Consequently, changes in the value of the U. S. dollar may negatively affect the value of these items in their consolidated financial statements, even if the value has not changed in their original currency. The Kellogg Company is exposed to instability in foreign currency cash flows related to third-party purchases, intercompany loans and product shipments.
The company is also open to fluctuations in the value of foreign currency investments in subsidiaries and cash flows related to the return of these investments. Additionally, Kellogg’s is exposed to volatility in the translation of foreign currency earnings to U. S. dollars. Primary exposures include the U. S. dollar versus the British pound, euro, Australian dollar, Canadian dollar, and Mexican peso, and in the case of inter-subsidiary transactions, the British pound versus the euro. ECONOMIC INFLUENCES
The Kellogg Company face competition across their production lines, including ready-to-eat cereals and convenience foods, from other companies which have a variety of abilities to withstand changes in market conditions. Some of the competitors have substantial financial, marketing and other resources, and competition with them in Kellogg’s various markets. The production lines in competitive companies could cause Kellogg’s to reduce prices, increase capital, marketing or other expenditures, or lose category share, any of which could have a materialistic harmful effect on their business and financial results.
Category share and growth could also be adversely impacted if Kellogg’s are not successful in introducing new products. Agricultural produce, including corn, wheat, soybean oil, sugar and cocoa, are the principal raw materials used in Kellogg’s products. Carton board, corrugated, and plastic are the principal packaging materials used by the company. The cost of such products may fluctuate widely due to government policy and regulation, weather conditions, climate change or other unforeseen circumstances.
To the extent that any of the previous factors mentioned, affect the prices of such products and Kellogg’s have been unable to increase their prices or sufficiently hedge against such changes in prices in a manner that offsets such changes. The results of Kellogg’s operations could be materially and adversely affected. In addition, Kellogg’s use derivatives to guard themselves against price risk associated with forecasted purchases of raw materials.
The cost of fuel may fluctuate widely due to economic and political conditions, government policy and regulation, war, or other unforeseen circumstances which could have a material adverse effect on their consolidated operating results or financial condition. Cereal processing ovens at major domestic and international facilities are regularly fuelled by natural gas or propane, which are obtained through local utilities or other local suppliers. Oil may also be used to fuel certain operations at various plants.
In addition, considerable amounts of diesel fuel are used in connection with the distribution of Kellogg’s products. A shortage in the labour pool or other general inflationary pressures or changes in applicable laws and regulations could increase labour cost, which could have a material adverse effect on the company’s consolidated operating results or financial conditions. In the US, Kellogg’s largest customer is Wal-Mart Stores (in the UK known as ASDA) and it associates.
Up to date they accounted for 21% of consolidated net sales during 2009. As the retail grocery trade carry on to strengthen and mass marketers become larger, Kellogg’s large retail customers may seek to use their position to improve their profitability through improved efficiency, lower pricing and increased promotional programs. If the Kellogg Company is unable to use their scale, marketing expertise, product innovation and category leadership positions to respond, their productivity or volume growth could be negatively affected.
The loss of any large procurer for an extended length of time could negatively impact our sales and profits. SOCIO-CULTURAL INFLUENCES The sales within the company show that Kellogg’s have never gone out of fashion and have always made a profit. There are a number of trends in consumer preferences which may impact the business and the industry as a whole. These include changing consumer dietary trends and the availability of substitute products.
Kellogg’s success is dependent on anticipating changes in consumer preferences and on successful new product and process development and product re-launches in response to such changes. Their aim is to introduce products new or improved production processes on a timely basis in order to create obsolete decreases in sales of existing products. ‘Kellogg International posted a first quarter 2010 reported net sales increase of 9 percent. On an internal basis, net sales growth for Kellogg International was 2 percent, excluding the effects of currency translation.
First quarter internal net sales growth in Europe was 2 percent. Latin America internal net sales increased 1 percent as the strong performance in Mexico was muted by the impact of excessive rains which caused extensive water damage to our manufacturing facility resulting in a supply disruption in Brazil during the first quarter. Asia Pacific internal net sales rose 1 percent, compared to a double-digit increase in the same period a year earlier. First quarter 2010 Kellogg International operating profit increased 9 percent on a reported basis.
Operating profit grew 3 percent on an internal basis due to solid sales growth and improved gross margin, partially offset by increased advertising expenditures’. Kellogg Company Posts Solid First Quarter 2010 Results including Double-Digit Operating Profit and EPS Growth; Affirms 2010 Guidance; Announces Three-Year $2. 5 Billion Share Repurchase Program TECHNOLOGY INFLUENCES Research and technology professionals play a critical role in developing new product ideas and making them a reality.
Examples of positions include: food technologist, product development scientist, and food chemist and product and consumer scientist. Kellogg’s increasingly rely on information technology systems to process, transmit, and store electronic information. For example, their production, distribution facilities and inventory management utilise information technology to increase efficiencies and limit costs. Furthermore, a significant portion of the communications between their personnel department, customers/consumers, and suppliers depends on information technology.
Like other companies, their IT systems may be vulnerable to a variety of interruptions due to events beyond their control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. Kellogg’s have technology security initiatives and disaster recovery plans in place or in process to mitigate the risk to these vulnerabilities, but these measures may not be adequate enough for the company.
Research and Development includes expenditures for new product and process innovation, as well as significant technological improvements to existing products and processes. The Company’s R;D expenditures primarily consist of internal salaries, wages, consulting, and supplies attributable to time spent on R;D activities. Other costs include downgrading and maintenance of research facilities and equipment, including assets at manufacturing locations that are temporarily engaged in pilot plant activities.
Kellogg’s heavily rely on information technology systems to process, transmit, and store electronic information. For example, their production and distribution facilities and inventory management utilise information technology to increase efficiencies and limit costs. In addition, a significant portion of the communications between their personnel, customers, and suppliers depends on information technology. Like other companies, Kellogg’s information technology systems may be vulnerable o a variety of interruptions due to events beyond their control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. The technology security initiatives and disaster recovery plans in place or in process to mitigate the risk to these vulnerabilities, but these measures may not be adequate. LEGAL INFLUENCES ‘We realize that the first and foremost obligation of responsible citizenship is to obey the laws of the countries and communities in which we do business; any noncompliance with applicable law is unacceptable.
We do not engage in illegal conduct even if the relevant laws are not enforced in practice, or their violation is not subject to public criticism or censure. ’ http://files. shareholder. com When selling food products, it involves a number of legal and other risks, such as product contamination, spoilage, product tampering or other adulteration. The company may need to recall some of its products if they were to become tainted or misbranded. Kellogg’s may also be liable if the consumption of any of their products caused injury, illness or death.
A widespread product recall or market withdrawal could result in significant losses due to their costs, the destruction of product invention, and lost sales due to the unavailability of a product for a period of time. ‘For example, in January 2009, Kellogg’s initiated a recall of certain Austin and Keebler branded peanut butter sandwich crackers and certain Famous Amos and Keebler branded peanut butter cookies as a result of potential contamination of ingredients at a supplier’s facility.
The recall was expanded in late January and February to include Bear Naked, Kashi and Special K products impacted by that same supplier’s ingredients. The costs of the recall negatively impacted gross margin and operating profit in the fiscal years 2008 and 2009. ‘ Kellogg’s annual report The company could also suffer losses from a significant product liability judgment. A significant product recall or product liability case could also result in adverse publicity, damage to its reputation, and a loss of consumer confidence in their food products, which could have a material dverse effect on the business results and the value of the brands. Moreover, even if a product liability or consumer fraud claim is meritless, does not prevail or is not pursued, the negative publicity surrounding assertions against our Company and our products or processes could adversely affect our reputation or brands. Kellogg’s activities, both in and outside of the US, are subject to regulation by various federal, state, provincial and local laws, regulations and government agencies, including the U. S. Food and Drug Administration, U. S. Federal Trade Commission, the U. S.
Departments of Agriculture, Commerce and Labour, as well as similar and other authorities of the European Union, International Accords and Treaties and others, including voluntary regulation by other bodies. There is no guarantee that the Company will be successful in defending itself in civil, criminal or regulatory actions, including under environmental, food quality and safety, and environmental laws and regulations, or in asserting its rights under various laws. In addition, the Company could incur substantial costs and fees in defending itself or in asserting its rights in these actions or meeting new legal requirements.
The costs and other effects of potential and pending litigation and administrative actions against the Company, and new legal requirements, cannot be determined with certainty and may differ from expectations. The few projects listed below, are known to have support from The Kellogg’s Company, in which Kellogg’s have adhered to their legislations. The Child Nutrition and Women Infants and Children (WIC) Reauthorization Act of 2004 (Sec. 204 of P. L. 108-205) requires by law that all local education agencies participating in the National School Lunch Program create local wellness policies no later than June 2006.
In response to this mandate, both federal and non-federal agencies have responded with tools and resources for schools to assist with developing local wellness policies. Team Nutrition: Local Wellness Policy. This clearinghouse created by U. S. Department of Agriculture (USDA) in collaboration with CDC, contains reference materials to assist school districts with developing local wellness policies for physical activity and nutrition, tools and resources for implementation, and un-reviewed sample policies. Action for Healthy Kids: Wellness Policy Tool.
This searchable database was developed by Action for Healthy Kids in partnership with CDC to compliment USDA’s local wellness policy Web site. This site helps districts identify policy options and write their own policies. Users can adapt or copy sample language from un-reviewed policies gathered from across the country. ETHICAL INFLUENCES Founder W. K. Kellogg wanted to do good things for people, starting with nutrition and the environment, and began promoting environmentally-friendly processes by producing the first boxes of cereal in recycled packaging in 1906. Today, Kellogg’s uses 100% recycled packaging.
In addition, Kellogg’s created a Social Responsibility Committee in 1979 that now deals with environmental concerns, health & safety, addiction and abuse, and other issues that impact employees and communities. The Kellogg Company could become negatively affected if consumers lose confidence in the safety and quality of certain food products or ingredients, or the food safety system generally. Adverse publicity about these types of concerns, whether or not valid, may discourage consumers from buying Kellogg’s products or cause production and delivery disruptions.
During the depression in the late 1931, Kellogg was one of the few companies that shortened hours to save jobs and retain their employees. Kellogg believed in the skill set of its employees, morale and employee innovation rate and believed that their employees were their best customers. For over 50 years, Kellogg offered a 30-hour workweek option. When this 30-hour option was introduced in the 1930’s employees were paid for 35 hours although they worked only 30 hours. After the depression employees were offered a 30/40-workweek option.
This decision was however, eventually reversed. Kellogg went to a normal 40-hour workweek. ” Total W/C 2195 References http://www. kelloggs. co. uk/company/corporateresponsibility/theworkplace. aspx Accessed 20th April 2010 http://www. kelloggcompany. com/career. aspx? id=1224#dev Accessed 16th April 2010 http://en. wikipedia. org/wiki/John_Harvey_Kellogg Accessed 6th May 2010 http://files. shareholder. com Accessed 29th April 2010 http://www. cdc. gov/HealthyYouth/healthtopics/wellness. htm Accessed 6th April 2010 FORM 10K – Kellogg Online Annual Report 2010. mht
