On this episode of Yahoo Finance Presents, Kellogg CEO Steve Cahillane talks with Yahoo Finance's Brian Sozzi to discuss the trends and uptick in demand the company has seen as more people work from home during the COVID-19 pandemic. He also discusses how the company is preparing for the next "unexpected" event.
BRIAN SOZZI: All right, I'm joined now by Kellogg's CEO, Steve Cahillane. Steve, always good to, always good to speak with you. Thanks for taking some time here. Listen, you have an extensive career in the consumer goods industry and the food industry. Take us through your thinking through the pandemic. Has the pandemic changed and just turned on its head everything you think you knew about running a packaged food company?
STEVE CAHILLANE: Yeah, you know, great to be with you, Brian. Thanks. I would say the answer to that is actually no, because what it's done, it's reaffirmed so many things that I believe and we believe about the importance of a number of things. First is brands, the importance of brands, because brands are a promise to consumers, and great brands are promises well kept to consumers. And that's been so true in this pandemic.
The other thing is the importance of occasions. You know, we think about occasions based marketing, and the importance of occasions has really come through in this COVID environment, because, you know, I'll give you one example. You know, ready to eat cereal, well, it's really seen elevated demand during the pandemic, and the reason why is because it's occasions have been reintroduced to, you know, countries, you know, all across the world, and the breakfast occasion of sitting around with your kids has come back to life.
You know, it was all about on-the-go beforehand, and we were marketing towards on-the-go occasions. Well, you have to be laser focused on your brands, and you have to be laser focused on your occasions. And so if anything, it's really reinforced so many things that I've learned throughout my career.
BRIAN SOZZI: Yeah, no, it was a snack bar world. I can certainly attest that half a snack bar, maybe an energy drink, and you go right off to work, but times have definitely changed. Listen, the consumer goods industry, it's been slow growth for many years. Kind of steady, but slower growth.
What was it like for you when you're sitting in your office March, April, May, and you see some of these demand spikes. Do you just take a step back, and what'd you say, wow? I mean, what else can you say?
STEVE CAHILLANE: Well, that's a pretty good word for it, because, you know, on the one hand, you're obviously very concerned about the world, concerned about your employees' safety, concerned about your family, concerned about all of these things. And at the same time, we realize, you know, we have, you know, we have a contribution to make here. We sell packaged food that people love, and at this moment, people really need it. And so it was definitely a wow factor when you're looking at double digit growth, high double digit growth, for brands that had been pretty steady. But at the same time, there's a lot of inspiration that comes with meeting the moment and, you know, being part of a company that, you know, plays an important role in the moment. So there was a lot of emotions circling around at that time when the pandemic first hit certainly, and, you know, is still continuing today.
BRIAN SOZZI: What has been your attack plan? So when you see these big sales gains, how do you mobilize the team to meet the demand of America? It's not just one household, two households, it's a whole country, if not the whole world.
STEVE CAHILLANE: Yeah, it was really a rallying moment. And so the first thing that I did is I literally called on the telephone every single one of our plant managers, didn't set up a schedule, I just got all their mobile phones and called them to say two things. Number one, thanks for being there. You know, we need you. You're going to run these plants at 24/7 for the foreseeable future. What do you need from us?
Now, I didn't need to do that. They're not, you know, they don't need to come to me, obviously, for what they need, but I wanted everybody to feel connected and feel important and know the role that they played and how vital it was. And that kind of was the beginning of a new communication strategy that just so much more comprehensive. You know, we're talking with our people on such a regular basis, mostly all virtual, but, you know, staying connected to our people, making sure that they understand that we're there together in this. You know, whether in solidarity working from a home office and saying, I feel your pain, or, you know, being in the office or visiting a plant in a very safe way to say, we're all in this together, but we're in it in different ways. And from the very beginning, that was the most important, that people understood that we were joined up, that we were connected, and that we were, indeed, standing in solidarity with one another.
BRIAN SOZZI: Why haven't I seen, and I'm just one case, why haven't I seen product shortages of Kellogg's Corn Flakes or Eggo waffles? You look across the food industry, we've seen a lot of shortages in the supermarkets, most specifically from Tyson in fresh food, fresh meat, chicken, a lot of out of stocks, but I haven't seen it in your categories.
STEVE CAHILLANE: Well, it's been the remarkable performance of our supply chain folks, and it really is remarkable, as I just said, from day one operating the plants at 24/7. Now, remember, when you look at any of our products, you know, we've been focused on, like our peers, on effectiveness and efficiency in the most, you know, lean manufacturing and supply chains we could ever have. We were not built to all of a sudden go from where we were to high double digit growth and to maintain it.
And, you know, so we have been operating at well above 100% capacity on many of our platforms, but our people have been creative. They've been, you know, they've been energetic. They've been inexhaustible in their pursuit of making sure that the supply chain continues to run and this elevated demand, which is unprecedented, continues to be met. And it really is, it's been superhuman effort by our supply chain people that have been able to keep that happening.
Two other things I tell you is our suppliers have been able to meet our demands for raw materials, the likes of which I never thought possible. And our customers have been there, you know, working with us, leaning in to make sure that the entirety of the value chain in the supply chain works in ways that were, you know, just unthinkable pre-March. And so, it's been a real esprit de corps of supplier, our manufacturing supply chain people and our customers just doing the unthinkable.
And there's been a lot of, you know, morale boosting that's happening. You know, when you're setting supply chain records and plant records week in and week out, people get motivated, and they get competitive with one another. You know, who can do, kind of who can do the most superhuman type of performance is something that we talk about and that gets people inspired.
BRIAN SOZZI: I talked to a lot of the food analysts on this stream, and there's this constant concern, let's say the past six months during the pandemic, that sales are going to come down off the highs, and they're going to go back to slow growth days. Have you seen this demand to be sustainable?
STEVE CAHILLANE: Well, it's clearly still above pre-pandemic, but we expected it to come down. And in many ways, you know, the world getting back to normal, you almost hope it comes down, because it means the world is coming back to normal. But at our second quarter results call, we did say expect a deceleration in the third quarter, because, you know, people are not going to be in home 24/7.
So they're going to be out on the go, and they'll be eating, you know, in restaurants and, you know, convenience stores and things like that. And so we expect it to decelerate, which it has. It hasn't got all the way back to normal, however, you're still seeing elevated at home consumption, which, you know, we can all see just by looking around, you know, our own family, friends and neighborhoods.
BRIAN SOZZI: What are some of the biggest trends that you're seeing in the business right now, just in terms of new usage occasions? We are all living different lives. I mean, look at me, I'm interviewing you from inside my kitchen on a table. I would not be doing that last year, and I definitely would not have had breakfast last year, but I had breakfast this year.
STEVE CAHILLANE: You know, it's so interesting. For our company, especially, because we're at the intersection of those two things of the way people are living their lives and how they're eating and how they're nourishing their families, and we're at the intersection of how we actually deliver that from a business continuity standpoint and the way that we all work. You know, like I said, our home office never closed, because we wanted to stay, you know, in solidarity with our plants, which never closed. But virtually, everybody is working from home.
And so our home office workers are working from home, and we see that, we understand that. We've seen the same things that other companies have that, you know, it's quite amazing that you can run a business like ours virtually. You know, you can close it a year, close a quarter, have an annual shareholder meeting, you know, do your back office 100% with people, you know, in their homes. But at the same time, the trends that we've seen, again, going back to the occasions that we analyze and we see how those occasions are changing, so we've been at the intersection of both of those things, and it's been a fascinating time to be sure.
BRIAN SOZZI: What is no traditional school year mean to a Kellogg?
STEVE CAHILLANE: Yeah, it's fascinating. You know, one of our big yearly promotions is back to school. And, you know, back to school in the past meant us focusing on retailers, driving big merchandising activities in stores to focus on moms and dads as they shop for the back to school environment, and a lot of that was packaging that was lunchbox driven. So things, Rice Krispies treats to put in the child's lunchbox, think of kind of on-the-go occasions like that. This year, we recognized that we had to have a back to school occasion that was agnostic as to whether or not the child was getting on the yellow school bus and going to a brick and mortar environment or staying in their bedroom and Zooming with their, you know, with their teachers and their colleagues. So we built a program to work in both of those environments.
And our basic program in the United States is, you know, buy a box, get a book. And, you know, kids love to read by and large. You know, many kids love to read. Parents I know love to get books into their hands of children. So it was packaging agnostic, agnostic as to whether or not, again, the environment was virtual or brick and mortar. And so we've seen a lot of good success with that program. And obviously, the more that stay in home environment persists, we actually benefit from that, and we're unapologetically doing everything we can to make our company stronger, because of this opportunity that we've been given to have more people trial our foods, more people eat our foods regularly, and more people experience our foods across all different day parts and occasions.
BRIAN SOZZI: You know, fresh off a presentation at Barclays, how-- and one thing that stood out to me among many is you said you will emerge stronger from the pandemic. How so?
STEVE CAHILLANE: Well, again, you know, we entered the pandemic with lots of momentum that, you know, was really on the back of a new strategy called deploy for growth. And so we spent a lot of time and effort getting the company back to top line growth, because we had actually been declining for a number of years. And so we exited last year with a 2.7% growth rate, which is the best that we've had in many years.
And before the pandemic, we were tracking at about 4% growth. So we were already building a stronger company and focused around, you know, the balance of the PnL and getting to, you know, a margin expansion position and a more balanced financial delivery. And then, boom, the pandemic comes and presents its opportunity for us to have many of our products and foods tried, reappraised, trialed at levels that would be unimaginable, you know?
If you had told me before the pandemic that the US ready-to-eat cereal would experience double digit growth rates, high double digit growth rates in the first half of 2020, I wouldn't have believed you, because I'm not imaginative enough, I guess, to imagine something like this, but it happened. And so we're going to be stronger, because we have all these new consumers who are for the first time trying our foods. We have lapsed users who are coming back, re-experiencing our foods. And so we are, again, focused on this opportunity that has been given to us to make sure that whatever new world emerges as we come out of this pandemic that lots of these people who have reappraised our foods and tried our foods stick with us.
And I keep saying there's, you know, there's megatrends that are going to happen. There's people that are doing things in the pandemic environment because they have to do it. And as soon as they don't have to do these things anymore, like cut your own hair, for example, you're not going to do it anymore. But things that you've tried for the first time or retried that you liked, you're going to keep doing.
And we want to be in that, you know, that category where people say, you know what? I want to keep doing that. I want to eat more Rice Krispies Treats, because I love them. I forgot how much I love Pop Tarts. I'm going to keep eating Pop Tarts, you know, even in this new environment. You know, Eggo waffles, you know, slathered with butter with blueberry flavors, one of my favorite things. I'm going to keep doing it. And so we want to be in that, you know, that latter category of what you want to keep doing.
BRIAN SOZZI: Two more for you. Is now the moment where you prepare for the next pandemic, and what does that planning look like?
STEVE CAHILLANE: You know, that's a great question. I think it's the moment where we planned for even the most unexpected events, whether that's another pandemic, you know, God help or hope not. But it's seeing around the corners and really thinking about what could happen that is totally unexpected, and are we prepared for it?
Because, you know, there is a lot of learning that happens with the type of crisis management that we've all been through, and I think companies, by and large, have risen to meet the moment. And Kellogg has definitely, our people have risen to meet the moment. What's that next moment? You know, we don't know, but we want to be ready.
BRIAN SOZZI: Last one, I'm asking all the executives I talk to, how are they staying sane? These are not normal times. You already run businesses that are around the clock. These are 24/7 operations. They're public companies. How are you keeping level-headed?
STEVE CAHILLANE: Yeah, I think it starts with really remembering and being grounded in what our responsibilities are. And, you know, when I think about my responsibilities, my responsibilities are to be the best husband I can be, best father I can be, and I've been given a gift to run one of the most iconic companies in the world, and I don't take that lightly. And there's a lot of people that rely on us, you know, our associates, but our whole supply chain, our suppliers, our customers, our consumers. And so I think about that, and I think about what kind of company we want to be when we come out of this, and I talk to our people all the time.
And I always say out of all these meetings, I do lots of skip level meetings, I talk to our people at all levels as much as I possibly can. And, you know, I tell them, I get more out of these meetings than you do, because that's what fuels my energy is a reminder of how great our company is, the types of people that we attract, the type of people that work for Kellogg. And I never take that responsibility lightly, and it motivates me. It really keeps me fired up, and, you know, that's really what it comes down to, remembering what your responsibilities are and taking them as seriously as possible, but not taking your self ever too seriously.
BRIAN SOZZI: Well, we'll leave it there. Steve Cahillane, Kellogg's CEO, good to see you, and you definitely selling me on a box of Eggo's. I'm going to get back into having some of those now.
STEVE CAHILLANE: Thank you, Brian.