Kellogg Says Pandemic-Era Supply Chain Upheaval Is Persisting
(Bloomberg) -- While the pandemic has waxed and waned across the world, the impact on the global supply chain remains severe and ongoing, according to the head of packaged-food giant Kellogg Co.
The main challenge isn’t producing the raw materials needed to make goods, but rather getting those materials where they’re needed, Chief Executive Officer Steve Cahillane said in an interview. With everything from shipping pallets to truck drivers in short supply, there are limits to the amount of goods companies can produce.
“If you’re planning on running Product A and all of a sudden you have a shortage of one ingredient out of 50 ingredients, well you can’t run it anymore, so you have to make a changeover and switch to something else,” he said. Normally, such changeovers in production are rare, but they’ve become more frequent, he added.
Of Kellogg’s more than 50 global plants, “there’s not one of them that has not been affected in some shape or form,” Cahillane said.
The CEO listed several lines that are “bumping up against capacity,” including the alternative-meat brand Morningstar Farms, Eggo and some cereal brands, including Frosted Flakes. The company is still filling its orders, he said, but it is also adding more production capacity.
Kellogg is among a group of packaged-food companies that has seen demand swell during the pandemic as consumers stay home and eat there more frequently instead of dining out. While the boom has started to taper recently, sales remain healthy.
Cahillane spoke after his company, which makes Pringles potato chips and Carr’s crackers, reported quarterly sales that outpaced investor expectations. For the full year, Kellogg now sees sales in a range of flat to 1% on an organic basis, which strips out items like currency swings and acquisitions. That’s a slight improvement from the company’s previous outlook.
Kellogg shares rose 1.5% to $62.96 at 1:08 p.m. on Thursday.
Cahillane’s company has faced a range of disruptions at plants, from a Pringles factory in Malaysia that was closed for about 10 days because of a pandemic lockdown to a closure in South Africa related to civil unrest.
In Memphis, a fire has taken a cereal plant completely offline and rebuilding is expected to be slowed by the same supply chain challenges that have complicated food production. The cereal that would have been produced in Memphis will be made elsewhere, but it “creates challenges in an otherwise tight capacity environment,” Cahillane said.
Demand is still high, however, and Kellogg is finding ways to add new production capacity in spite of Covid-related hurdles. To build a new factory in Poland, the company, which would normally have a dozen engineers on the ground, was able to do most of the work virtually, using new technological tools.
Cahillane sees supply-chain problems lasting well into next year, but ultimately to be temporary. That’s because there hasn’t been a fundamental change in global demand, only bottlenecks on supply, he said.
“That will get sorted,” he said. “It just takes awhile to move.”
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