Kellogg inks China JV to gain share in breakfast, snack market

Mon Sep 24, 2012 11:17am EDT

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(Reuters) - Kellogg Co (K.N) is expanding its presence in China's fast growing breakfast and snack foods market through a new joint venture with Singapore palm oil producer Wilmar International (WLIL.SI), months after the U.S. cereal maker sold its stake in a cookie and cracker manufacturer in the country.

Kellogg said Wilmar will contribute infrastructure, supply chain scale and its sales and distribution network in China to the 50-50 joint venture.

The JV will market Kellogg's and Pringles branded products, said the maker of Mini-Wheats and Rice Krispies.

D.A. Davidson analyst Timothy Ramey said the deal was a good move, but said Kellogg has taken a long time to come up with an actionable strategy in China.

Kellogg had acquired a majority interest in China's Navigable Foods in 2008, however the business recorded operating losses, resulting in Kellogg disposing its stake in the cookies and crackers manufacturer in early 2012.

The U.S. maker of such products as Eggo waffles and Keebler cookies said at the time that Navigable did not prove to be the right vehicle for entry into the Chinese marketplace.

However, the company, which expects China to become the largest food and beverage market globally within five years, said it expects the Wilmar JV to be a "game changer."

Chief Executive John Bryant expects China's snack-food market alone to reach an estimated $12 billion by year-end, up 44 percent from 2008.

This growth will be driven by the growing middle class consumer base and an increased desire for a wide range of packaged and branded foods, the company said.

China's Bright Food took control of British breakfast cereal maker Weetabix in May, which includes brands such as Alpen muesli and Ready Break, to cater to its rapidly growing home market.

"(Kellogg is) just terribly late to the party," analyst Ramey said.

Wilmar's wholly-owned subsidiary in China, Yihai Kerry Investments, will participate in the joint venture, which will be headquartered in Shanghai.

Kellogg's shares were trading flat at $51.50 on Monday morning on the New York Stock Exchange.

(Editing by Anthony Kurian and Supriya Kurane)

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