Kellogg to Expand Snack Business in China

Kellogg Co. (K) has agreed to a joint venture with Wilmar International Ltd. (WLMIY) for the manufacture, sale and distribution of cereal and snacks in China as the U.S. company looks to expand in the fast-growing snack foods market there.

"China's snack-food market alone is expected to reach an estimated $12 billion by year-end, up 44% from 2008," Kellogg Chief Executive John Bryant said. "This joint venture positions our China business for growth and fundamentally changes our game in China."

Kellogg noted that China is expected to become the largest food and beverage market globally within the next five years. It said cereal consumption is currently being driven by rapid growth in milk consumption, along with consumers' desire for healthy and convenient breakfast foods, while snack foods also represent a very large growth opportunity.

The joint venture company will be based in Shanghai, China.

Wilmar, which is based in Singapore, is a leading agribusiness group in Asia. Its wholly owned subsidiary in China, Yihai Kerry Investments Co., will participate in the joint venture.

Wilmar will contribute infrastructure, supply chain scale, a sales and distribution network in China, and its local China market knowledge to the joint venture. The venture will use the Kellogg's and Pringles brands.

Kellogg--known for such brands as Pop-Tarts, Rice Krispies and Nutri-Grain--has seen its sales challenged by weakness in Europe and lower sales of certain products in the U.S., such as Morning Foods and Kashi. The company's earnings have also come under pressure recently as it stepped up investments in its supply chain in an effort to avoid a repeat of two major product recalls in recent years.

Kellogg has said it has plans to spend more on advertising to support product launches. The company paid about $2.7 billion in May to buy the Pringles potato crisps business from Procter & Gamble Co. (PG).

Last month, the company said its second-quarter earnings fell 12%, due in part to integration charges, as international sales declined.

Shares of Kellogg closed at $51.45 Friday and were inactive premarket. The stock is up 5.1% in the past three months.

Write to Saabira Chaudhuri at [e-mail]

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