By Savyata Mishra

(Reuters) -Nutella spread maker Ferrero, armed with experience in health-regulated European markets and a track record of revamping struggling brands like Keebler cookies, has a good chance of reviving WK Kellogg's legacy cereal brands with its $3.1 billion take-private deal announced last week. 

Ferrero, which makes sugary treats like Kinder chocolate eggs, Ferrero Rocher, and Tic Tac, has pursued an aggressive global expansion to boost revenue and diversify its portfolio beyond sweets into snacks, baked goods, and now breakfast cereals. 

Under Chairman Giovanni Ferrero, the company has invested heavily in product innovation, reformulation and packaging redesign to turn around some challenged brands it previously acquired such as Keebler from Kellogg.

Meanwhile, demand has fallen for products made by WK Kellogg, whose cereals include Special K, Corn Flakes and sweetened offerings such as Froot Loops, Honey Smacks and Frosted Flakes. Consumers have traded down from its pricier cereals even as Kellogg has come under scrutiny for using artificial food dyes. 

"Ferrero's creativity can help jump-start sales in a sleepy (albeit higher margin) category," said Hank Cardello, executive-in-residence at the Business for Impact center at Georgetown's McDonough School of Business. Ferrero's expertise in cookies and confectionery could help create distinct new versions of cereal products, he added.

Ferrero could reinvigorate WK Kellogg's portfolio which also contains healthier options such as Special K and Raisin Bran, touted for their high fiber content, as well as nutrient-rich cereals, granola and waffles under its Kashi brand. 

"I expect that (Ferrero) will preserve Kellogg brand recognition without too much dilution while also marketing a healthier and more consumer-friendly and appealing product line," Amrita Bhasin, CEO of logistics food and beverage company Sotira, said.

In 2018, Ferrero bought Nestle's confectionery business for $2.8 billion, adding brands such as candy bars Butterfinger, Baby Ruth, and 100 Grand to its portfolio. In just a few years, Ferrero relaunched Butterfinger with higher-quality ingredients including peanuts, cocoa and milk and revamped packaging. The steps helped grow demand for the salted caramel bars.

In 2019, Ferrero made a $1.3 billion acquisition of Kellogg's cookies, snacks and ice cream business. The Italian company revitalized these products by investing in new packaging and more marketing. In 2023, it also bought Fresystem Group and used the acquisition to grow its frozen food business and launch Nutella muffins and other baked goods.

Ferrero declined to comment on the strategy for WK Kellogg.

In April, WK Kellogg said it was reformulating its cereals served in schools to not include artificial dyes. Other packaged food makers such as PepsiCo, Kraft Heinz and Hershey have also started working to remove synthetic food dyes from their products, under pressure from U.S. Health Secretary Robert F. Kennedy Jr.'s Make America Healthy Again, or MAHA campaign.

Analysts and industry experts noted that Ferrero has spent decades dealing with European regulators that have pushed back on additives, coloring and sugar. This could give the confectionery giant an edge dealing with Kennedy's MAHA campaign, they said.

"Ferrero has been a pioneer in marketing smaller portions, which would fit in well with MAHA," Cardello said.

For instance, as a founding member of the Always a Treat initiative in 2017, Ferrero committed to ensuring that half of its single-serve packs contain 200 calories or less to help consumers manage their sugar intake.

As a private family-owned company, Ferrero is insulated from the pressures of quarterly earnings, giving it more flexibility to invest in long-term brand building and product innovation. Analysts said this could be critical in reshaping WK Kellogg's product lineup over the next few years.

Still, MAHA could boost costs for Ferrero as it makes its expansion push in North America. 

"Ferrero will have to grapple with MAHA requirements across the company, not just in cereal, since much of its business is based on candy and sugary snack foods," said Sky Canaves, an analyst with market research firm Emarketer.