It's quite a leap from breakfast cereal to cheese crackers and vegetarian sausages, but food giant Kellogg's has worked hard to adapt to a changing marketplace. Its core market of breakfast cereals came under attack in the 1990s from both competitors and consumers, and in 1999 Kellogg's was overtaken as America's top breakfast food company by arch rival General Mills. This forced the group to acknowledge that it had been outflanked in the fiercely contested breakfast market, and it set about regaining its stride. Careful attention to core brands and a barrage of high quality, premium priced cereal variants helped Kellogg's regain its #1 position in the US by 2003, although the two companies remain fierce competitors. At the same time, the group set about broadening its portfolio with a range of snacks and convenience foods. More recently, though, recessionary pressures and another wave of changing consumer tastes have created major new challenges in the traditional cereal sector. This prompted Kellogg's to make a bold new move into the broader savoury snack market in 2012 with a deal to acquire Pringles from P&G.
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|Kellogg's Cereals||Ready Crust|
|Keebler Foods Company||Morningstar Farms|
|Natural Touch||Rumbly Grahams|
|Murray||Real Fruit Winders|
Adbrands Weekly Update 15th Feb 2018: Kellogg's is continuing to wrestle with steep declines in its core business of breakfast cereals. Sales in the US Morning Foods division fell 5% year-on-year, while Keebler, Pringles and other snacks were down 4%. Combined revenues slipped below $13bn for the first time since 2010 to $12.92bn. The decline would have been even greater without a lift from Brazil's Parati Group, acquired mid-year. However attributable net income continued to rise, almost doubling to $1.30bn as a result of lower costs and expenses and a one-off $400m pension plan adjustment. Without exceptional items, the increase in operating profit was around 8% year-on-year.
Adbrands Weekly Update 12th October 2017: Kellogg's new CEO Steven Cahillane got off to a quick start, signing off on a deal to acquire niche protein bar manufacturer Rxbar for an astronomical $600m, around six times this year's revenues. Traditional food companies are facing an alarming slump in sales of their established brands as a result of surging consumer demand in more exotic, healthful fare. Rxbar is made with all-natural ingredients, and no added sugar, gluten, soy or dairy.
Adbrands Weekly Update 5th Oct 2017: Kellogg's announced the unexpectedly abrupt retirement of John Bryant, a 20-year company veteran and CEO for the past seven years. Bryant left the company this week, and has already been replaced by Steven Cahillane, CEO of vitamin manufacturer Nature's Bounty since 2014. Cahillane previously worked at Coca-Cola, as president of the Americas division, and in various senior roles at AB InBev. Kellogg's confirmed earlier expectations of a 3% decline in sales for the current year.
Adbrands Weekly Update 16th Feb 2017: The continuing slump in sales of breakfast foods, especially in the US, is making life ever harder for cereal giant Kellogg's. Revenues slipped by 4% for the third consecutive year, falling to $13.01bn, their lowest level since 2010. That was partly the result of deconsolidation of the group's ailing Venezuelan subsidiary and currency headwinds from Europe, but its US business units were also down sharply year-on-year. US morning foods were hardest hit, down 2%. Net income bounced back to $694m, but clearly the group faces challenges rebuilding topline. To save costs, Kellogg's announced the dismantling of the direct store delivery system it acquired as part of Keebler. This was designed to allow for rapid restocking of retailers, but is increasingly costing more than it earns. In the short-term, though, sales are expected to take another tumble as a result of the disruption to distribution.
Adbrands Weekly Update 18th Feb 2016: Exchange rates left their scars on several more US-based packaged goods companies: it's becoming the general trend in this year's reporting season as a result of the strong dollar. A double whammy of currencies plus a writeoff against Venezuela's economic meltdown lowered revenues and profits for Kellogg Company. There was additional friction from the shift by consumers away from breakfast cereals. Topline slipped 7% reported to $13.5bn (up 1% at constant rates), while net income fell 3% to $614m. The decline was exacerbated by a second consecutive decline of almost 4% in sales of US morning foods.
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Free for all users | see full profile for current activities: Competition has always been part of Kellogg's daily diet. Most of the company's current rivals started their businesses as direct spin-offs from Dr John Kellogg's advocation of cold cereal as a health treatment (recounted in the semi-fictional account The Road to Wellville). Seventh Day Adventist Kellogg ran a fashionable sanatorium in Battle Creek, Michigan. Among his pronouncements was that his patients should only eat vegetables and grains, and avoid all alcohol, tobacco and meat. At the time, cold cereal was made from a laborious process of baking, crushing and soaking biscuits overnight to be eaten the following morning. The pioneer in this field was Henry D Perky who had developed the first prepared cereal in 1893, which he named Shredded Wheat. John Kellogg's younger brother William Keith Kellogg set out to invent a rival packaged cereal in a box. In 1894, he accidentally left a batch of wheat kernels out overnight. While trying to dry them out in a mangle the following day he discovered that the wet berries were flattened into manageable flakes. They then toasted these and packaged the resulting grains as Sanitas, which they sold to patients by mail order.
One of the sanatorium's patients, entrepreneur CW Post, tried to get John Kellogg to join him in a business producing a hot drink from the flakes. Shunning such vulgar commercialism, Kellogg refused, so Post set up in business himself at the other end of town. The drink he had tried to sell to Kellogg was launched as Postum in 1897. The following year he invented Grape-Nuts by adding grape sugar to the same grains. Supported by aggressive (and barely truthful) advertisements, Post's business was a huge and rapid success. By 1905, no less than forty other companies had set up in Battle Creek in search of the same goldmine.
Will Kellogg could see that his brother was losing control of their discovery, so he set up in business himself in 1906 as the Battle Creek Toasted Corn Flake Company, later the Kellogg Company. He added sugar to the grains, called them Corn Flakes, and marketed them as a breakfast cereal rather than a health food through a series of colour ads in popular magazine The Ladies Home Journal. By the end of 1906, Kellogg was selling 2,900 cases of Corn Flakes a day, and had overtaken Post. Dr John was offended by his younger brother's commercialism, even more by the fact that he felt Will was cheapening the reputation of his sanatorium. He took him to court to stop him using the Kellogg name in a case that rumbled on until 1920, by which time the company's enormous success made Will's eventual victory a foregone conclusion.
Will Kellogg had not stopped with his first product. In 1914, he invented a waxed paper bag to keep Corn Flakes fresh in the box, and then launched a series of other cereal products, including Bran Flakes (in 1915), All-Bran (1916) and Rice Krispies (in 1928). In 1924 the company opened offices in Australia, followed by England in 1938. Its UK office was established in the city of Manchester, where it remains. Almost 90 years later that factory is still the world's largest cereal manufacturing plant as well as one of Manchester's biggest employers. The company diversified over the years, acquiring various businesses around the world, including Sanka coffee in 1927 (most of these sidelines were sold off during the 1990s). The company launched its first non-cereal product under the Kellogg's brand in 1964, Pop-Tarts, and bought Eggo frozen waffles in the 1970s.
In the 1990s, the company appeared to lose its way, slow to keep pace with changing consumer tastes. Meanwhile a series of attempts to broaden the portfolio in the US met with failure. The company acquired Lender's Bagels in 1996 to give it an edge on the shift towards this new American breakfast favourite. However attempts to turn bagels into a global brand were a failure, and Lender's was sold on three years later to Aurora Foods at a substantial loss. In 1998 the company teamed up with Danone's US subsidiary to offer Breakfast Mates, a single serving of cereal with milk and a spoon for sale in the supermarket's refrigerated section. These also failed to catch on and were discontinued in 2000. In 1999 the company began testing a range of cholesterol-lowering foods in five states in the US. Marketed under the Ensemble brand, this selection of lasagnes, cookies and potato chips was designed to move Kellogg's firmly away from the breakfast market, while retaining the company's "Healthy Eating" strategy. The company was initially hoping for a national US rollout in 2000, followed by European launch. However, by mid-1999, plans for a full launch had been dropped following disappointing sales, and the entire range was cancelled by the end of the year.
Kelloggs continued to bolt on other purchases, including vegetarian business Worthington Foods at the end of 1999, and Kashi natural cereals in 2000. In Australia the group acquired the privately owned Jabuna-Surene convenience foods business, makers of Sunibrite baked convenience foods and the Be Natural line of fruit and nut bars. But the biggest purchase by far was Keebler Foods Company, acquired from Flowers Industries for $4.6bn in cash. Keebler greatly enhanced the group's presence in the snack market, and especially in non-supermarket outlets where it already operated a successful and efficient direct store delivery network.
In 2001 the company announced plans to join forces with Disney to market co-branded breakfast foods including cereals and waffles. The first products launched in early 2002 with mixed success. A set of co-branded promotions with Cartoon Network proved even more popular later in the year. In early 2005, Kellogg's chairman & CEO Carlos Gutierrez was appointed as President Bush's new Secretary of Commerce. See full profile for current activities
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