kellogg's - history, evolution, present and the future
DESCRIPTION
A comprehensive background of Kellogg's containing its History and Origins, Early Evolution, Modern Business, Global Expansion, Company Structure, Recent Efforts and Company DNA. As one of the chapters of the book FMCG: The Power of Fast-Moving Consumer Goods by authors Greg Thain and John Bradley. For more details on their success story and that of other leading FMCG companies, check www.fmcgbook.com or Amazon http://amzn.to/1jRyd20.TRANSCRIPT
History & Origin . . . . . . . . . . . . . . . . . . . 3
Early Evolution . . . . . . . . . . . . . . . . . . . .5
Global Expansion . . . . . . . . . . . . . . . . 14
Modern Business . . . . . . . . . . . . . . . . . 16
Company Structure . . . . . . . . . . . . . . 19
Recent Efforts . . . . . . . . . . . . . . . . . . . .20
Company DNA . . . . . . . . . . . . . . . . . . 23
Summary . . . . . . . . . . . . . . . . . . . . . . . 24
Social Media Accounts . . . . . . . . . . . 25
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Kellogg brothers, Doctor John Harvey Kellogg and Willie Keith
Kellogg (WK) were the salesmen to the family broom company.
Dr. John Harvey believed that poor diet was at the root of many
health problems. He served his patients only whole grains, fruits,
vegetables and other natural foods.
John Harvey, fascinated by the idea of healthy diets, experimented
and created new foods, without using the normal taste enhancers
of sugar, salt or spices.
The brothers experimented with wheat batter aiming to develop
their own improved version.
A batch of batter was forgotten and went stale. Rather than throw
it away, the brothers rolled the dried-out batter into sheets. It did
not form sheets but broke into small flakes. They baked the flakes
to see what they tasted like.
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It was a light, healthy and somewhat tasty perfect way for patients
to start the day.
They named it Granose Flakes and started feeding the patients.
In 1898, WK developed a similar process, this time making flakes
out of corn.
By 1906, WK left the hospital taking his recipe for flaked corn with
him and in February 1906, set up the Battle Creek Toasted Corn
Flakes Company.
WK piled a third of his working capital into advertising and within a
year he was selling 2,900 cases a day at a dollar a box profit
WK planned a larger and fireproof factory. He had struck out on his
own just in time. By now, another 41 past patients of the
sanatorium, and various businessmen set up breakfast cereal
companies in Battle Creek.
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First-mover Advantage
Taking the lead in converting people to the idea of eating
cereal for breakfast. His timing was to some extent fortuitous.
Pasteurized milk was becoming widely available in the major
cities, so half his job was being done for him.
He gave away product samples, employing samplers to go
door-to-door to demonstrate the ease and convenience of
switching on a cereal breakfast.
Determined to be the biggest and most impactful advertiser in
the cereal business, he constructed 106 by 80 foot-tall
billboard in Times Square requiring 80 tons of steelwork.
This boasted as the world’s largest single advertising sign. It
was one of the most effective, increasing his sales into fifteen-
fold. 5
Product Quality
WK son, John Leonard Kellogg, came up with the idea they
trademarked as Waxtite.
Encasing the cereal boxes within an envelope of waxed paper
that will sealed the contents from the outside air, adding many
months of freshness.
This would be one of over 200 patents.
They developed a malting process that added more flavour to
the Cornflakes.
Winning Shelf Space
WK built consumer demand by aggressive advertising. He sent
his salesmen into every shop, with an incentives to stock his
product.
WK’s product had a much longer shelf life than his
competitors, it would be a brave shopkeeper to refuse to find
room for Kellogg’s on his shelves.
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Barriers to Entry
WK realized a category truth that would continue to this day:
breakfast cereals are very responsive to new news, developing
a stream of new products became a company priority.
Kellogg’s Toasted Rice Flakes appeared in 1909, soon followed
by Kellogg’s Toasted Wheat Biscuit, Kellogg’s Krumbles,
Kellogg’s 40% Bran Flakes and Kellogg’s All-Bran in 1916.
In 1910, WK invented an idea of putting collectibles inside the
boxes to increase the pester-power component of brand
loyalty, including a set of moving pictures booklets.
While WK was building a cereal empire, John Harvey continued
to run the sanatorium along with the Sanitas Food Company.
In 1910, he launched the first in a decade-long series of legal
battles to prevent WK.
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He sell items like Rice Flakes and Flake Biscuits under the
Kellogg name which he claimed with prior usage but loss on a
trial against WK.
By the end of the World War I, experienced his first ever-
annual loss. WK factory, with fifteen acres of floor space, was
capable of producing 30,000 cases of cereal a day, fed by
orders from 400 salesmen working out of twenty regional
offices nationwide.
In 1921, the company launched single servings of its brands,
selling them to hospitals, hotels, rail companies and the like.
So captive audiences could sample this new kind of breakfast.
In 1923, John Leonard, much more scientifically minded than
his father, came up with the idea of hiring a dietician.
His first recruit was a dietician at Columbia University, Mary
Barber, who established the Home Economics department 8
In 1924, she issued a leaflet entitled, Food Selection Chart,
which was soon approved in Washington to be mailed to home
economics teachers across the nation.
In 1925, came the company’s first brand targeted at a
particular segment, Kellogg’s Pep, which was aimed at
athletes.
Two years later, a blockbuster followed: Kellogg’s Rice Krispies.
Its famous Snap! Crackle! Pop! slogan soon appeared in the
soon-to-be-famous ditty: “Listen to the fairy song of health, the merry chorus sung by Kellogg’s Rice Krispies. As they merrily snap, crackle and pop in a bowl of milk. If you’ve never heard food talking, now is your chance.”
Leo Burnett-designed cartoon characters appeared in 1930s.
WK appointed a succession of non-family members to the
President’s role but gave them no room to manage. 9
During the Great Depression, he heard that the company was
scaling back both on advertising and sampling.
So WK intervened to restore the cuts and double the
advertising budget. The result was that the company
continued to grow through even the hardest of economic
times.
By the end of the depression, the Kellogg Company was
making nearly $6 million a year profit.
The Kellogg Company realised that success came from desire for its
products amongst children plus parental approval.
Marketing efforts targeted at kids reached new heights when
commercial radio became available nationally. Kel-logg’s sponsored
the first network radio programme aimed directly at children,
followed by a series of others.
They also sponsored Admiral Richard E. Byrd’s South Pole
expedition
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Along with the World War II, its famous home economist, Isabel I.
Barber, taking up the post of Food Consultant to the
Quartermaster General.
There she created all the menus for the army, including rations for
combat troops. So Kellogg’s produced K-rations throughout the
war.
In 1940, the Home Economics department came up with the recipe
for Kellogg’s Rice Krispies Marshmallow Treats.
Kellogg’s Raisin Bran was launched as the company underwent a
major modernisation of its factories, updating its Battle Creek
facilities and building several factories across the country.
The company diversified into dog food in 1941 with the launch of
Gro-Pup, a dog food so replete with added vitamins and minerals
that no meat was required: well worth wagging for, as the ads
proclaimed. 11
By 1948, sales had reached $100 million a year. Its factories were
modern and highly automated giving Kellogg doubled profit
margin.
They enjoyed a dominant share of the market and well set to
benefit from two factors that would power its business for the next
twenty years: post-war baby boom and the arrival of television
advertising.
Leo Burnett advertising agency did them proud, developing
characters such as Tony the Tiger for the new brand Kellogg’s
Frosted Flakes, soon joined by Kellogg’s Honey Smacks, Kellogg’s
Sugar Corn Pops, Kellogg’s Sugar All-Stars and Kellogg’s Cocoa
Crispies.
Helped by other additions to the range, such as Kellogg’s Special K
in 1955, the company managed to double its sales within a
decade.
They reached the magic $200 million mark in 1957, the same year
another Leo Burnett creation, Cornelius the Rooster, made debut
on the Kellogg’s Cornflakes box
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It was a golden era for the company.
Kellogg’s Concentrate and Kellogg’s OKs were added in 1959.
OKs’ failure turned out to be a blessing in disguise. The equipment
installed to make OKs would be utilized during the 1960s.
This will help making the more enduring Kellogg’s Froot Loops,
Kellogg’s Apple Jacks and Kellogg’s Puffa Puffa Rice. Kellogg’s Bran
Buds and Kellogg’s Frosted Mini Wheats also joined the line-up.
In 1964, they developed their version of Country Squares, under
the name of Kellogg’s Pop-Tarts.
Kellogg’s Pop-Tarts eventually become the company’s single
largest brand, growing in volume for every year of its existence.
Kellogg was no longer a cereal company; it was a breakfast/snack
company.
It was accentuated in 1969 when the Kellogg bought Salada Foods,
a tea and coffee company. 13
In 1914, it has opened its first factory in Canada
In 1924, Kellogg opened a factory in Sydney
In 1938, built the largest factory to date in Manchester, England
Opened its sixth factory outside Johannesburg in South Africa.
In 1951, the next such regional production hub was built in Mexico
In the early 1960s, it aimed at first-mover status in as many
developed markets as possible: opening up in Ireland, Sweden, the
Netherlands, Denmark, New Zealand, Norway, Venezuela,
Columbia, Brazil, Switzerland, Japan, Finland, Spain and Italy.
In 1963, the company opened an international technical center in
Europe, which lessened the already slim dependence of the
European businesses on Head Office.
In 1973, the UK business was so successful that the company
opened a second factory
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In 1993, it gained a first Eastern Europe foothold, in Latvia.
A year later, a small factory was opened in India, followed by one
in Guangzhou, China and then in Thailand.
Kellogg now had 29 factories operating in nineteen countries, and
supplying nearly 160 countries.
All Kellogg’s international expansion, its core markets in
UK/Ireland, Mexico, Canada and Australia/New Zealand accounted
for over 80% of its non-US sales.
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In 1906, the modern company took shape the day the first box of
cereal rolled off WK’s production line. Kellogg started as a cereal
company and by the late 1960s was the largest one in the world
by some considerable margin.
It had expanded overseas while the others had stayed local.
The company had diversified in the past, on an ingredient-
processing basis, into dog and other animal feeds, without much
success.
Pop-Tarts had shown that the company could compete outside of
the cereal aisle.
In 1970 it ventured into the freezer section, and bought Fearn
International, Inc., specifically so it could acquire an up-and-
coming line in Fearn’s portfolio, Eggo waffles.
In 1980s, baby boomers ate less cereal as they grew into
adulthood. There were fewer kids entering the market as birth rate
contracting.
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The company massively ramped up its R&D budget to $20 million
and was soon churning out three varieties of Kellogg’s Nutri-Grain
cereal.
By 1988, consumers aged 25–49 were eating 26% more breakfast
cereal than they had been doing five years previously.
Kellogg was launching twice as many new brands than it had in
1983.
The marketing budget had tripled within five years, up to an eye-
watering $865 million.
A nostalgia advertising campaign got dads to introduce this brand
to their children. Many of the adult brands introduced sold at much
higher prices per box than the range of children’s cereals.
In 1983, Kellogg had a shrinking target market and steadily lost
market share from 43% in 1972 to 36.7%
In 1998, the company cut its workforce by 25% and entering the
functional food category mostly outside of the cereal aisle.
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In 1998, the company embarked on a new direction, cutting its
workforce by 25% and entering the functional food category
mostly outside of the cereal aisle.
Kellogg continued its pivot towards more adult-friendly brands,
with the launches of Kellogg’s Raisin Bran Crunch and Kellogg’s
Special K Red Berries.
In 2000 and 2001, two very important acquisitions were made,
Kashi Foods and Keebler Company
The Cheez-It brand had doubled its volume in five years by the
time Kellogg took ownership.
Kellogg had a thriving, but geographically limited, international
profile.
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Two core divisions: Kellogg North America and Kellogg International
Subdivided as follows:
Kellogg North America
North American Retail Cereal
North American Retail Snacks
Frozen and Specialty Channels
Kellogg International
Kellogg Europe (headquartered in the UK)
Kellogg Latin America (headquartered in Mexico)
Kellogg Asia Pacific (a broad region also including Africa and the
Middle East, run out of Australia)
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2004
They ventured into the fruit snacks category.
Introduced reduced-sugar versions of Kellogg’s Frosted Flakes and
Kellogg’s Froot Loops
Rolled out the highly successful ‘Lose up to 6 lb in 2 weeks’
promotion on Kellogg’s Special K
2005
Introduced new flavour, Cinnamon Roll Pop-Tarts
Special K bars posted a double-digit increase and the range was
extended with the introduction of Oatmeal Raisin All-Bran Bars.
The natural and now organic Kashi brand grew by double digits to
reach a 2% share of the overall cereal market
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2006
Introduced Go-Tarts as an on-the-go version of Pop-Tarts
Extended the Kashi cereal brand into frozen entrées
Introduced organic versions of Rice Krispies, Raisin Bran and
Frosted Mini-Wheats
2007
Rice Krispies brand was kick-started with new lines and a
‘Childhood is calling’ themed advertising campaign.
The Kashi brand was extended further into waffles and pizza
2008
Made three significant acquisitions in its Asia-Pacific region
Had 32,000 employees and 59 manufacturing facilities in nineteen
countries, servicing 180 countries21
2009
The company was getting into digital marketing
Reduction of the ‘bad’ ingredients such as sugar, sodium and fat,
together with increasing the ‘good’ ingredient
Fibre was added to Froot Loops and Apple Jacks.
2010
New CEO – John A. Bryant
Experienced major supply issues on waffles and had to institute a
product recall
2011
Growth with reported sales up by 6.5% and internal sales up by
4.5%
2012
Sales of Thick and Fluffy Eggo waffles and Morningstar Farms went
up
Announced partnership with Singapore-based Wilmar International
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The concern is that cereal DNA may be a part of the corporate
chromosome that doesn’t deliver growth in the 21st century.
However, it is management’s job to make its strengths relevant to
changing circumstances.
Kellogg is more of a multi-regional than global company.
The relatively high level of autonomy still enjoyed today in the
overseas companies has proven to be a significant strength
It requires the right combination of local autonomy to develop new
ideas in different environments, and a not-invented-here
management culture that makes managers receptive and willing
to proudly copy, that only Kellogg possess.
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The fact is that, even today, the vast bulk of its cereals business
comes from markets it developed before and soon after the
Second World War.
It had first-mover advantage, sometimes for decades before
serious competition turned up.
Kellogg has not been particularly adept at either fending off
competition, either from CPW or private label, or opening up new
markets beyond its core.
Its snacks business (excluding Pringles), while an impressive
achievement, has been built largely through happenstance and in
morphing its cereal brand equities into snack bars. Pop-Tarts has
not been followed up by anything remotely as successful, and
there are only a finite number of strong cereal brand equities that
can transition into snacks.
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Website/s: www.kelloggs.com/en_US/home.html
www.kelloggcompany/com/en_US/home/html
LinkedIn: www.linkedin.com/company/kellogg-company?trk
Facebook: www.facebook.com/kelloggspoptarts
Twitter: twitter.com/Kelloggs_US
Instagram: instagram.com/poptarts411
YouTube: www.youtube.com/user/kelloggcompany?
Tumblr: kelloggsfrootloops.tumblr.com/
Pinterest: www.pinterest.com/frootloopsusa/
Blog Site:
www.kelloggs.com/en_US/champions-of-great-starts.html
Flickr: www.flickr.com/photos/kelloggs_press_office/
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