Founder: Will Keith (W.K.) Kellogg.
Distinction: Invented and popularized toasted grain flake
Primary business: Breakfast cereals and other grain-based
Annual Sales: $6.8 billion.
Number of Employees, League: 14,500.
Major Competitors: General Mils, Kraft Foods, Quaker Oats.
President and CEO: Carlos Gutierrez.
Headquarters: Battle Creek, Mich.
Year founded: 1906.
Website : www.kelloggs.com
In more than 160 countries around the world, people of all ages
reach enthusiastically for a box of Kellogg's ready-to-eat breakfast cereal
as soon as they awaken each morning. Products like Corn Flakes,
Special K, and Rice Krispies—not to mention the advertising icons with
which they are associated, including Tony the Tiger and Snap!,
Crackle!, and Pop!—have become more prevalent on kitchen tables than
those of any other company in the business. In fact, in the mid-1980s,
Kellogg commanded a larger share of the cereal market than both of its
two closest competitors combined. Since first developing the toasted grain
flake in Battle Creek, Mich., almost a century ago, the company has
indeed carved a formidable niche for itself through these popular items
and others with familiar brand names like Eggo, Pop Tarts, and
However, despite decades of uninterrupted sales growth and its
impressive place in food history, Kellogg found itself seriously floundering
by the end of the 20th century. As competition intensified and taste in
breakfast foods shifted, its one-time 42 percent share of the United States'
$7.3 billion cereal market fell to 32 percent. Even more depressing to folks
in the "cereal bowl of the world," arch rival General Mills actual overtook
it as the number-one cereal seller.
Three months after the June 1998 opening of Cereal City U.S.A.
(the combined corporate monument and tourist attraction where visitors
can follow a corn kernel through a simulated production line to see it
cooked, dried, pressed, toasted and sprayed with vitamins before
emerging as a corn flake) the grit began to hit the fan. The president of
Kellogg North America and the head of European operations stepped
down. A new CEO was named. And shortly thereafter, the company's 92-
year-old South Plant was shuttered and 550 jobs in Battle Creek were
Considering how much they valued employees and their
contributions, founders J.H. and W.K. Kellogg might not have approved.
But stockholders and financial analysts certainly did, for the moves finally
allowed the Kellogg Company to begin the process of regaining its place
at the head of the world's breakfast table.
In the mid-19th century, America breakfast cereal of choice was a
cooked blend of salt, water and grain (usually oats). John Harvey "J.H."
Kellogg, a physician from Tyrone, Mich., decided to try something
different when he became superintendent of the Western Health Reform
Institute in 1876 (later renamed Battle Creek Sanitarium). A Seventhday
Adventist who avoided consumption of animal-based products, J.H.
developed numerous nut and vegetable foods to vary the diet of his
patients. One began as a corn mean biscuit about half-an-inch thick; this
was toasted until it was almost dry and slightly brown, then ground and re
baked. Flakes of this kind were not new but J.H. was arguably the first to
present them as a breakfast food.
Patients were instantly drawn to the concoction. (One, C.W. Post,
saw business opportunities in the new item and ultimately started a
company that thrives today as a unit of Philip Morris' Kraft Foods.) Will
Keith "W.K." Kellogg, who assisted his older brother J.H. at the
Sanitarium, also saw commercial possibilities. Together, the two siblings
founded the Sanitas Food Company in 1900 to produce these flakes
made of corn. W.K. soon bought out J.H., and in 1906 he established the
Battle Creek Toasted Corn Flake Company. By heavily advertising his
new product and improving its quality, W.K. increased sales from 33 to
2,900 cases a day by the end of the first year. His business continued to
prosper, and its current name was adopted in 1922 when the company
began producing cereals other than corn flakes. Its new granular,
shredded, and puffed varieties soon proved equally popular, as did those
featuring added sugar and those roasted rather than flaked.
Kellogg's personal relationships did not always fare as well. He
appointed his son company president but fired him upon learning that he
abandoned his wife in favor of an employee. He then prepared a grandson
for the job, but eventually drove him from the company and even sued
him for copying one of its patented processes. The business continued to
soar, however, and Kellogg cereal boxes carrying the founder's bright red
signature were increasingly seen on grocery store shelves and kitchen
tables across the land.
But the cereal tycoon was not content to be just a wildly successful
entrepreneur. With an endowment of $47 million, he established the
philanthropic W.K. Kellogg Foundation in 1930. He also became one of
two major business leaders during that decade (the other was Paul
Litchfield of Goodyear Tire) to adopt a six-hour work-day for employees in
the belief that it would decrease inefficiency and increase productivity.
Kellogg felt the plan, when fully implemented among his 1,500 workers,
would permit him to hire an additional 300 and thereby boost the economy
of Battle Creek.
The experiment proved unsatisfactory for a variety of reasons, so
management began shifting back to the traditional eight-hour schedule
during World War II. Undaunted, the ever-resourceful Kellogg adopted
other broad-minded management principles to improve the living and
working condition of his employees. He built an on-site gymnasium and
recreation facility equipped with the latest in motion picture projection
equipment. He offered employees plots for personal gardens on 40 acres
he owned outside of town. Hew paid bonuses. He even opened a daycare
facility for employee's children. (Despite many changes in these programs,
this philosophy continues and the company still received high marks for its
charitable giving, family benefits, community outreach, and programs for
women and minorities.)
Before his death in 1943 at age 91, brother J.H. went on to write
several medical texts, start Battle Creek College, and open Florida's Miami-
Battle Creek Sanitarium. Ironically, W.K. was exactly the same age when
he died eight years later. To many, the pair's longevity proved their
somewhat radical beliefs about life and health were indeed sound. Few
ever doubted W.K.'s often equally controversial business philosophies,
though, and it was not until nearly two decades after his death that
management even dared to look past the core product mix he initiated and
unturned. In fact, it took unit the 1970s—when the U.S. Government
began an effort to break up the country's big cereal makers—before the
company started diversifying. It introduced teas, desserts, soups, sauces
and nondairy frozen foods through various acquisitions; other takeover
attempts involving 7-UP, Tropicana, and crayon maker Binney & Smith
The government dropped its antitrust effort in 1982 with Kellogg still
atop its burgeoning industry. CEO William E. LaMothe, who had come on
board in 1979, claimed this was because the new product lines had little
overall impact on the company's traditional operations. "At Kellogg, the
focus always has been the product," he told Dun's Business Month.
Cereal production and sales remained primary despite the diversification,
and in this vital area Kellogg continued to reign. Profits topped $286 on
revenues of $2.9 billion in 1985, prompting analysts to reconfirm that
"Kellogg knows the cereal business better than anyone else."
Launching an aggressive attempt to recapture the fading allegiance
of children and those aged 20 to 49, the company introduced 10 new
cereals including Apple Raisin Crisp and Nutri-Grain. It increased
promotional budgets for existing products such as Bran Flakes to
emphasize their potential health benefits. And it planned aggressive
expansion outside the Untied States, where nearly one-third of sales were
generated by the mid-1980s. Ultimately, it operated production and
distribution facilities in 20 countries on six continents.
But the road to the future was not as smooth as LaMothe hoped, and
in 1992 Arnold Langbo was tapped as his replacement. Disappointments
continued on several fronts, though, as even the international market
grew sluggish. In response, the company's worldwide workforce was
reduced by about 8 percent.
Annual earnings still dipped 21 percent in 1998, which was
attributed to in creased competition from cheaper store brands and
America's increasing rejection of breakfast cereals. Langbo was replaced
by president and chief operating officer Carlos Gutierrez, who vowed to
improve profits by spending more on advertising and new convenience
foods. He also decided to cut even more employees and close the historic
South Plant in Battle Creek. Rumors abounded that Nabisco, Unilever,
Procter & Gamble, and PepsiCo were interested in acquiring the company,
but the W.K. Kellogg Foundation's 33 percent ownership stake complicated
matters. No moves were formally initiated.
As the century wound down, Gutierrez made more cuts to fund new
products. "We have to drive earnings through innovations," he told
Fortune magazine. In a company where new ideas had never been
developed very quickly, Gutierrez charged the 2-year-old W.K. Kellogg
Institute for Food and Nutrition Research with creating and pushing them
rapidly through the pipeline. Initial results were promising: in one month
along researchers developed 94 packaging proposals and 65 product
concepts, including novel ones related to a food's aromatic appeal. More
than two dozen of these new items were introduced in 1999 along. In
October 2000, Kellogg added cookie and cracker marker Keebler Foods Co.
to their lineup for $3.6 billion. In doing this, they created a company with
almost $10 billion in annual sales, which further extends Kellogg's in a
direction it needs to go: Beyond the breakfast table and into fastergrowing
areas of the food business.
Times are, admittedly, tougher today than they were when J.H. and
W.K. began banking and flaking their corn meal. But he two Kelloggs
overcame long odds then to develop the world's largest cereal company's
and most observers are not willing to count out their legacy just yet.