Case 1: Kellogg’s

Kellogg’s new CEO, Carlos Guiterrez, took office with a pledge to boost profits of
the Battle Creek, MI cereal company by at least 10% a year. Pie in the sky?
Guiterrez could use some. For that matter, he could use any tasty new snack
food. Sales of cold cereal, which accounted for nearly 80% of Kellogg’s $6.8
billion in revenues last year, are flat at best. More people are skipping breakfast,
margins are slipping because price-cutting is rampant, and those consumer who
do buy are looking to cheap store-brand corn flakes, not Kellogg’s.

The new CEO says he’ll deliver by cranking up Kellogg’s new-product machinery.
“We have to drive earnings through innovations,” he declares. That will be
mighty tough at a company whose new product machinery is rusty. Really rusty.
Headquartered in rural western Michigan – where talk radio means agriculture
reports, not Howard Stern – Kellogg has tended to be lethargic and insular.
Frosted Flakes, its top seller, is 64 years old. Even when the company created a
hit, it was slow to follow up. Kellogg launched Pop-Tarts in 1964, and then let 27
years elapse before coming out with another snack food success, Nutrigrain
cereal bars. (Corn Flakes was originally launched in 1912, and Bran Flakes
followed 20 years later; All Bran emerged in 1944.)

… one recent brainstorm included selling Special K Plus, which has extra calcium
and iron, in a half-gallon carton to remind consumers about the nutritional value.
Says Dr. William J. Mayer, 43, who heads new-business development: “To win,
we have to make foods that are tastier, healthier and easier.” This year, Kellogg
will introduce more than twice as many products as the dozen or so it did last
year. The new Raisin Bran Crunch, which has thicker, coated flakes that don’t get
soggy in milk, has grabbed nearly 1% of the cereal market since late last year
without chomping into the market for traditional Raisin Bran. Equally popular has
been Rice Krispies Treats, a snack food version of the marshmallow squares that
Mom used to make at home. Kellogg is currently rolling out varieties in cocoa and
peanut butter chocolate for those which a truly incurable sweet tooth…
Adapted from: Alex Taylor III, “Kellogg Cranks Up its Idea Machine,” Fortune, July 5/99, p. 181-182.