Rude awakening shakes Kellogg

What happens when a company whose market-beating strategy has given it unchallengeable leadership for decades loses its way? Kellogg, the cereal manufacturer, may be about to provide the text-book answer.

Over the past week its veteran head of European operations, Don Fritz, and the one time heir-apparent to the Kellogg crown, US president Tom Knowlton, have both fallen on their swords. To paraphrase Lady Bracknell, this is more than misfortune, more than carelessness: it’s downright desperation. These men, and a number of lesser mortals likely to follow them in due course, are scapegoats.

For there is little doubt, at least in the eyes of States-side analysts, that these top-level departures mask a much deeper malaise in the global corporation. And that they are but the first and most visible manoeuvrings of recently installed worldwide president and chief operating officer Carlos Gutierrez as he prepares the stumbling brand colossus for more radical surgery.

Kellogg has just issued a warning suggesting profits will be 15 per cent below last year’s: the sort of shock that gives shareholders cardiac arrest. It is a company facing decline across all its markets. The cereal sector, especially in the US, is fading as consumers switch to other breakfast products, such as bagels. Moreover, it is being badly mauled by own-label. Kellogg’s counter-strategy against the retailers? They shall not pass; a heroic attachment to premium price points which has gradually left the corporation exposed as consumers trickle away to the cheaper alternatives. Belated attempts to cut prices have looked weak, and those associated with them are now paying with their jobs.

Historically, Kellogg might have been able to extricate itself with the aid of its innovative culture, implicit from the launch of the celebrated wheated flake itself 100 years ago. But despite a plethora of recent product launches – some of them partially successful, such as Pop Tarts – there are signs that the inventive vein is running out.

Critics assert the corporation’s approach to marketing is now too ‘American,’ too formulaic and too old-fashioned. Ironically, Kellogg’s innovative current branding campaign in the UK, devised by Leo Burnett, does nothing to allay the criticism. True, it breaks with the formulaic tradition of family-round-the-product-shot and slickly links the corporate brand with healthy living. But there is the small matter of a credibility gap. In the more fastidious nineties, fresh fruit salad and muesli are the concomitants of healthy living, not processed breakfast foods.

That is the measure of Gutierrez’s task as he wrestles with rejuvenating Kellogg’s sclerotic corporate culture over the next couple of years.

Cover Story, page 28.

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