Kellogg Company History

Address:
One Kellogg Square
Battle Creek, Michigan 49016-3599
U.S.A.

Telephone: (616) 961-2000
Fax: (616) 961-2871

Website: www.kelloggs.com
Public Company
Incorporated: 1906 as Battle Creek Toasted Corn Flake Company
Stock Exchanges: New York
Ticker Symbol: K
NAIC: 311230 Breakfast Cereal Manufacturing; 311412 Frozen Specialty Food
Manufacturing; 311812 Commercial Bakeries; 311999 All Other Food
Manufacturing

Company Perspectives:
Kellogg is a global company committed to building long-term growth in volume and
profit and to enhancing its worldwide leadership position by providing nutritious
food products of superior value.

Key Dates:
1894:
The wheat flake is first produced by Dr. John Harvey Kellogg and Will
Keith Kellogg at the Sanitas Food Company.
1898:
Kellogg's corn flake is introduced.
1905:
Granose (corn) flakes begin commercial production.
1906:
Battle Creek Toasted Corn Flake Company is founded in Battle Creek,
Michigan, by Will Keith Kellogg.
1907:
The company is renamed Toasted Corn Flake Company; the main factory
building is destroyed by fire.
1909:
Company is renamed the Kellogg Toasted Corn Flake Company.
1914:
International expansion begins in Canada.
1915:
Bran Flakes cereal is introduced.
1916:
All-Bran cereal is introduced.
1922:
Company is incorporated as the Kellogg Company.
1924:
Kellogg opens overseas plant in Sydney, Australia.
1928:
Rice Krispies are introduced.
1930:
The W.K. Kellogg Foundation is established.
1938:
International expansion begins in the United Kingdom.
1939:
Watson H. Vanderploeg becomes president of Kellogg.
1964:
The Pop-Tart is introduced.
1969:
Kellogg acquires a tea company, Salada Foods.
1970:
Kellogg acquires Fearn International.
1976:
Kellogg acquires Mrs. Smith's Pie Company.
1977:
Pure Packed Foods is acquired.
1979:
William E. LaMothe becomes CEO.
1982:
Nutri-Grain cereals are marketed.
1988:
Kellogg sells its U.S. and Canadian tea operations.
1992:
Arnold G. Langbo replaces LaMothe as chairman and CEO.
1993:
Kellogg sells Mrs. Smith's Frozen Foods, Cereal Packaging, Ltd., and its
Argentine shack food business; Kellogg opens a plant in Riga, Latvia.
1994:
Kellogg teams with ConAgra to create a cereal line sold under the Healthy
Choice label; Kellogg opens a plant in Taloja, India.
1995:
Kellogg opens a plant in Guangzhou, China.
1999:
Carlos Gutierrez becomes CEO; Kellogg sells the Lender's division to
Aurora Foods and acquires Worthington Foods.
2000:
Kellogg acquires convenience food maker Kashi Company; Kellogg
reorganizes its operations into two divisions (USA and International).
2001:
General Mills passes Kellogg as the number one cereal maker; Kellogg
acquires Keebler Foods.
Company History:
Will Keith Kellogg once estimated that 42 cereal companies were launched in the
breakfast-food boom during the early years of the 20th century. His own venture,
founded as the Battle Creek Toasted Corn Flake Company, was among the last, but
it outlasted most of its early competitors and has dominated the ready-to-
eat cereal industry. The Kellogg Company, as it was ultimately named, followed a
straight and profitable path, avoiding takeovers and diversification, relying heavily
on advertising and promotion, and posting profits nearly every year of its existence.
Kellogg's Corn Flakes Are Born
By the time Kellogg launched his cereal company in 1906, he had already been in
the cereal business for more than ten years as an employee of the Adventist
Battle Creek Sanitarium run by his brother, Dr. John Harvey Kellogg. Dr. Kellogg, a
strict vegetarian and the sanitarium's internationally celebrated director, also
invented and marketed various health foods. One of the foods sold by Dr. Kellogg's
Sanitas Food Company was called Granose, a wheat flake the Kellogg brothers had
stumbled upon while trying to develop a more digestible form of bread. The wheat
flake was produced one night in 1894 following a long series of unsuccessful
experiments. The men were running boiled wheat dough through a pair of rollers in
the sanitarium basement. The dough had always come out sticky and gummy, until
by accident the experiments were interrupted long enough for the boiled dough to
dry out. When the dry dough was run through the rollers, it broke into thin flakes,
one for each wheat berry, and flaked cereals were born.
Commercial production of the Granose flakes began in 1895 with improvised
machinery in a barn on the sanitarium grounds. The factory was soon in continuous
production, turning out more than 100,000 pounds of flakes in its first year. A ten-
ounce box sold for 15 cents, which meant that the Kelloggs collected $12 for each
60-cent bushel of wheat processed, a feat that did not go unnoticed around
Battle Creek, Michigan.

In 1900 production was moved to a new $50,000 facility. When the new factory
building was completed, Dr. Kellogg insisted that he had not authorized it, forcing
W.K. to pay for it himself.

Meanwhile, other companies were growing quickly, but Dr. Kellogg refused to

invest in the company's expansion. Its most notable competitor was the
Postum Cereal Company, launched by a former sanitarium patient, C.W. Post. Post
added Grape-Nuts to his line in 1898 and by 1900 was netting $3 million a year, an
accomplishment that inspired dozens of imitators and turned Battle Creek into
the cereal-making capital of the United States.
In 1902 Sanitas improved the corn flake it had first introduced in 1898. The new
product had better flavor and a longer shelf life than the 1898 version. By the
following year the company was advertising in newspapers and on billboards,
sending salesmen into the wholesale market, and introducing an ambitious door-to-
door sampling program. By late 1905, Sanitas was producing 150 cases of corn
flakes a day with sales of $100,000 a year.
Battle Creek Toasted Corn Flake Company Is Launched
The next year W.K. Kellogg launched the Battle Creek Toasted Corn Flake
Company with the help of another enthusiastic former sanitarium patient. Kellogg
recognized that advertising and promotion were the keys to success in a market
flooded with look-alike products--the company spent a third of its initial working
capital on an ad in Ladies Home Journal.
Orders, fueled by early advertising efforts, continually outstripped production, even
after the company leased factory space at two additional locations. In 1907 output
had reached 2,900 cases a day, with a net profit of about a dollar per case. In May
1907 the company became the Toasted Corn Flake Company. That July a fire
destroyed the main factory building. On the spot, W.K. Kellogg began making plans
for a new fireproof factory, and within a week he had purchased land at a site
strategically located between two competing railroad lines. Kellogg had the new
plant, with a capacity of 4,200 cases a day, in full operation six months after the fire.
"That's all the business I ever want," he is said to have told his son, John L. Kellogg,
at the time.

By the time of the fire, the company had already spent $300,000 on advertising but
the advertising barrage continued. One anonymous campaign told newspaper readers
to "wink at your grocer and see what your get." Winkers got a free sample of
Kellogg's Corn Flakes. In New York City, the ad helped boost Corn Flake sales
fifteen fold. In 1911 the advertising budget reached $1 million.

By that time, W.K. Kellogg had finally managed to buy out the last of his brother's
share of the company, giving him more than 50 percent of its stock. W.K. Kellogg's
company had become the Kellogg Toasted Corn Flake Company in 1909, but Dr.
Kellogg's Sanitas Food Company had been renamed the Kellogg Food Company and
used similar slogans and packaging. W.K. sued his brother for rights to
the family name and was finally successful in 1921.
Company Is Reincorporated as the Kellogg Company
In 1922 the company reincorporated as the Kellogg Company because it had lost its
trademark claim to the name "Toasted Corn Flakes," and had expanded its product
line so much that the name no longer accurately described the company. Kellogg
had introduced Krumbles in 1912, followed by 40% Bran Flakes in 1915, and All-
Bran in 1916.
Kellogg also made other changes, improving his product, packaging, and processing
methods. Many of those developments came from W.K.'s son John L. Kellogg, who
began working for the company in its earliest days. J.L. Kellogg developed a
malting process to give the corn flakes a more nut-like flavor, saved $250,000 a year
by switching from a waxed paper wrapper on the outside of the box to a
waxed paper liner inside, and invented All-Bran by adding a malt flavoring to the
bran cereal. His father credited him with more than 200 patents and trademarks.
Kellogg Expands into Canada
Sales and profits continued to climb, financing several additions to the
Battle Creek plant and the addition of a plant in Canada, opened in 1914, as well as
an ever-increasing advertising budget. The one exception came just after World War
I, when shortages of raw materials and railcars crippled the once-thriving business.
W.K. Kellogg returned from a world tour and canceled advertising contracts and
sampling operations, and, for six months, he and his son worked without pay. The
company issued $500,000 in gold notes in 1919, and in 1920 posted the only loss in
its history. Still, Kellogg rejected a competitor's buyout offer.

At that point the Battle Creek plant had 15 acres of floor space, production capacity
of 30,000 cases a day, and a shipping capacity of 50 railcars a day. Each day it
converted 15,000 bushels of white southern corn into Corn Flakes. The company
had 20 branch offices and employed as many as 400 salesmen. During the next
decade the Kellogg Company more than doubled the floor space at its
Battle Creek factory and opened another overseas plant in Sydney, Australia, in
1924.

Also during that period, W.K. Kellogg began looking for a successor since in 1925
he had forced his son, who had served briefly as president, out of the company after
J.L. had bought an oat-milling plant and divorced his wife to marry an office
employee. W.K. Kellogg objected both to his son's moral lapse and to his preference
for oats. Several other presidents followed, but none could manage well enough to
keep W.K. Kellogg away. During the Great Depression the company's directors
decided to cut advertising, premiums, and other expenses. When Kellogg heard of it,
he returned from his California home, called a meeting, and told the officers to press
ahead. They voted again, this time adding $1 million to the advertising budget. The
company's upward sales curve continued right through the Depression, and profits
improved from around $4.3 million a year in the late 1920s to $5.7 million in the
early 1930s.

In 1930 W.K. Kellogg established the W.K. Kellogg Foundation to support

agricultural, health, and educational institutions. Kellogg eventually gave the
foundation his majority interest in Kellogg Company. The company, under W.K.'s
control, also did its part to fight unemployment, hiring a crew to landscape a ten-
acre park on the Battle Creek plant grounds and introducing a six-hour, four-shift
day.

Vanderploeg is named President of Kellogg Company

In 1939 Kellogg finally found a permanent president, Watson H. Vanderploeg, who
was hired away from a Chicago bank. Vanderploeg led the company from 1939 until
his death in 1957. Vanderploeg expanded Kellogg's successful advertise-and-grow
policy, adding new products and taking them into new markets. In 1941 the
company began a $1 million modernization program, updating old steam-generation
equipment and adding new bins and processing equipment. The company also added
new plants in the United States and abroad. Domestic plants were established in
Omaha, Nebraska; Lockport, Illinois; San Leandro, California; and Memphis,
Tennessee. Additional foreign operations were established in Manchester, England,
in 1938, followed by plants in South Africa, Mexico, Ireland, Sweden, the
Netherlands, Denmark, New Zealand, Norway, Venezuela, Colombia, Brazil,
Switzerland, and Finland. During the five years after World War II, Kellogg
expanded net fixed assets from $6.6 million to $20.6 million. As always, this
expansion was financed entirely out of earnings.

The company also continued to add new products, but it never strayed far from the
ready-to-eat cereal business. In 1952 more than 85 percent of sales came from ten
breakfast cereals, although the company also sold a line of dog food, some poultry
and animal feeds, and Gold Medal pasta. Barron's noted that Kellogg's profit
margins, consistently between 6 and 7 percent of sales, were more than double those
of other food companies. The company produced 35 percent of the nation's ready-to-
eat cereal and was the world's largest manufacturer of cold cereal. Kellogg's success
came from its emphasis on quality products; high-speed automated equipment,
which kept labor costs to about 15 percent of sales; and substantial foreign earnings
that were exempt from the excess-profits tax. Dividends tended to be generous and
had been paid every year since 1908; sales, which had been $33 million in 1939,
began to top $100 million in 1948. By the early 1950s an estimated one-third of
those sales were outside the United States.
Kellogg's Begins Television Advertising
In the early 1950s Kellogg's continued success was tied to two outside
developments: the postwar baby boom and television advertising. To appeal to the
new younger market, Kellogg and other cereal makers brought out new lines of
presweetened cereals and unabashedly made the key ingredient part of the name.
Kellogg's entries included Sugar Frosted Flakes, Sugar Smacks, Sugar Corn Pops,
Sugar All-Stars, and Cocoa Crispies. The company created cartoon pitchmen to sell
the products on Saturday morning television. Tony the Tiger was introduced in 1953
following a contest to name the spokesperson for the new cereal, Kellogg's Sugar
Frosted Flakes of Corn. Sales and profits doubled over the decade and in 1960
Kellogg earned $21.5 million on sales of $256.2 million and boosted its market
share to 40 percent.

The company continued adding new cereals, aiming some at adolescent baby
boomers and others, like Special K and Product 19, at their parents. Kellogg's Corn
Flakes still led the cereal market and got more advertising support than any other
cereal on grocers' shelves. Kellogg poured nearly $10 million into Corn Flakes
advertising in both 1964 and 1965, putting more than two-thirds of those dollars into
television.

In 1969 Kellogg finally made a significant move away from the ready-to-eat
breakfast-food business, acquiring Salada Foods, a tea company. The following year
Kellogg bought Fearn International, which sold soups, sauces, and desserts to
restaurants. Kellogg added Mrs. Smith's Pie Company in 1976 and Pure Packed
Foods, a maker of nondairy frozen foods for institutional customers, in 1977.
Kellogg also bought several small foreign food companies.

The diversification may have been motivated in part by increasing attacks on

Kellogg's cereal business. Criticism boiled over in 1972 when the Federal Trade
Commission (FTC) accused Kellogg and its leading rivals General Mills and
General Foods of holding a shared monopoly and overcharging consumers more
than $1 billion during the previous 15 years. The FTC said the companies used
massive advertising (12 percent of sales), brand proliferation, and allocation of shelf
space to keep out competitors and maintain high prices and profit margins. There
was no disputing the profit margins, but the companies argued that the advertising
and product proliferation were the result of competition, not monopoly. The cereal
companies won their point following a lengthy hearing. During the same period, the
industry's presweetened cereals and related advertising also took a beating. The
American Dental Association accused the industry of obscuring the sugar content of
those cereals, and Action for Children's Television lodged a complaint with the
FTC, saying that the mostly sugar cereals were equivalent to candy. Kellogg flooded
consumer groups and the FTC with data playing down the sugar content by showing
that only three percent of a child's sugar consumption comes from presweetened
cereals. This publicity caused sugared-cereal sales to fall 5 percent in 1978, the first
decline since their introduction in the 1950s.

The biggest threat to Kellogg's continued growth wasn't criticism, but rather the
aging of its market. By the end of the 1970s growth slowed dramatically as the baby
boom generation passed from the under-25 age group, which consumes an average
of 11 pounds of cereal a year, to the 25 to 50 age group, which eats less than half as
much cereal. Cereal-market growth dropped, and Kellogg lost the most. Its market
share fell from 43 percent in 1972 to 37 percent in 1983.

New Chairman LaMothe Continues to Push Cereal Business

While Wall Street urged the company to shift its growth targets into anything but the
stagnating cereal market, Kellogg continued to put its biggest efforts into its cereal
business, emphasizing some of the same nutritional concepts that had given birth to
the ready-to-eat breakfast business. And Kellogg was less unwilling than unable to
diversify. It made three unsuccessful bids for the Tropicana Products orange juice
company and another for Binney & Smith, makers of Crayola crayons. Despite its
problems, Kellogg believed the cereal business still represented its best investment
opportunity. "When you average 28 percent return on equity in your own business,
it's pretty hard to find impressive acquisitions," said Chairman William E. LaMothe,
a onetime salesman who became CEO in 1979.

In 1984 Kellogg bought about 20 percent of its own stock back from the W.K.
Kellogg Foundation, a move that increased profits and helped defend the company
against future takeover attempts, while satisfying a legal requirement limiting the
holdings of foundations without giving potential raiders access to the stock.
Meanwhile, the company's response to generally sagging markets in the late 1970s
was much like W.K. Kellogg's during the Depression: more advertising. Kellogg
also boosted product research and stepped up new-product introductions. In 1979 the
company rolled out five new products and had three more in test markets. By 1983
Kellogg's research-and-development budget was $20 million, triple the 1978
allotment. Targeting a more health-conscious market, Kellogg spent $50 million to
bring three varieties of Nutri-Grain cereal to market in 1982. Kellogg added almost
as many products in the next two years as it had in the previous four. And in 1984
Kellogg sparked a fiber fad when it began adding a health message from the
National Cancer Institute to its All-Bran cereal.

By the mid-1980s the results of Kellogg's renewed assault on the cereal market were
mixed. The company's hopes of raising per capita cereal consumption to 12 pounds
by 1985 fell flat. But Kellogg did regain much of its lost market share, claiming 40
percent in 1985, and it continued to outperform itself year after year. In 1986
Kellogg posted its 30th consecutive dividend increase, its 35th consecutive earnings
increase, and its 42nd consecutive sales increase.

Kellogg Sells Tea Companies

In 1988 the company sold its U.S. and Canadian tea operations, in a demonstration
of Kellogg's renewed commitment to the cereal market. In the early 1990s, however,
Kellogg failed to move fast enough to profit from the oat bran craze and lost market
share in the United States, primarily to General Mills, Inc.'s oat-heavy brands such
as Cheerios and Honey Nut Cheerios. Further erosion resulted from an upsurge in
sales of private-label store brands, notably those produced by Ralston Purina
Company spinoff Ralcorp Holdings Inc.. By developing knockoffs of such Kellogg
standbys as Corn Flakes and Apple Jacks and selling them for as much as a dollar
less per box, Ralcorp and other companies increased private-label cereal market
share to 6 percent by 1994 at the expense of Kellogg and other makers of brand-
name cereals. Sales of branded cereals increased only 3 percent in 1994 over 1993;
in this flat market, Kellogg's U.S. market share fell to as low as 33.8 percent in
1994.

In order to hold on to as much of its market share as it could, Kellogg management

once again turned to increased marketing and advertising in 1990. Even in the face
of the pressure from lower-priced private-label products, the company also
continued to raise its prices in the early 1990s to generate sufficient revenue. This
trend was finally reversed in 1994, however, when General Mills lowered its prices,
forcing Kellogg to do the same.

In the midst of these difficulties, LaMothe retired in 1992 and was replaced as
chairman and CEO by the president of Kellogg, Arnold G. Langbo. Under Langbo's
direction, the company underwent a reengineering effort in 1993 that committed the
company to concentrate its efforts on its core business of breakfast cereal. That year
and the next, Kellogg divested itself of such noncore assets as its Mrs. Smith's
Frozen Foods pie business, Cereal Packaging, Ltd., based in England, and its
Argentine snack food business.

Its emphasis on its core business was also extended to its operations outside the
United States, where company officials saw the greatest potential for future growth.
By 1991 Kellogg held 50 percent of the non-U.S. cereal market, and 34 percent of
its profits were generated outside the United States. In most of the markets in which
it operated, it had at least six of the top ten cereal brands. Looking to the future,
Kellogg's primary target markets of Europe, Asia, and Latin America had not yet
reached the more mature levels of the United States. While per capita cereal
consumption in the United States was ten pounds per year, in most other markets it
was less than two pounds. After expanding into Italy in the early 1990s, Kellogg
became the first major cereal company to open plants in three markets: the former
Soviet Union with a plant in Riga, Latvia, in 1993; India with a plant in Taloja, in
1994; and China with a plant in Guangzhou, in 1995. With these new operations,
Kellogg had 29 plants operating in 19 countries and could reach consumers in
almost 160 countries.

Kellogg Competes with General Mills for Market Share

Although Kellogg had a commanding position internationally, it faced a new and
more formidable international competitor starting in 1989. General Mills and the
Swiss food titan Nestlé S.A. established a joint venture called Cereal Partners
Worldwide (CPW), which essentially combined General Mills' cereal brands and
cereal-making equipment with Nestlé's name recognition in numerous markets and
vast experience with retailers there. By 1994, CPW was already beginning to eat
into Kellogg's market share in various countries.
Overall, Kellogg's 1990s difficulties had only slowed--not stopped--the firm's
tradition of continual growth. Net sales increased at the modest rates of 7 percent, 2
percent, and 4 percent in 1992, 1993, and 1994, respectively (1994 was Kellogg's
50th consecutive year of sales growth). With U.S. sales still accounting for 59
percent of the overall total, however, and competition heating up overseas, Kellogg
faced its most challenging environment since the early 1920s. In addition to its
aggressive expansion into overseas markets with huge potential for growth, another
promising sign for a bright future for Kellogg was a revitalized new product
development program. More disciplined than the scattershot approach of the 1980s,
the program was beginning to produce such winners as Low Fat Granola, Rice
Krispies Treats, and a line of cereal developed as a result of the 1994 partnership
with ConAgra, Inc., under the food conglomerate's Healthy Choice brand.

In 1997 and 1998 operations were expanded in Australia, the United Kingdom, Asia,
and Latin America, but extremely competitive market conditions resulted in declines
in sales and earnings in 1998. The result was a refocusing in two key areas: new
product development and the complete overhaul of corporate headquarters and the
North American organization structure. Product development included the addition
of new cereals, innovative convenience foods, and new grain-based products;
product improvement measures added to the nutritional value of all products. The
Ensemble line of heart-healthy foods was introduced in November 1998 and
included frozen entrees, bread, dry pasta, baked potato crisps, frozen miniloaves,
cookies, and a ready-to-eat cereal similar to General Mills' Cheerios line.

An increase in overall marketing investments was targeted for the seven largest
cereal markets: the United States, the United Kingdom, Mexico, Canada, Australia,
Germany, and France. In response to the growth of "on-the-go" convenience foods,
geographic distribution was expanded for such products as Nutri-Grain bars, Rice
Krispies Treats squares, and Pop-Tarts toaster pastries.

New Chairman Gutierrez Reorganizes Company

In an effort to reduce costs and create a more focused and accountable workforce,
about 25 percent of its North American workforce was let go and steps were taken
toward the reorganization of the corporate structure. As a result, several top officers
left in 1998 and 1999. In April 1999, Cuban-born and 25-year veteran of the
company Carlos M. Gutierrez became CEO. Gutierrez's vision for Kellogg was "to
begin a process of renewal designed to strengthen significantly the ability of the
Kellogg Company to compete and prosper in the 21st century." His new team
included eight new top executives, including four who joined the company in 1999
and 2000.

Gutierrez took many bolds steps to hold on to the company's position as the world's
leading producer of ready-to-eat cereal in spite of declining stock value, including
selling the Lender's bagel division to Aurora Foods and shutting down the Ensemble
line of cholesterol-reducing foods. Despite protestations from the community and
workforce, the historic hometown plant in Battle Creek was closed and 550 jobs
were eliminated. In late 1999, Kellogg acquired Worthington Foods, Inc.,
manufacturer of meat alternatives, frozen egg substitutes, and other healthy food
products, under the brands of Morningstar Farms, Natural Touch, Worthington, and
Loma Linda.

As in 1999, Kellogg continued the process of renewal in 2000, with its second
consecutive year of earnings growth. Sales, however, declined by 0.4 percent and
share performance was again disappointing. With sales falling or remaining stagnant
in the ready-to-eat cereal business, the strategy of the company involved allocating
resources first to the United States' markets, and then to other core markets in the
United Kingdom/Republic of Ireland, Mexico, Canada, and Australia/New Zealand;
setting targets for long-term growth; and executing a sound business plan.

To strengthen their competitive position, in 2000 Kellogg acquired Kashi Company,

a natural cereal company in the United States; two convenience food businesses in
Australia; and the Mondo Baking Company, a manufacturer of convenience foods in
Rome, Georgia. On October 26, the company announced that an agreement had been
reached to acquire Keebler Foods Company, the largest acquisition in the 95-year
history of the company. The acquisition, completed in March 2001, brought to
Kellogg not only Keebler's cookie and cracker business, but also their direct store
door (DSD) delivery system, which was expected to increase the growth potential of
snack foods such as Kellogg's Nutri-Grain bars and Rice Krispies Treats squares.

In the fourth quarter of 2000, Kellogg's operations were restructured into two major
divisions--USA and International--to streamline operations and reduce costs.
Kellogg International was further delineated into Europe, Latin America, Canada,
Australia, and Asia. In U.S. operations, Kellogg's Raisin Bran Crunch cereal
remained the most successful new U.S. cereal product since the mid-1990s, with a
0.9 percent market share. Consumer promotions included American Airlines
frequent flyer miles, and affiliations with NASCAR, the Olympics, and Major
League Soccer. Other advertising connections were made with the movie How the
Grinch Stole Christmas and Pokemon. Kellogg also launched Eet & Ern, an
Internet-based consumer loyalty program.
The Kellogg International division had responsibility for all markets outside the
United States, providing products to more than 160 countries on six continents
worldwide. The four largest Kellogg International markets were the United
Kingdom/Republic of Ireland, Mexico, Canada, and Australia/New Zealand. The
United Kingdom/Republic of Ireland remained Kellogg's largest market outside the
United States, and experienced a 3 percent increase in cereal sales during 2000. The
fastest growing international market was Mexico, where the direct store delivery
system was effectively implemented.

Cereal competitor General Mills had closed the gap in the U.S. market share, and
passed Kellogg in 2001 as the number one cereal maker. According to Kellogg CEO
Gutierrez, "after a year of change, a stronger Kellogg is emerging." The change
marked the building of a better business model in which "short-term sales and
earnings growth were sacrificed to lay the foundation for great value creation in the
future." In Kellogg USA, the acquisition of Keebler was completed in 2001 resulting
in a more profitable sales mix. Advertising through brand-building was increased
with tie-ins with Disney, American Airlines, and the Cartoon Network. In the cereal
category, Special K Red Berries cereal was launched in March and proved to be the
most successful new product in this category since the 1998 introduction of Raisin
Bran Crunch. Pop-Tarts increased its sales and category share and benefited from
the introduction of Chocolate Chip Pop-Tarts. A number of products in the snacks
category benefited from the inclusion in Keebler's direct store delivery system.
Growth was also evident in the natural and frozen foods category, with Kashi
proving to be the fastest growing brand in the natural cereals category.

Like Kellogg USA, Kellogg International's focus on "volume to value" in 2001 was
applied to sales, marketing, and new-product initiatives. In the United Kingdom, the
most important brands and innovation projects were prioritized. Successful product
campaigns were launched for Crunchy Nut Red cereal and Special K bars. Kellogg
India Ltd. was permitted by the Foreign Investment Promotion Board to launch new
products, Cheez-It Crackers, Keebler Cookiers, and Special K cereal. In other parts
of Europe, Kellogg pulled back on investments in smaller markets and attempted to
bring prices in line in preparation of the launch of the Euro currency.

By 2002 the Kellogg team, headed by Chairman Gutierrez, remained optimistic for
the future of the Kellogg Company. After a year of significant changes, the company
emerged "a stronger organization, (with) a tighter focus and revitalized employees
whose determination is greater than ever." The year 2002 indicated progress in the
form of sustainable, reliable sales and earnings growth. With products manufactured
in 19 countries and marketed in more than 160 countries worldwide, Kellogg
showed more focus than ever to regain and retain its position as the world's leading
producer of cereal and a leading producer of convenience foods.

Will Keith Kellogg

The Cornflake King
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 Will Keith Kellogg
Founder of Kellogg Co.
Founded: 1906

When Will Keith and John Harvey Kellogg invented the first flaked cereal in 1894,
they turned the American diet on its ear. Before long, the Kellogg name was gracing
breakfast tables across the country. But behind the name lies a fascinating story of
two very different brothers-one an eccentric doctor, the other a sober businessman-
whose sibling rivalry ranks up there with that of Cain and Abel.

Will Keith Kellogg was born in Battle Creek, Michigan, in April 1860. His father,
John Kellogg, a successful broom maker and staunch Seventh Day Adventist,
believed Christ's Second Coming was imminent and therefore placed little emphasis
on education. So as soon as young Will Keith was old enough, he was put to work in
his father's factory. Will Keith discovered that he had a natural knack for business,
and by age 14, he was the company's youngest traveling salesman. Five years later,
he was managing a broom factory in Dallas.

John Harvey Kellogg took a very different path. A flamboyant physician, author and
inventor, Dr. Kellogg had gained world renown as head of the Battle Creek
Sanitarium. Offering radical treatments that promised to revitalize the body, mind
and spirit, the San (short for Sanitarium) had become a Mecca for those looking to
improve their health. As patronage at the San increased, the good doctor decided he
needed someone to keep the books and help him run the place. For this he turned to
his younger brother, Will Keith, who had returned to Michigan in 1880. In addition
to his business knowledge, there was another reason John chose Will Keith-he knew
that the shy young man posed no threat to his control of the San.

At the core of Dr. Kellogg's "biologic living" program was a firm belief in
vegetarianism. But he had difficulty convincing his patients to give up meat. So
John established an experimental kitchen and put Will Keith to work inventing a
palatable substitute for meat made from wheat. For years, John had been trying to
duplicate a cereal product made in Denver called Shredded Wheat. Unfortunately,
Shredded Wheat didn't go over very well with the San's visitors. Most claimed it
tasted like "bailed hay."

Will Keith searched for a way to turn wheat into something more tasty, and he hit
upon the idea of creating a wheat flake. However, the mushy wheat batter simply
refused to cooperate. After several unsuccessful attempts, Will Keith went home to
ponder the problem. When he returned to the lab several days later, he found that the
batter had molded. In disgust, he gave the crank of the "flaking machine" a turn-and
to his surprise, out came perfect flakes. Apparently the mold had given the batter the
"rise" it needed to flake.

Will Keith quickly discovered that the process worked just as well with oats, rice
and corn. But although it was Will Keith who had stumbled upon the answer, it was
John who took all the credit, claiming the idea had come to him in a dream. To Will
Keith's frustration, John insisted that the new cereal be sold only to the San's
patients. Where Will Keith saw dollar signs, John only saw good health. The two
brothers hadn't been very close to begin with, and now their differences began to
open a chasm between them.

In 1891, a would-be entrepreneur named Charles W. Post arrived at the San for
treatment of a severe case of dyspepsia (a digestive system disorder). Post saw a
potential gold mine in the products being created in the San's experimental kitchens,
and became particularly fascinated with the Kelloggs' attempts to create a coffee
substitute made from cereal. When alerted to Post's curiosity, John replied, "Let him
see everything we're doing. I shall be delighted if he makes a cereal coffee."

Post did just that, and in 1895, he began marketing Postum, a cereal coffee made
from grain and-like Kellogg's. Postum was a great success, especially in the winter.
But Post needed a product to sell in the summer, so he began marketing a cereal
called Grape Nuts. By 1901, Post had made his first million.

Post's success rankled Will Keith, who hated the idea of the upstart Texan getting
rich on the San's creation. After several unsuccessful attempts to get his brother to
sell the San's cornflakes commercially, Will Keith decided to strike out on his own.
Looking for a way to make the cornflakes taste better, he added malt flavoring to the
recipe. When Dr. Kellogg-who promoted a sugar-free diet-found out, he was
furious. But Will Keith didn't care. He was sure he'd found the formula for his
success, and in 1906, he separated from his brother and formed The Battle Creek
Toasted Corn Flake Co. The business acumen Will Keith had displayed in his youth
re-emerged, and by 1910 his was a million-dollar business.

Will Keith's success infuriated John, who resented the commercialization of "his"
creation and name. In retaliation, Dr. Kellogg changed the name of his company to
Kellogg Food Co. In turn, Will Keith changed his company to Kellogg Toasted Corn
Flake Co., and to differentiate his flakes from those of his brother and other
competitors, he added his signature to every box along with the slogan, "Beware of
imitations. None genuine without this signature." It marked the beginning of what
would become a decade-long court battle over who owned the Kellogg name.
In 1910, Will Keith sued John. Then in 1916, John sued Will Keith. Finally, the
"battle of bran," as it was known, reached the Michigan Supreme Court, which
granted the younger brother the right to sell cereal under the Kellogg name.
Defeated, John moved to Florida and rapidly faded into obscurity.

Finally emerging from his brother's shadow, Will Keith quickly became a dominant
figure in American business. A true marketing genius, he began giving away free
samples of his cereal, which caused sales to explode. By the 1920s, Kellogg Co. led
the pack in what had become a multimillion-dollar industry.

Throughout the years of Will Keith's growing success, he had not seen or spoken to
his older brother. But when he heard reports of John's increasingly eccentric
behavior, he traveled to Florida to check on his brother's condition. Will Keith was
appalled to find that his brother was quickly losing touch with reality. John Harvey
Kellogg died a year later, in 1943, at the age of 91. Before his death, he sent Will
Keith a letter of reconciliation in which he apologized for his behavior. But Will
Keith never saw it. He had become almost completely blind, and his protective staff
never informed him of the letter. On his own deathbed in 1951, Will Keith was
finally told of the letter. Struck that he had never known about his brother's change
of heart, he sat up in bed and cried, "My goodness, why didn't someone tell me
before this?"

The Kellogg brothers' inability to collaborate drove them apart, but ironically, that's
what allowed each to do what he did best. Today, the company that Will Keith
Kellogg started nearly a century ago reigns as the No. 1 maker of ready-to-eat
cereals.

Jif, Skippy, Peter Pan and.Kellogg?

Flaked cereal isn't the only product invented by Will Keith and John
Harvey Kellogg that regularly adorns kitchen tables across America.
Included in the many different foods the Kelloggs' experimental kitchen
developed was a vegetarian "health" food called Nut Butter-a thick spread
made from peanuts. Although the Kelloggs registered the first patent for
it, they apparently never enforced it.
The Bashful Benefactor
Although he was never known as the warmest of men, over the years Will Keith
Kellogg quietly established a reputation as a giver to local charities, and he would
often look for ways to help people in need. During the Depression, he ran his factory
on four six-hour work shifts to create more jobs.

Will Keith also showed a great concern for children, especially rural children. In
1930, he set up the Child Welfare Foundation (CWF) to help the vast number of
children living in poverty. Dedicated to improving the health and education of
children across the country, the CWF was eventually renamed the W.K. Kellogg
Foundation. Upon his death, Will Keith willed most of his 60 percent interest in
Kellogg Co. to the foundation to ensure that it would continue. Today, the W.K.
Kellogg Foundation is one of the world's largest private charities, thanks to its 34
percent ownership of Kellogg Co.

Principal Subsidiaries:Kellogg USA Inc.; Kellogg Company Argentina S.A.C.I.F.;

Kellogg (Aust.) Proprietary Ltd. (Australia); Kellogg Brasil & CIA; Kellogg Canada
Inc.; Kellogg de Colombia S.A.; Nordisk Kelloggs A/S (Denmark); Kellogg's
Produits Alimentaires, S.A. (France); Kellogg (Deutschland) Gesellschaft mit
beschrankter Haftung (GmbH); Kellogg de Centro America S.A. (Guatemala);
Kellogg (Japan) K.K.; Nhong Shim Kellogg Co. Ltd. (Korea); Kellogg de Mexico
S.A. de C.V.; Kellogg Company of South Africa (Proprietary) Limited; Kellogg
Espana, S.A.; Kellogg Company of Great Britain, Ltd.; Alimentos Kellogg S.A.
(Venezuela); Kellogg India Ltd.
Principal Competitors:General Mills; Kraft Foods; Quaker Oats.
Further Reading:
 Brown, Gerald, J.B. Keegan, and K. Wood Vigus, "The Kellogg Company
Optimizes Production, Inventory, and
Distribution," Interfaces, November/December 2001, pp. 1-15.
 Carson, Gerald, Cornflake Crusade, Salem, N. H.: Ayer, 1976, 305 pp.
 "Energy, Diet Bars Show High Growth," National Petroleum News, June
2002, p. 20.
 Gould, William, Kellogg's: The Greatest Name in Cereals (VGM's Business
Portraits), Lincolnwood, Ill: VGM Career Horizons, 1997, 48 pp.
  The History of Kellogg Company, Battle Creek, Mich.: Kellogg Company,
1986.
 Hunnicutt, Benjamin Kline, Kellogg's Six Hour Day, Philadelphia: Temple
University Press, 1996, 261 pp.
 "Kellogg Company," Frozen Food Age, March 2001, p. 1.
 "Kellogg Company," Hoover's Handbook of American Business 2002, 2001,
pp. 816-17.
 Knowlton, Christopher, "Europe Cooks Up a Cereal Brawl," Fortune, June 3,
1991, pp. 175-78.
 Mukherjee, Abarish, "India: Kellogg Gets FIPB Nod for Four New
Products," Businessline, December 27, 2001, p. 1.
 Powell, Horace B., The Original Has This Signature: W.K.
Kellogg, Englewood Cliffs, N. J.: Prentice-Hall, 1956, 358 p.
 Serwer, Andrew E., "What Price Brand Loyalty?," Fortune, January 10, 1994,
pp. 103-04.
 Treece, James B., and Greg Burns, "The Nervous Faces around Kellogg's
Breakfast Table," Business Week, July 18, 1994, p. 33.
 Woodruff, David, "Winning the War of Battle Creek," Business Week, May
13, 1991, p. 80.
Source: International Directory of Company Histories, Vol. 50. St. James Press,
2003

The Battle of the

Cornflakes
The Battle Creek Toasted Corn Flake Company,
later to be known as Kellog's, was founded on
February 19th, 1906.
Richard Cavendish | Published in History Today Volume 56 Issue 2 February
2006
Advertising for Kellogg's Toasted Corn Flake, 1910s

John Harvey Kellogg and Will Keith Kellogg were brothers from a
Seventh-day Adventist family in Battle Creek, Michigan. They had little
education, because their parents expected Christ’s Second Coming before
they would need it, but John Harvey managed to get a medical degree. He
was a fanatical advocate of what he called ‘biologic living’, which involved
vegetarianism, no alcohol or tobacco, no tea, coffee or condiments and
minimal quantities of eggs and dairy products.

In his middle twenties he became president of an Adventist sanitarium at

Battle Creek and practised his principles on the patients, who found the
diet so monotonous that he, his wife Ella and his brother W.K., who was
eight years younger, started experimenting with cereals. They set up the
Sanitas Food Company and tried out products which included slow-baked
cereal Granola biscuits, wheat flakes and cornflakes, peanut butter and a
cereal-based coffee substitute. They stumbled on the wheat flakes, which
they called Granose, by accident one night in 1894 when trying to
manufacture an easily digestible form of bread. Granose was the world’s
first flaked cereal product. Cornflakes made from toasted maize followed
in 1898 and a version with a longer shelf-life in 1902.

The Kelloggs at first sold their products mainly by mail order to their ex-
patients, but then began advertising in newspapers and on billboards,
while rival entrepreneurs invaded the promising market and copied the
Kellogg lines. An ex-patient of the sanitarium named C.W. Post made
Grape Nuts, based on the Granola biscuits, and a cereal-based drink called
Postum patterned on the Kellogg coffee substitute. By 1900 his Postum
Cereal Company was making $3 million a year.

Competition waxed fierce and more than forty cereal companies were
launched in the United States in the early 1900s. John Harvey Kellogg was
not really interested in business, but in reforming American eating habits.
The taciturn, austere W.K., on the other hand, was a born businessman
and resented playing second fiddle to his more flamboyant brother, from
whom he bought the rights to the manufacture of cornflakes. In 1906 W.K.
founded the Battle Creek Toasted Corn Flake Company. He spent heavily
on advertising, including a campaign telling the reader to ‘wink at your
grocer and see what you get’. What you got was a free sample of W.K.’s
cornflakes. The campaign increased sales by a factor of fifteen in New
York City and the company was rapidly profitable, but John Harvey’s
Sanitas company continued in business and the brothers fell out over the
Kellogg name, which they both used. In 1911 W.K. succeeded in a lawsuit
to gain exclusive use of the Kellogg name in the United States, later
extended to international markets after a legal battle that lasted from
1916-21. W.K. had started selling Bran Flakes in 1915 and All-Bran in 1916
and his firm was the Kellogg Cereal Company from 1922.
W.K. had been joined by his son John L. Kellogg, who invented All-Bran
and streamlined the company’s operations until his father forced him out
in 1925, partly for moral turpitude after John L. divorced his wife and
married one of the office girls and partly because John L. got interested in
oat-based products, which W.K. disapproved of. None of John L.’s
successors lasted long under W.K.’s critical eye until in 1930 the old man
gave a majority interest in the company to his charitable organization, the
W.K. Kellogg Foundation. When W.K. died in Battle Creek in 1951, aged
ninety-one, Kellogg’s was the world leader in its field.