Sunday, April 22, 2012

About Cereals and Snacking and What Sells

YOU want a trip to Kellogg — the birthplace of Honey Smacks, Apple Jacks and countless other sugar-slathered classics — to feel like a visit to Willy Wonka’s chocolate factory. But the company’s Institute for Food and Nutrition Research just won’t play along.

You’re not greeted at the door by a grinning man in a purple velvet jacket, but by food scientists in lab coats. And instead of presenting a golden ticket from a candy bar, you hand over a consent form on which you promise to surrender any recording devices and to stick with your chaperones.

This is actually the second sign that the tour will lack both whimsy and spontaneous musical numbers. The first is the building itself, nearly 400,000 square feet of sleek and mirthless red brick and tinted windows, an office that could have been plucked from any industrial park in the country. “Nothing to see here,” the exterior says. “Keep moving, thank you.”

Were you to miss the six-foot-high replica of Tony the Tiger that stands around the corner, at the employees’ entrance, you would never guess that the institute, and the corporate headquarters a few blocks away, are hallowed ground, at least for fans of the children’s nirvana that is the high-fructose section of the cereal aisle. Toucan Sam lives here, the Froot Loops bird with the Technicolor beak. So do Snap, Crackle and Pop, those grinning scamps on the Rice Krispies box.

Soon, these and other ageless spokes-characters will get a new neighbor: Pringles, which Kellogg is buying from Procter & Gamble in a $2.7 billion deal expected to close this summer.

What’s Pringles, the world’s best-known stackable-chips franchise, doing in Kellogg’s bulging portfolio of cereals, cookies, crackers and such? The answer sheds some light on the way Americans are eating these days, and on what ails Kellogg, whose shares have lagged the market in the period since March 2009, when the Standard & Poor’s 500-stock index bottomed out. The S.& P. is up 115 percent over that time, while Kellogg is up 59 percent. And the company’s operating profit is basically flat — at $1.95 billion in 2008, and $1.97 billion in 2011.

“We’re not happy with our performance the last couple of years,” says John A. Bryant, who became the company’s chief executive in January 2011. Mr. Bryant, 46, whose looks would be described as all-American were he not from Australia, is sitting in his office one March afternoon, discussing some unhappy trends for a few of the company’s biggest products. Products like Corn Flakes and Rice Krispies, whose sales dropped in the last year. Those brands, not coincidentally, are also the easiest for makers of private-label cereals, breakfast’s version of generics, to knock off. So Kellogg and its 400 food scientists, engineers and technicians are cooking up new products at a frenetic pace — new cereals as well as new categories of food and flavors for what everyone here calls “snacking occasions.”

“Here I am, sitting in this office, and in that building, right there,” Mr. Bryant says, pointing to a plant just a few blocks away, “is one of the few private-label cereal plants in the U.S., probably creating 200 million pounds of cereal a year. Because that thing is there, we have to keep bringing new foods to consumers and delighting them, because if we stand still, people catch up.”

Americans might not be buying Corn Flakes the way they did a decade ago, but they love a good snacking occasion, and shoehorning a few more Pop-Tarts, Nutri-Grain bars and Special K Savory Herb crackers into our day is a core mission for the company. But the real growth for Kellogg, as well as for packaged-food rivals like PepsiCo and its Frito-Lay division, is in snacks in foreign markets, and that is where Pringles comes in.

Selling cereal and selling snacks are two entirely different skills, it turns out, and Mr. Bryant will candidly acknowledge that when it comes to overseas snacks, Kellogg currently lacks chops. What the company is buying with Pringles is not just a line of products that is already huge internationally, but a group of Procter & Gamble merchandisers with what Mr. Bryant calls “the snack mind-set.” Their job will be to bolster the company’s foreign snack divisions, and to step on it.

Yes, Kellogg is trying something improbable — devouring Pringles to improve its health. Will it work?

Some analysts are doubtful, noting that Pringles’ sales have been stagnant in recent years and that PepsiCo is about to start heavily promoting its own tube-chip offering, Stax.

But the company’s most ardent detractors are nutritionists aghast at how many sugar- and salt-infused products Kellogg has positioned as good-for-you food. To them, Kellogg is a company with a history of dubious health claims and a track record for talking up “essential nutrients” while pushing products like Smorz, a breakfast version of the campfire treat — and a “good source of vitamin D,” it says on the box.

This might displease the experts, but as Robert Dickerson, an analyst at Consumer Edge Research, notes, the sweet stuff is what sells.

“Look at what’s growing in volume,” he says. “It’s Apple Jacks and Froot Loops.”

OTHER than a handful of factories and the ubiquity of the word “Kellogg,” there are now few signs of Battle Creek’s heyday as “Cereal City.” For decades, though, this city hummed with the sounds of steel rollers and industrial cookers that baked, flaked, rolled up and extruded grains. In 1911, some 108 varieties of corn flakes were made in Battle Creek, according to “Cornflake Crusade,” a 1957 book by Gerald Carson.


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