David Segal, The New York Times
Apr 23, 2012
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. Battle Creek, 120 miles west of Detroit, became an unlikely hotbed of commerce thanks to one man: Dr. John Kellogg, a physician who, starting in the late 1800s, ran a sanitarium-cum-health resort that drew visitors from around the world. Dr. Kellogg was a garrulous eccentric with a fondness for unorthodox treatments, like yogurt enemas. He was also a fervent vegetarian who regarded meat as a kind of toxin. The problem was that vegetarian breakfasts were dull. To keep visitors on the meatless path during stays, he and his wife, Ella, began experiments in the sanitarium bakery. Cornflakes were just one of many inspirations. Mr. Kellogg’s younger and taciturn brother, Will Keith Kellogg, ultimately litigated control of the business from John and turned it into the world’s largest cereal company. But Kellogg has always clung to the aura of salubrity that originated with the doctor. “Eat what the monkey eats,” was one of his maxims. “Simple food and not too much of it.” The monkey, it is safe to say, does not eat Frosted Flakes, which were introduced in 1952, or any of the dozens of child-focused cereals that the company has produced since. Nor is the monkey likely to favor much of what Kellogg employees are confecting this March afternoon. That includes a cocoa almond “low-moisture bar” being created by Luz Palacios, a product development scientist. She is standing over a counter in the company’s 30,000-square-foot process lab — a test kitchen with 5,000 ingredients — and frowning at a group of small, overly crisp slabs that have just come out of a tiny oven. “They’re not quite right,” she says. “I tried it at 365 degrees for seven minutes and then 360 degrees for eight minutes. Neither works.” Touring the institute, it seems ironic that the company needs to enhance its snack mind-set, because everyone here is either making snacks or eating snacks they have just made. Some are snacking as they make snacks. Kellogg aspires to earn 15 percent of its annual revenue from products introduced in the last three years. “We wanted to show you the 2012 first-half launches,” says Margaret Bath, senior vice president for research, quality and technology, entering a first-floor conference room with tables covered with boxes and wrappers. It’s quite a spread, and Ms. Bath introduces each product with parental pride. Here are Eggo Wafflers, in flavors of brown sugar cinnamon roll and strawberry strudel, for “families seeking an on-the-go breakfast with no syrup required,” as it says on the company’s Web site. In a section devoted to cereal, there is Krave, which reportedly wowed children in France and comes in varieties of “chocolate” and, in case you like to garnish your chocolate with more chocolate, “double chocolate.” On another table stand a group of newcomers to the Special K family, a brand that is evidently food’s answer to “Law & Order,” given the number of spinoffs it has generated. Ms. Bath hands over a package of Special K “chocolatey delight” pastry crisps in a shiny white wrapper. (They are not called “chocolate” because they don’t meet an F.D.A. definition of chocolate.) Talk turns to what consumers prize more — nutrition or flavor. “They want both,” Ms. Bath says. “But they’re always going to — it has to taste good. We’ve got to make food that tastes great. That is the price of entry.” Which is perhaps why the sweet end of Kellogg’s product line is a bit like a candy bar in a leotard — it bears more than a passing resemblance to dessert, but it’s packaged as energy food for the active and chronically hurried. Even that box of double-chocolate Krave is stamped “Good source of fiber and whole grain.” ON a recent Friday afternoon in her office near Astor Place in Manhattan, Marion Nestle, a professor of nutrition at New York University, is standing on a chair, reaching for three black boxes atop a bookshelf. Each box contains color photocopies of the fronts and backs of cereal boxes of three Kellogg brands — Froot Loops, Rice Krispies and All-Bran — from every year that each brand has been produced. Dozens of pages, going back as far as 1919, were given to her during a visit to Battle Creek a few years back. “When I got these,” she says, opening a black box with reverent pleasure, “I nearly cried.” She wanted the images in order to look at the way nutritional information has been displayed through history, but you can also browse for the nostalgia trip. Pig Latin was apparently big with kids in the ’50s, because Froot Loops boxes say “kids translation OOT-fray OOPS-lay” next to Toucan Sam. In the ’20s, All-Bran was emblazoned with this rather blunt appeal: “Relieves constipation.” One box that interests Professor Nestle looks pretty mundane. It’s All-Bran, circa 1984, and on the back are some words of advice from the National Cancer Institute: “A growing body of evidence says high-fiber foods are important to good health. That’s why a healthy diet includes high-fiber foods like bran cereals.” “The F.D.A. read this and was apoplectic,” she says. Health claims for food were a no-no at the time. If a food company wanted to boast that a product could fight any particular disease, the product was all but asking to be regulated like a drug. The Food and Drug Administration pushed back, but political appointees with a deregulatory bent in the Reagan-era Department of Health and Human Services sided with Kellogg, according to Professor Nestle. Health claims soon proliferated because, as the All-Bran example proved, they had an almost steroidal impact on sales. By 1989, “40 percent of all new food products — and nearly $4 billion in food advertising — contained a health message of one kind or another,” Professor Nestle says in her book, “Food Politics.” “Kellogg opened the Pandora’s box on health claims,” she says, leaning back in her chair. “The company systematically and deliberately undermined the F.D.A. And they did it very effectively.” In recent years, Kellogg health claims have prompted government investigations on two occasions. One was in 2009, when the company boasted that Frosted Mini-Wheats could improve the attentiveness of children; the other was a year later, when Rice Krispies were promoted as a way to “support your child’s immunity.” In both cases, the company dropped the claim and signed a settlement order agreeing to stick with the facts in the future. A Kellogg spokesman, Kris Charles, said in an e-mail: “Kellogg has a long history of responsibly providing information to help consumers make informed choices. Our agreement with the F.T.C. is that our statements will be truthful, not misleading, and supported by competent and reliable scientific evidence.” More recently, the company has been favoring a softer sell. “I would hate to have to ever say that there is any bad food out there,” Ms. Bath, the senior vice president, says after motioning to a box of Cheez-It mozzarella crackers, “because I don’t think there is any bad food. We don’t make bad food. We make great food, and everything is to be eaten in moderation, right?” As benign as this statement sounds, it’s part of a continuing, contentious debate about why so many Americans are now fat. Like other packaged-food makers, Kellogg is fond of the mantra “a calorie is a calorie,” which is to say that 50 calories from a pastry crisp and 50 calories from vegetables are the same thing. This line of argument enrages people like Robert H. Lustig, a professor of clinical pediatrics at the University of California, San Francisco, and a longtime critic of the food industry. He says that people who consume sugar are more likely to overeat because “there are signals to the brain that tell you when you’ve had enough; sugar blocks them.” Eating calories from sugar will therefore lead you to consume more calories. “Eighty percent of the 600,000 items in the supermarket are currently laced with sugar,” he continues. “And who did that? The food industry.” For Ms. Bath and for others at Kellogg, the key is not how you consume those calories but whether you burn them. Hate the torpor, in other words, not the Krave. “I’m a big proponent of calories in, calories out, managing your energy equation,” she says. “I think we have much more sedentary lifestyles than we probably did 30 or 40 years ago. That’s why it’s so important that we help kids. They need to play and get out and exercise.” WHEN you understand the work involved in creating a new snack, you grasp the appeal of buying an established brand. But because they are so valuable, very few are for sale. Proctor & Gamble was looking to unload Pringles because it is getting out of the food business and this was its last property. Mr. Bryant, the Kellogg chief executive, will correctly note that some consumers “don’t want a chemistry set” when they look at the ingredients panel on a package, but Pringles fans are surely not among them. Few products scream “conceived in a lab” with such pride. The canister looks like an information tube for a pneumatic conveyor, and the shape of the chip — a hyperbolic paraboloid to geometry buffs — could have been faxed from M.I.T. And Pringles hit the market in 1968, which made it seem like astronaut fare, a savory complement to Space Food Sticks, to be washed down with Tang. But Pringles never exited the Earth’s orbit, as far as we know, and it didn’t sell well on terra firma until P.& G. reconfigured the brand in 1980, according the company’s archivist, Greg McCoy. “We produced a country-style chip that was thicker and came in a blue denim can,” Mr. McCoy says. When that caught on, “we decided to take this country-style chip and call it the original style Pringles.” Currently, just 5 percent of Kellogg’s revenue is in the international snacks business. Pringles is supposed to change that, allowing the company to sell Nutri-Grain Bars and Rice Krispie Treats, for instance, in stores around the world that aren’t currently on the company’s map. Just as important is that expertise in snack marketing. “When you’re talking about snacks,” Mr. Bryant says, “it’s about someone who came into the store to buy something else and hit a display and thinks, ‘Hey, I’d love to have a can of Pringles.’ It’s much more intercepting the consumer in-store as opposed to getting on their shopping list. It’s in-store merchandising. It’s retail entertainment. Whereas cereal is much more about the 30-second feel-good ad.” Looking back on the last few lackluster years, Mr. Bryant cites a couple of supply-chain issues that resulted in major embarrassments. One occurred in June 2010, when 28 million cereal boxes were voluntarily recalled after reports of a “stale odor” wafting out of boxes of Apple Jacks, Corn Pops and other cereals. But Kellogg faces deeper problems than a few recalls, says Mr. Dickerson of Consumer Edge. To him, a big issue is that cereal is losing ground to other breakfast options, like frozen food, cereal bars and yogurt. The reason, he speculates, is that fewer Americans are inclined to sit down with a bowl, milk and a spoon when they start their mornings. The ultimate convenience food — which is how cereal was once billed — is just not convenient enough any more. And the Pringles deal? Mr. Dickerson notes that almost 70 percent of Pringles sales are in North America and Western Europe. Instead of gaining entry for Kellogg to a wide array of emerging markets, the deal gives Kellogg substantial overlap in markets. He also notes that sales of Pringles were $1.5 billion in 2008, according to a document filed last year with the Securities and Exchange Commission by Diamond Foods, which was scheduled to buy the brand before its deal fell apart. Pringles sales last year? Also $1.5 billion, which makes Mr. Dickerson wonder about the quality of the snack expertise that Kellogg is importing. “What Kellogg is saying is we’re buying a snacking mentality with a good brand with global exposure,” Mr. Dickerson says. “But what I’m seeing is a brand with high overlap with pre-existing markets that hasn’t grown sales over the past three years.” KELLOGG, by contrast, sees opportunity. Ms. Bath will not talk about new flavors the company will cook up for Pringles at the institute. It’s too early for that, given that the deal has yet to close. But assume that the company is thinking big. More than ever, Kellogg views its target demographic as everyone on the planet, and, as Ms. Bath points out, that group keeps growing. “We’re going to have seven billion to nine billion — whatever facts and figures you subscribe to — people in the world by 2050,” she says. “That’ll be a lot of mouths to feed. We have people that are undernourished and we have people that are overnourished. It’s the job of a food scientist to serve that whole spectrum.”
http://www.nytimes.com/2012/04/22/business/kellogg-takes-aim-at-snack-foods.html
