Running Head: [ Morgan - Capitalizing on Healthier Breakfasts ]

Capitalizing on Kellogg’s Effort to Make Breakfast Healthier
Andréica L. Morgan
Post University
BUS520.90: Competitive Intelligence
William Robinson
March 4, 2011

Summary of Analysis
Kellogg Company, the leading producer of breakfast cereals, is focusing its sights on creating healthier versions of the products that have found their homes in the hearts of the American consumer. By using current interactive marketing technology, focusing on how to integrate more fruits and grains into their products, and expanding into new markets, they provide a high bar for our little company to shoot for. Our way to compete against their extensive advertising budget, well-known products, and extensive distribution channels will lie in focusing regionally in supplies, production, and marketplace. This will allow us to capitalize on missed opportunities for using byproducts of current manufacturing processes as part of a two-fold aim – first to get the most out of our resources and second to be greener.

COMPETITOR ANALYSIS COMPONENTS
COMPETITOR ANALYSIS COMPONENTS

Current Capabilities
Strengths (Kellogg Company, 2010)
Our people Committed to excellence, passionate about achieving our goals, eagerly embracing new challenges
Our strategy Focused and consistent, delivers sustainable and dependable performance
Our business model Resilient and proven, relevant in all economies, drives long-term health of the company
Our brands Recognized and loved around the world, in strong categories, responsive to advertising and brand building

Weaknesses
Lack of innovation in product delivery methods – sticking to bowl and spoon or single hand products
Process matrix so large innovation/change will take longer to implement than smaller companies

Current Capabilities
Strengths (Kellogg Company, 2010)
Our people Committed to excellence, passionate about achieving our goals, eagerly embracing new challenges
Our strategy Focused and consistent, delivers sustainable and dependable performance
Our business model Resilient and proven, relevant in all economies, drives long-term health of the company
Our brands Recognized and loved around the world, in strong categories, responsive to advertising and brand building

Weaknesses
Lack of innovation in product delivery methods – sticking to bowl and spoon or single hand products
Process matrix so large innovation/change will take longer to implement than smaller companies

Management Assumptions
“We anticipate that the operating environment will remain challenging for Kellogg, our retailers and our consumers.”
Management Assumptions
“We anticipate that the operating environment will remain challenging for Kellogg, our retailers and our consumers.”
Drivers
Future Goals/Philosophies/Strategies
Kellogg's goal from 2009 Annual Report is “sustainable and dependable performance now and well into the future. “
Kellogg plans to strengthen their brands to keep them relevant, resonant, and powerful with consumers
Drivers
Future Goals/Philosophies/Strategies
Kellogg's goal from 2009 Annual Report is “sustainable and dependable performance now and well into the future. “
Kellogg plans to strengthen their brands to keep them relevant, resonant, and powerful with consumers
Can Do/Is Doing
Current Strategies
Kellogg invested in building their brands in core categories, spending effectively on brand-building advertising and marketing, as well as innovating and renovating their products to meet the consumers’ changing needs and wants

Can Do/Is Doing
Current Strategies
Kellogg invested in building their brands in core categories, spending effectively on brand-building advertising and marketing, as well as innovating and renovating their products to meet the consumers’ changing needs and wants

Competitor Response
Kellogg seems to have focused on increased advertising emphasizing their new focus on creating healthier foods.

Kellogg believes that the current way of eating breakfast is here to stay and they will continue to be king by making only minor adjustments to current offerings

As a market leader, Kellogg will fight any market initiative that they did not spearhead
Competitor Response
Kellogg seems to have focused on increased advertising emphasizing their new focus on creating healthier foods.

Kellogg believes that the current way of eating breakfast is here to stay and they will continue to be king by making only minor adjustments to current offerings

As a market leader, Kellogg will fight any market initiative that they did not spearhead

Discussion
Background information on Kellogg’s
With 2009 sales of $12.575 billion, Kellogg is the world’s top producer of cereal and one of the largest manufacturers of convenience foods (Kellogg Company, 2010, p. 2). Serving customers in over 180 countries, Kellogg's creates some of the world's most familiar brands including Special K, Pop-Tarts, Eggo, Nutri-Grain, and Rice Krispies. In FY 2009, the company generated 67.6% percent of its revenues in North America, 18.7% in Europe, 7.6% in Latin America, and the remainder in the Asia Pacific region (Kellogg Company, 2010, p. 26).
Currently, Kellogg grapples with the most difficult working environment it has faced in many years. Key challenges confronting Kellogg are steadily increasing prices for several of the raw agricultural base materials for its cereal and snack foods, including corn and wheat. Increases in energy prices aggravate high input prices by swelling the cost of shipment and delivery to Kellogg's distributors. Finally, Kellogg faces intense competition from General Mills and Kraft in its core U.S. market where a slowdown in consumer spending, because of America's ongoing economic hardships, threatens to hurt sales (Panteva, 2011, p. 15).
Over the past two years, Kellogg’s has faced two major product recalls, which have greatly affected sales numbers. In January 2009, Kellogg recalled $31 million (US) of crackers and other peanut related products in response to a strain of salmonella in a supplier’s plant (Glass, Brumback , Stobbe, Aguilar, & Sheeran, 2009; Kellogg Company, 2010, p. 65). In June 2010, Kellogg voluntarily recalled 28 million boxes of cereal (Apple Jacks, Corn Pops, Froot Loops, and Honey Smacks) that may have an “uncharacteristic off-flavor and smell coming from the liner in the package (Kellogg Company, 2010)”. Even though the company and outside health experts confirm the substance was not harmful, the above average levels of a substance in the package lining prompted the recall “because of possible temporary symptoms, including nausea and diarrhea (Kellogg Company, 2010)”.
Products and services offered by Kellogg's
As of January 2011, Kellogg holds 34.2% of the ready-to-eat US cereal production industry, making it the number one player in the $ $13.3 billion market. The company markets many of the United States' most recognizable cereal brands, including Apple Jacks, Cocoa Krispies, Kellogg’s Corn Flakes, Rice Krispies, Smart Start and Special K. Kellogg's cookie and snack category includes many familiar brands. Kellogg produces Cheez-it, All-Bran, wholesome snacks such as Nutri-Grain and Special K bars as well as Pop-Tarts toaster pastries and the Keebler line of cookies and snacks, acquired in 2000. Kellogg's frozen and specialty channels consist primarily of frozen breakfast and dinner products. The company's most recognized brands in this segment are the ever-present Eggo Waffles, essential to Kellogg's leading market share in the frozen breakfast category, and the Gardenburger™ and Morningstar Farms frozen entrées.
Kellogg's future and how it affects us
Kellogg currently leads the market in the cereal and breakfast food industry, with a focus on expansion into the organic and healthy food areas. With acquisitions of Gardenburger™, Morningstar Farms, and the Kashi brands, they have gained entry into a new market for their standard as well as nontraditional products. They have used the profitability of these new acquisitions to support further inroads into the stomachs of consumers.
What Kellogg’s Can Do/Is Doing
The focus on obesity and health & wellness has become a major factor in the food industry. Kellogg has capitalized on this trend with new adult-oriented cereals, directed toward the middle aged and the aging baby boomer generation. Three particularly successful health focused products include the Smart Start line that lowers blood pressure and cholesterol, All-Bran that aids digestion, and the Special K that aids with weight reduction and maintenance weight watching. Since Special K's introduction, it has been one of the fastest growing brands in the world, showing the impact of the healthy consumer.
Kellogg has also become a player in the organic and vegetarian/vegan food business with its purchase of Worthington Foods (producer of Morningstar Farms) in 1999, the very successful Kashi brand of organic foods, purchased in 2000, as well as the Gardenburger™ brands purchased in 2007. Kellogg has also benefited from portion-control of its snack products, which puts a healthy spin on some of its less healthy products offerings.
Kellogg's current market strategy
Kellogg has employed the usage of several innovative marketing strategies and technologies in determining how to profit in the new marketplace of the 21st century. One such innovation is “The Emerging Marketplace” by ThinkVine Software. According to ThinkVine, using this software “provides a simulated environment to allow marketers to gauge the impact of different marketing plans on different groups of consumers….Its program creates simulated digital consumers: little avatars mathematically derived to behave like real consumers” (Brownfield, 2010). Demand is driven largely by population shifts, particularly trends in society and age, the advent of working women, race and ethnicity differences, household sizes, and levels of disposable income. Use of scenario planning internally allows the company to make educated guesses as to the results of their spending based on shopping habits of their customers.
Kellogg’s Current Capabilities
With the acquisition of Keebler in 2000, Kellogg obtained their direct-store/door-delivery system (DSD) which lowers delivery costs and allows the company to expand the budget to target product innovations and obtain prime shelf space. Product innovation and marketing also drive growth in Kellogg's snack category. By finding ways to make their products healthier by adding fiber, reducing sodium or other additives, Kellogg has broached conventional wisdom that food that tastes good is not good for you.
Strategic Responses to Kellogg's actions
The profitability of individual companies depends on a good product mix and efficient operations. Large distributors like Kellogg have the advantage of bulk purchasing and economies of scale in distribution. As a smaller company, we can compete effectively by specializing in certain products or focusing on a geographical area. This examination of Kellogg’s diversity in product offerings allows us to find a niche market where we can excel.
Our goal will be to provide our organic, vegetarian, and eco-friendly private label alternatives to many of the popular cereal types produced by Kellogg and their competitors. We will use innovative compostable & reusable packaging and utensils based on the continuing principles of being Ecofriendly plus increasing the quantity of available quality local supplies of produce. We can also use byproducts of current manufacturing processes as part of a two-fold aim – first to be getting the most out of our resources and second to be greener. By doing this we will not only cut our carbon footprint but support community farms, further cementing our marketing to both the cost-conscious and the eco-conscious consumer by cutting their cost from producer to plate. Additionally, since the marketing software that Kellogg uses is currently available to the public, we can examine purchasing that software and using it to test our entries into the marketplace against what is currently available.

Conclusions and Recommendations
In-depth research into both our current products and our competitors products have led us into a direction that we feel will help us capitalize on this trend being led by Kellogg. By focusing on producing private label, ecofriendly, organic, and vegetarian alternatives, we will be able to gain customers from both the cost-conscious and ecofriendly consumer base.
Our way to compete against Kellogg’s sizeable advertising budget, well-known products, and vast distribution channels will lie in focusing regionally in supplies, production, and marketplace. Using the same technology, but focusing on the ecofriendly options available to us for production, distribution, and advertising allows for capitalization on missed opportunities that Kellogg cannot immediately implement due to their immense size and chain of processes.

References
Brownfield, A. (2010, Februrary 8). Business Courier: ThinkVine helps firms plot ‘what if’ strategies. Retrieved January 31, 2011, from American Business Journals: http://www.bizjournals.com/cincinnati/stories/2010/02/08/story13.html
Gatto, R. (2011, February 1). Wake-up call for cereals: some breakfast cereals marketed as "healthy" are anything but. CHOICE serves up your most nutritious options.(FOOD: BREAKFAST CEREALS). Retrieved March 01, 2011, from Accessmylibrary: http://www.accessmylibrary.com/article-1G1-249683382/wake-up-call-cereals.html
Glass, D., Brumback , K., Stobbe, M., Aguilar, D., & Sheeran, T. J. (2009, January 15). Peanut butter cracker recall: Kellogg recalls crackers for fear of salmonella. Retrieved February 15, 2011, from The Huffington Post: http://www.huffingtonpost.com/2009/01/15/peanut-butter-cracker-rec_n_158178.html
Kellogg Company. (2010, June 25). Kellogg Company Voluntarily Recalls Select Packages of Kellogg's® Corn Pops®, Kellogg's® Honey Smacks®, Kellogg's® Froot Loops® and Kellogg's® Apple Jacks®. Retrieved February 20, 2011, from Kellogg News Releases: http://kelloggs.mediaroom.com/index.php?s=43&item=298
Kellogg Company. (2010, January 2). Kellogg Company: Full annual report and 10K. Retrieved January 15, 2011, from Kellogg 2009 Annual Report: http://files.shareholder.com/downloads/K/1136062524x0x357380/732ed57c-9e85-4269-a18b-ce285df7f655/Kellogg_Company_Full_AR_and_10K.pdf
Panteva, N. (2011). IBISWorld Industry Report 31123: Cereal production in the US. IBISWorld.