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A Return to Basics at Kellogg

July 15, 2004 | Jill Andresky Fraser | Strategy

Food giant Kellogg Co. struggled throughout the 1990s, as both the stature of its legendary brands and its profit margins declined. A noted business journalist describes how the appointment of Carlos Gutierrez as CEO and the loss of market leadership to General Mills Inc. in 1999 forced Kellogg to establish a more meaningful, sustainable profit-oriented focus in recent years and outlines Kellogg's ambitious program of change.

New business models emphasized value (rather than volume) growth and encouraged stronger cash flow. Realism was restored to financial forecasts, brand unit operations more closely integrated and employee compensation tied directly to business unit performance. New product launch documents stopped evaluating margins by volume alone, and innovation specialists were encouraged to add value-added touches to existing brands.

As a result of this change in strategy, says the author, Kellogg's fortunes have improved dramatically. New product launches based on existing products have done well. And the company is better able to access its healthy food roots by playing up the health benefits of key products. Most importantly, says the author, a return to strong profitable growth and increasing market confidence in the company serves as further evidence of the strategy's success.

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