A Century of Innovation
Inside the box at Kellogg's: How the cereal giant keeps its product pipeline fresh
Not so long ago, Kellogg seemed to be floundering. The stock--and seemingly company fortunes--were down in the late 1990s as Kellogg focused more on cutting prices than on creating new products. But innovation moved back to the forefront "when Carlos Gutierrez took the helm," says Tim O'Day, an adjunct marketing professor at the University of Michigan's Ross School of Business and a former Leo Burnett ad executive who worked the Kellogg account. Moving over from Kellogg Asia-Pacific in 1999, Gutierrez, who is now U.S. secretary of commerce, instituted a "volume to value" strategy. He shifted resources, such as increased R&D spending, to higher-margin products. The company also made big purchases: organic cereal company Kashi and snack giant Keebler.
Jenness, a former Kellogg-focused Burnett exec who took over from Gutierrez in February 2005, knows that when people hear the word innovation, they're likely to think of Google or Apple Computer before they think of Kellogg. Probably way, way before. Can you really compare search-engine technology or the iPod with Special K Red Berries? "You take some freeze-dried fruit and throw it in. How big of a deal can that be?" Jenness asks. "But it is a big deal because putting any kind of fruit with flakes is not easy because you have problems with moisture absorption and moisture transfer." Turns out that using the heartier, crunchier flakes found in the European version of Special K solved the soggy-flake problem. In charge of solving all manner of food science conundrums at Kellogg is Margaret Bath, vice president of research, quality, and technology. It's her job to balance the expenditure of resources for product innovation with the net new sales the product could generate. Special K Red Berries required a modest amount of innovation, and Bath thought it would be a typical "brand sustainer," helping keep Special K fresh, "like adding a different color loop to Froot Loops." Instead, it has been a high-growth product, racking up $84 million in non-Wal-Mart sales in the past year, because many consumers choosing Red Berries liked the weight-control--"shape management" in Kellogg-speak--aspect of regular Special K but found the cereal too bland.
A high-innovation, high-sales product would be something like Nutri-Grain bars (introduced in 1991). "I would like to have 40 or 50 percent [of products] in the breakthrough category, though I know that's not realistic," she says. Yet little tweaks, like different versions of All-Bran or Special K, add up. "Big $100 million hits are great, but you can also win with lots of singles and doubles," says Tim Calkins, associate professor of marketing at Northwestern University's Kellogg School of Management. "And Kellogg doesn't need to take big risks to get them." Of course, Bath wants to avoid high-innovation, low-sales products like Kellogg's new Drink 'n Crunch, a cup that allows consumers to suck down their cereal and milk while on the move. "It's just not doing that well," Bath says. "I don't think we have it quite right. Getting the right proportion of cereal with the right amount of milk without it being a choking hazard is difficult. And everyone does it differently at home." But, she quickly adds, there's no innovation without risk of failure. "I only ask my team to fail fast," she says. "It's better to fail in the consumer research phase than in the international launch phase."
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