Kellogg is taking the wrong turn in its strategy to deal with a perceived cereal declining market by splitting up the company.

Where you get your information from is important.

Perhaps more important is who you end up believing when you get the information.

Those statements are especially true when it comes to strategy. As they say, if you ignore history, you’re doomed to repeat its mistakes.

Who has influenced Kellogg to split itself into two companies?

Aaron Back wrote in the Wall Street Journal on September 15, 2023, “It’s the Breakfast of Champions No More: Cereal Is in Long-Term Decline.” Outside of getting the inference of “Breakfast of Champions” implied to Kellogg (it was a General Mills product where that tagline resided), Back wrote a good piece[1] about the strategies going on behind the scenes in the cereal industry. His premise was based on, among other things, his interviews with Barclays analyst Andrew Lazar, who posits that within a few years, unless Kellogg reverses course, no one will remember their iconic cereal brands.

The ”course reversal” he outlined was actually the company’s re-branding effort: Kellogg spinning off its North American cereal division into an entirely new company to be named WK Kellogg after its founder who invented modern cereal over a century ago (I know, I know, isn’t that what Kellogg has been calling itself all these years?).

Back reported that by doing the split, Kellogg’s top management believes they can then create a newer (not Kellogg) company to “focus on the more attractive snacking segment, with brands such as Pringles and Cheez-It.” That company will be Kellanova.

Steve Cahillane, Kellogg Company’s Chairman and Chief Executive Officer in the official press release (see first footnote below) said this: “After more than a year of comprehensive planning and execution, we are more confident than ever that the separation will produce two stronger companies and create substantial value for shareowners.”

Some people will argue that all they are doing is something financial; that they are not messing with the “iconic” brands.

Unfortunately, when you split your forces, you don’t think the same way as when you were one. The brands beneath the corporate company all suffer. Maybe not immediately, or visibly, but as they say: change one thing, you change everything.

Why Splitting Is Wrong

First, the perception of the cereal business plummeting is just that: a perception. It might not be a rocket ship upward, but it’s not going away anytime soon.[2] I understand that in advertising (my world), perception has and always will be reality. But in physics, reality will always trump perception. This is why in branding studies, it is always important to pay attention to both perception AND reality. And again, what and who you believe often guides your subsequent decisions.

Second, making a strategic decision to split a company up has profound implications that often lead to obsolescence for one of them, or both. For example, in 2002, there was a battle going on between Arthur Andersen and Andersen Consulting. The Consulting company split becoming today’s Accenture. Arthur Andersen collapsed by mid-2002 for its questionable accounting practices for energy company Enron and telecommunications company Worldcom (scandals that were factors in the enactment of the Sarbanes–Oxley Act of 2002). Since 2002, Accenture has been building their brand and today, they are one of the world’s leading marketing consulting companies in the world.

Military history is ripe with examples of what happens when you fight a war on two fronts and split your forces. My question is: is cereal any different than snacks except in the mind of the beholder?

Branding is a complex discussion, especially in today’s information-hurried-up world (i.e., witness the collapse of Bud Light). But “rebranding” is always dangerous even if you are only doing it for financial reasons or any other reason you think is important. The impact of those decisions is not really felt right away, but the aftershocks last a long time. Which is why thinking things through for your strategy is the most important thing you can do.

Besides, that kind of strategy (splitting a company) is playing around with an existing entity. Bud Light made a fatal marketing mistake to help destroy its brand.But Kellogg has brands that haven’t made such errors and are reacting to perceived market conditions and advice from someone that they are. That in itself will cause errors to be made.

Why Rebranding is a Strategy of Desperation

While there are plenty of reasons people can give to rebrand, I’ve found that if a brand is strong, there are no good reasons. Messing with a brand is just plain dangerous, with little to gain.

In Branding goes South (or How making silly decisions can hurt you), my first sentence was: “Branding consultants can be dangerous – especially the ones that don’t know what they are doing.” The essay was about my high school that had decided to “rebrand” itself. My piece cited A FAST COMPANY article that noted that, “When sales flag, they [brands] reboot–new image, new message, even new products.” The article goes on to prove that it’s not as easy as just hitting the reset button on the old brand.

My blog was a personal story because I went to the high school, but it actually incorporated a lot of what I learned as an advertising creative director. One of the most important lessons was: listening to the wrong consultants leads you quickly astray.

In the case of Kellogg, whoever is advising management to split their companies and rebrand themselves is selling snake oil in my humble opinion. Here’s some of my thinking.

“WK Kellogg Co has a 117-year legacy of innovation and the soul of a start-up, with an organization incredibly energized by our future,” remarked Gary Pilnick, who will serve as WK Kellogg Co’s Chairman and Chief Executive Officer following the separation. “As a standalone company, we will benefit immediately from the executional advantages of increased focus and end-to-end integration, while we modernize our supply chain and substantially improve our profit margins.  We’re on a profitable journey to take this great business to the next level.”

Take apart what was just said for a moment.

First, WK Kellogg Co doesn’t have the legacy: Kellogg does. What does “soul of a start-up” mean? Is it only the split that energizes the company for the future? Did it lack energy before?

Pilnick says they will immediately benefit from “increased focus” because they are now separated. They will have “end-to-end integration.” So before the split they weren’t focused? Or integrated? This is corporate-speak at its finest.

In Your Very Own Brand, I explored the complexity of “brand” in the case of a distributor who carries many “brands” asking, “Is the manufacturer’s brand what drives sales, or does the distributor, in fact, have a brand to build?”

The same holds true here: Kellogg has a lot of brands (the manufacturer) and has a certain perception, as do the brands it owns. Which do consumers trust/buy more? Back himself confused the “breakfast of champions” between the corporate brands.

Kellogg is also creating a new brand called Kellanova, which they say in their announcement will bring in a new era marked with, “a more growth-oriented portfolio, a renewed vision and strategy, and an energized organization grounded by a winning culture and our founder’s values.” Steve Cahillane, Kellogg Company’s Chairman and Chief Executive Officer, said that, and he will just happen to remain Chairman and Chief Executive Officer of Kellanova.

If you Google, “Pick a word, any word” you’ll see my 2012 blog in the top ten results. In that piece I talked about an insurance company CEO who wanted to change his company’s direction and “broaden our risk appetite.” The blog is about word choice, especially in the corporate or IT world. What you believe and who you get your information from means something.

In this case, we are told that Kellanova is projecting net sales of approximately $13.4-$13.6 billion. WK Kellogg Co is projecting net sales of approximately $2.7 billion. In other words, combined you had a $16-billion-dollar company which you are now splitting because you think, financially speaking, it will work better.

Seems to me you are draining the resources of one at the expense of the other.

Who comes up with such strategy?

Breaking it Down to Basics

Back noted in his WSJ piece that, “In recent weeks, executives from Kellogg and Post both separately said that they expect the cereal industry to return to its pre-pandemic trend of gradual decline, with sales ranging from flat to down by a low single-digit percentage a year.”

There’s no doubt strategy is tough. As Jim Mattis said in Call Sign Chaos, “Strategy is hard, unless you’re a dilettante. You must think until your head hurts.”

But thinking things through means factoring in ALL the possibilities, not just the competitive lineup.

For example, Back’s piece notes, “WK Kellogg will benefit from focusing exclusively on cereal, without a sales team, for example, that would rather be pushing products in the snack aisle.”

What does that mean? So now you will have two sales forces calling on the channel instead of one with the entire portfolio?[3]

Customers want what they want, when they want it. Who says cereal is not a snack, or a snack isn’t a cereal? Part of the branding and strategy discussion is the positioning discussion…where and how a product fits in a market.

So when Back says Kellogg’s plan to ditch its cereal business highlights the depressed outlook for what was once America’s morning staple, is it really depressed? What ARE people eating these days? Should we have a fire sale on Tony the Tiger? And what happens to Tony if his cereal disappears?[4]

The Journey of Cereal

Back explains the journey of cereal, from the ‘80s through the pandemic and today. But documenting the journey isn’t really analyzing the journey. He notes that Kellogg had some difficulties (i.e., a fire at a cereal factory and a strike by cereal-producing workers). Yet, these are just business circumstances…things that allow a competitor to gain temporary share when a company can’t keep up with the demand (which is what happened in this case with General Mills).

But Kellogg is over a hundred years old! How did they get so old? What are they doing with all that experience from the past? Where is the passion?

My guess is experience is being ignored, and as I said, someone in power is listening to the wrong people.

What ARE the perceptions of people about cereal? Where’s the research to show those perceptions? And what is the reality? Do they really care about cereal? Are they passionate about it (take away my Frosted Flakes and I’ll smack you!)?

The fact is, you have to give people what they want, or create something they want. This is why differentiation is the key to branding; people have to see a difference in products to first understand what it is they are buying, and if they need it or want it.

And you have to pound the message into the brains of people!

Back himself noted this when he discussed General Mills pushing a heart-health message for the Cheerios family of brands. He wrote, “Every box of Cheerios comes adorned with a prominent image of a heart. Television ads amplify the heart-healthy message, even for sweetened varieties like Honey Nut Cheerios. At times the company has even sold heart-shaped Cheerios.” He also said that health-oriented cereals need constant investment “to keep up with changing perceptions of just what is good for you.”

Has anyone done a study on whether adults eat more cereal than children? Should they?

I remember as a kid, my cereals came in a box that I could split open, pour the milk into the box directly, eat the cereal and throw the whole thing out when finished. It was “cool,” — no dishes to wash. But that was a simpler time people will say. What’s wrong with simple?

Or perhaps should we think about “bundling” cereal with snacks? Or position cereal as “snacks.” What is a “snack” anyway?

In other words, I’m not saying that these considerations weren’t thought of; but when you read Back’s story and the information around the split, well, there’s just not much there to imply that it was thought through. As Back himself said, “Make it somebody else’s problem.” Except that the “somebody” is still Kellogg itself, regardless of what you call the “new” companies.

Conclusions

Back concludes: “And one problem with a declining market is that it sets off a zero-sum arms race between players: Constant market-share gains are needed just to keep sales steady.”

These are mature markets, and they don’t move dramatically. A 1% move in a year is often considered significant.

The problem is complex – all marketing problems are, especially in this age of A.I.

I asked the Chat GPT the question about how to become the leading cereal brand and it said: “Ultimately, the decision to start a new brand or develop the existing one should be based on a comprehensive analysis of your brand’s current position, resources, and the competitive landscape. Both approaches can be successful if executed strategically and with a deep understanding of the market and consumer behavior.”

Pretty bland advice, but probably true.

My personal opinion is Kellogg is making a huge mistake splitting its forces. Their brands will suffer irreparable harm. And the only way to find out if it’s just my perception or reality is to check back in five years. Hopefully, I’ll see you then, and maybe I’ll see Tony, too.

Ah, A.I. will be the death of us all! Let me hear your thoughts!

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[1] There are also plenty of stories earlier this year about Kellogg’s strategy (you know how leaks are). The official release from Kellogg itself is here.

[2] On LinkedIn you can find a recent report from Precision Reports Insights citing: “Due to the COVID-19 pandemic and Russia-Ukraine War Influence, the global market for Breakfast Cereal estimated at USD 43340 million in the year 2022, is projected to reach a revised size of USD 50120 million by 2028, growing at a CAGR of 2.5Percent during the forecast period 2022-2028.” It’s always a question of who do you believe.

[3] During the depression of 2009, we started a distribution company of Italian faucets. Calling on one major retailer, our sales person flipped over the faucets because we were forbidden to sell to the company’s existing customers (the retailer was one of them). The retailer asked the salesman to sell him those faucets, but when told we couldn’t…that he could buy direct from the company we represented because the retailer was an existing customer, the retailer said, “They won’t sell them to me.” Apparently, the manufacturer was dividing up territories based on some erroneous assumptions to have some retailers have “exclusive” distribution. We sold him the faucets and got in a lot of trouble.

[4] Not to brag, but I could create a campaign to double the sales of Frosted Flakes by focusing on Tony. And when you split the company, you simply won’t have the resources to do that – or anything else of significance, which leads me to believe that they are simply trying to kill the brands ever so slowly.