KELLOGG SHIFTS TWO JWT BRANDS TO BURNETT IN RIFT: ACCOUNT TEAM CHANGES PRECEDE ASSIGNMENT SWITCH

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Kellogg Co., in a wrist slap to J. Walter Thompson USA, has shifted two of its brands from the agency.

According to an executive familiar with the switch, Kellogg moved Honey Crunch Corn Flakes and a new-product assignment to Leo Burnett USA, Chicago. That came after Kellogg demanded an entirely new JWT account team on its business, said two executives with knowledge of the situation.

The cause of the rift couldn't be determined, but it's believed the New York agency and its client may have butted heads over the direction of the new product.

Even so, JWT remains a core Kellogg shop and doesn't appear to be in danger of losing its other business from the cereal marketer. Those assignments include the Crispix, Muselix and Kellogg's Raisin Bran cereal brands.

JWT is, in fact, handling the national launch of Country Inns, Kellogg's newest cereal. That ad campaign starts in March.

The shop also is handling a new campaign for Smart Start cereal that breaks this week (see Page 44).

JWT executives referred calls to Kellogg, which confirmed it has shifted some brands among shops but refused to provide further details. Calls to numerous executives at Leo Burnett Co. went unreturned.

But executives close to JWT said the relationship between Kellogg and the agency had grown rocky enough that the agency brought in John Clinton, chairman of JWT Canada, to pinch-hit on the account.

Fred Jaques, Kellogg's exec VP-USA, ready-to-eat-cereal, was formerly an operations manager for the company in Canada.

It was Mr. Jaques who presided over Kellogg's top-to-bottom review of its $400 million North American business that ended only three months ago. At that time, it was speculated that Burnett would be the big loser. Instead, neither JWT nor Burnett lost any business, and the Martin Agency, Richmond, Va., was added as a third general-market agency.

TAKING DRASTIC STEPS

Kellogg is under pressure. Battered by continuing volume and share declines in cereal, the marketer has taken drastic steps to remedy the situation.

In June 1997, Kellogg named Carlos Gutierrez president-chief operating officer, and just seven months later named him to succeed Chairman-CEO Arnold Langbo effective April 23, a year earlier than expected.

The company also shuffled the deck with a new president for Kellogg Asia Pacific, Jacobus Groot, and just last week appointed John Cook, the former head of McKinsey & Co.'s Chicago package-goods practice, as president, Kellogg North America.

The management shifts occurred against the backdrop of a major corporate restructuring that eliminated more than 500 positions, including high-level marketing posts.

EARNINGS, PROFITS STILL DOWN

Despite the changes, Kellogg's earnings posted late last week showed a 41% drop in operating profit to $93.1 million in the fourth quarter and a 1.1% decline in sales to $1.6 billion.

DLJ Securities analyst Bill Leach said Kellogg's cereal brands showed a 6% volume decrease domestically for the year and a 4% drop for the fourth quarter.

"They might be slowing the rate of decline, but they're not moving forward," he said. "[Kellogg] has lost 40% of its value. Gutierrez will have to step up to the plate."

Moreover, Mr. Leach said, Kellogg's promise to financial analysts that it will grow sales 10% this year is attainable only "if the pope goes from St. Louis to

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