'Small-ball' marketing comes up big for Kellogg

Baby-steps philosophy learned from Keebler pays off in sales gains

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Kellogg's "small-ball marketing" tactics have turned its acquisition of Keebler Co. into a rare industry success story.

It's taken five years, but the company's $4.4 billion purchase of Keebler looks like better value every day-and that's a real rarity among the big bang of industry mergers that kicked off the decade. "Maybe half of them worked," said Prudential Securities analyst John McMillin of some $65 billion in food-company consolidation that resulted in the marriages of Kraft and Nabisco; General Mills and Pillsbury; Unilever and Bestfoods and PepsiCo and Quaker Oats.

But the smallest of them is proving an uncommonly good match. Keebler gave the cereal giant a crucial direct-store delivery system for its snack portfolio, while Kellogg taught promotion-focused Keebler to put more toward advertising and brand-building. Big-thinking Kellogg learned a small-steps philosophy of new-product introductions from Keebler that's helping to reshape the parent company's existing brands and culture overall. And the acquired brands themselves are beginning to boost the Battle Creek bottom line.

"What [Kellogg] is doing extremely successfully is, to use a White Sox analogy, 'small ball,' that is, focusing on lots of high probability, low-risk hits. And it's working," said Credit Suisse analyst Dave Nelson.

Kellogg has kept it simple by eschewing previous management's attempts to do "really big things," Mr. Nelson said, with a team under Kellogg CEO Jim Jenness, including President-U.S. Snacks Brad Davidson and the snack unit's Senior VP-Marketing Michael Allen. Now, "we are starting to see the results from the strategies we put in place in 2005," said Mr. Allen.

Bearing fruit

Indeed, the hollow tree is beginning to bear the fruit of Kellogg's labor. Cracker sales for the 52 weeks ended March 19 grew 1.3% to $858 million in food, drug and mass outlets excluding Wal-Mart, according to Information Resources Inc. data, which show that Kraft Foods' leading Nabisco brand's fell 3.7% to $1.4 million during the same period. AC Nielsen data provided show the long-languishing cookie portfolio finally recovering, with dollar sales up 3.4% over the last four weeks while Nabisco's cookie sales remain flat at $1.3 billion.

Kellogg's snack sales are also performing well, despite increased competition from PepsiCo's Frito-Lay and Hershey Co. Overall, the division-which includes cookies, crackers and wholesome snacks-reported an average 7% growth per quarter last year.

The merger has allowed each company to contribute to success. Mr. McMillan said Keebler has influenced Kellogg to be more aggressive while Mr. Allen said Kellogg prodded Keebler into increased ad spending on Keebler brands that had primarily relied on in-store support. Media spending in 2005 on Keebler tripled to $34 million, according to TNS Media Intelligence.

"We've not done as well as we could managing the levers across all media," Mr. Allen said. Kellogg in the last year has been scrutinizing where it puts its marketing dollars on the snack brands, looking at everything from TV to in-store ads, to "understand how consumers relate to the brands and where they expect us to be."
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