Standing still, Kellogg gets hit with a lawsuit

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Kellogg Co. might as well have painted a bull's-eye on itself.

The planned $2 billion lawsuit announced last week against the cereal and snack giant and Viacom for marketing junk food to young children could just as easily have been slapped on any food-industry player.

But unlike Kraft Foods, PepsiCo and other would-be defendants-which shout out almost daily about proactive changes to their portfolios and ad practices-Kellogg has seemingly ignored warning signs that the growing chatter over childhood obesity would lead down a path to litigation. Kellogg has stood by its existing products and strategies and made few changes to adapt to the newly nutrition-minded world.

The irony is that Kellogg was founded on principles of health and wellness, and in the 1970s broke ground by pressing the Food and Drug Administration to allow marketers to use health claims. Today, it's drawing the ire of the Center for Science in the Public Interest and other special-interest groups.

"CSPI is like a shark in the water," said John Stanon, professor of food marketing at St. Joseph's University, "and Kellogg has been a little slow to realize that they have to take a more aggressive PR stance to explain the things that they're doing."

While Kellogg's master brand is still viewed by consumers as healthful, Landor Managing Director Allen Adamson said it still has many products that are less nutritious. So it needs to get ahead of the curve in talking about health initiatives, he said.

Kellogg's first comments upon hearing about the lawsuit, intended to be filed in Massachusetts within 30 days by CSPI, the Campaign for Commercial-Free Childhood and two parents, were muted. A spokeswoman said only that the company is "proud of its products and the contributions they make to a healthy diet" and that "we have a long-standing commitment to marketing in a responsible manner." As an afterthought, she added, "We will also continue to educate and inform consumers of all ages about the importance of both balanced nutrition and physical activity in maintaining a healthy lifestyle."

Late to the party

Tony the Tiger has since 2004 been trotted out as a mascot for physical activity, entreating kids to "Eat right, work hard, earn your stripes" in ads and Internet promotions, but otherwise Kellogg has been extremely late to the health party. The company trailed PepsiCo by nearly three years in announcing plans to reduce or eliminate trans fats in its Keebler cookies and crackers. It formed a health and wellness division only two months ago, which it has yet to announce publicly and which will focus more on the tastes of aging baby boomers than kids.

The minor nods Kellogg has made towards more-healthful kids' products-reduced-sugar versions of Frosted Flakes and Froot Loops and a whole-grain toddler cereal-have flopped at retail.

The conflict between healthful products and profitable ones is an issue Kellogg has grappled with since its beginning. While wellness guru Dr. John Harvey Kellogg first served cornflakes at the Battle Creek Sanitarium in 1897 in an effort to cure a variety of ailments, his brother Will Keith Kellogg added sugar to the recipe when he launched it more broadly as a mainstream breakfast food in 1906. (The seemingly prescient Dr. Kellogg disapproved of the move enough to sue his brother in an attempt to prevent the sugary cereal from bearing his name.)

It is only very recently that Kellogg has made a more concerted effort to reach out to kids, more typically the target of General Mills and Kraft's Post cereals. Kellogg in the late 1990s began to move beyond its more nutrition-oriented offerings and toward fun foods to gain back its leading position in cereal. In 2002, Kellogg announced a large-scale agreement with Disney for kids' products (the line never really caught on). Having regained the lead by 2003, it launched a flurry of new products backed by loud marketing campaigns, among them Tony's Cinnamon Krunchers, Pop-Tart Yogurt Blasts and Eggo Froot Loops Waffles.

Clearly, Kellogg has gotten a lot of bang for its bucks in kids' marketing. While General Mills spends twice as much to push its products on Nickelodeon, CSPI picked Kellogg as the target of its suit, noting its "alluring product packaging, toy giveaways, contests, collectibles, kid-oriented Web sites, magazine ads and branded toys and clothes," including a Froot Loops pillow that particularly irked CSPI Executive Director Michael Jacobson.

From a bottom-line perspective, Kellogg may have had the right formula, though. Lehman Brothers analyst Andrew Lazar said that "Kellogg has done a much better job driving high-quality top- and bottom-line growth than Kraft, certainly, and than many other names in the food industry."

Still, when it comes to kids most observers think it's time for Kellogg to try a new approach. Although there may not be fat profits in nutrition, Bill Keegan, director of Edelman's crisis-management practice, believes "high-profile litigation will go a long way toward" encouraging Kellogg to adopt a healthful positioning. After all, he said, "Public sentiment is very important to them."

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