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Kellogg Co. has put its struggling Lender's unit on the block, just three years after acquiring it for $445 million.

Goldman Sachs is said to be handling the sale of the bagel business that founder Murray Lender made into a household name in the 1970s. Frozen-food executives, however, predict Kellogg will get a fire-sale price for Lender's, which the company valued at $427 million in a May Securities & Exchange Commission filing.


Kellogg's decision to unload Lender's underscores the difficulty of building the $170 million frozen bagel category-particularly since it comes at a time when the marketer's strategy is to build its breakfast business beyond cereals.

"It's been a flop since they bought it," said Patrick Schumann, analyst with Edward Jones & Co. "The bagel segment is a commodity business."

Despite some new products, such as Lender's Big 'N Crusty and Bake at Home bagels, the brand's sales sank for the 52 weeks ended March 28, according to Information Resources Inc. Lender's base brand posted sales of $83 million, down 14%, while Big 'N Crusty dropped 5% to $44.9 million during that time. The category as a whole fell 11%.

Industry observers said frozen bagels have been hurt by the wide availability of bagel shops and the more convenient in-store option of a fresh bagel from the supermarket bakery. It's also hard to sustain a high profit margin on frozen bagels, sometimes sold on special for 99 cents a bag.


That's a far cry from the 1970s when Mr. Lender brought the bagel-then considered an ethnic specialty food in middle America-mainstream. It was frozen to ship the product across the country and backed by a lavish ad campaign featuring the personable founder.

The business eventually drew the attention of Kraft Foods, which bought Lender's in 1984 and sold it to Kellogg in 1996.

"Murray Lender was a great promoter in the industry. When they lost him, they lost that magic appeal," said Scott Devon, president of Cole's Quality Foods, which markets frozen baked goods, including bagels. "Under him, it was run as a family business, with a big food broker network. It was a different environment."

Lender's advertising has been an on-and-off-again proposition at Kellogg. In 1997, it spent $13.3 million in measured media on Lender's, which dipped to $9 million in 1998. In the first quarter of 1999, only $318,000 in measured media went toward Lender's, all to its Bake at Home line.


Kellogg "pushed hard to the consumer and too soft on the trade program," said an executive close to the company. "The consumer copy didn't move the needle dramatically and the trade didn't push the product hard." Under a new owner, "a tourniquet could be applied," he said.

Kellogg isn't in a position to fix Lender's because "their cereal business isn't flourishing, they've had major management changes and Eggo is being attacked by private label. They've got bigger fish to fry," he said.

J. Walter Thompson USA, New York, is Lender's agency, but the newcomer shop on Kellogg's roster, Martin Agency, Richmond, Va., was given an unidentified Lender's project earlier this year.

In a May 12 SEC filing, Kellogg said it was "reviewing strategies related to the Lender's bagel business given its performance since acquisition," which "includes possible divestiture."

Among those cited by industry watchers as possible buyers of Lenders: ConAgra, Campbell Soup Co.'s Pepperidge Farm unit, Pillsbury Co. and distressed-brands

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