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Kellogg Co.'s search for a new roster agency may have been announced last week, but in a way it began two years ago.

That's when the breakfast-food giant quietly started seeking shops to pitch an undisclosed assignment for its Functional Foods Division. That business ended up at Y&R Advertising, New York. Now, Y&R and three others approached in the first review -- Ammirati Puris Lintas, BBDO Worldwide and Lowe & Partners/SMS, all New York -- have been invited into the current pitch.

Grey Advertising, New York, then on the roster of Kellogg competitor Post, wasn't in on the first pitch, nor was the Martin Agency, Richmond, Va. Both are in the new review.


Officially, Kellogg said it may add one more agency to the roster on its $400 million account that includes J. Walter Thompson USA, New York, and Leo Burnett USA and Burrell Communications Group, both Chicago.

"To improve our marketing effectiveness in the U.S., we must strategically align our marketing activities with our growth plan," said Carlos Gutierrez, the company's recently named president.

A Kellogg spokesman said the marketer will narrow the list to three agencies in late September before making its selection. Consultant Jones Lundin, Chicago, is handling the search.

Kellogg's market share has been in free fall for a decade. And, while Kellogg reported an 11% volume decline in cereal for the first half, volume since then is now trending upward -- propped up by heavy trade promotion, analysts said.

"The fall of Kellogg has reached epic proportions," said a cereal marketing executive who asked not to be identified. "It's getting into the Harvard Business School case study category."


Kellogg's share has dropped from about 45% in the 1970s to a current level of about 32% for the 52 weeks eneded Aug. 1, according to ACNielsen Corp.

Industry-watchers maintain Kellogg has lost its executional excellence in recent years and quite possibly its new-product knack, moving away from big new ideas toward line extensions such as Co-KELLOGG from Page 4

coa Frosted Flakes and Razzle Dazzle Rice Krispies.

Exacerbating Kellogg's woes is the cereal price rollback of April 1996, which has slashed category profitability and resulted in lower ad outlays. According to a General Mills executive, category marketing spending in the last five years has been cut by $1.5 billion.


Kellogg was sending out distress signals to its agencies as far back as June 1996, when Kellogg North America President Tom Knowlton -- an ex-Burnetter -- said: "If we are cutting our prices 19%, we can't really afford advertising that isn't working."

Kellogg-watchers maintain Burnett in particular has been in danger of losing some of the marketer's business for years. JWT has steadily been picking up larger pieces of Kellogg's business, beginning with Kellogg's Raisin Bran, Honey Crunch Corn Flakes and this year's $40 million launch of Smart Start.


But the crucial event was Burnett's ouster of Vice Chairman Jim Jenness, the top executive on Kellogg and the closest to Kellogg Chairman Arnold Langbo, in March 1997.

"Jenness made sure Thompson was a viable second agency so that the door was never opened for a third agency," said a former Burnett executive.

Burnett referred all calls on Kellogg to the marketer, which said it has "a positive relationship with Burnett and JWT."

An executive close to Kellogg's plans said the marketer won't move Burnett, with which it has a nearly 50-year relationship, off its roster. But it may well shuffle some cereal brands out of its hand as a "message."

There could also be conflict problems ahead for some of the six agencies pitching to join the roster. Three of the shops -- Martin, Lowe and Ammirati -- are Interpublic Group of Cos. agencies. Interpublic's McCann-Erickson Worldwide is the agency of record for a rival Nestle/General Mills international cereal venture, Cereal Partners Worldwide. And DDB Needham Worldwide, Chicago, a sibling of Omnicom Group's BBDO, works for General Mills.

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