Cereal Wars - Trix of the Trade | 5


<music> it's a Monday morning in the summer of Nineteen eighty-three and in Battle Creek Michigan Kellogg's top executives are sitting around a long conference table eating rice krispies. They're doing a taste test comparing. The quality of Rice krispies produced by the company's various factories since William Lamothe became C._E._o.. Four years ago these taste test breakfasts have become a weekly weekly ritual but today he is also here to give these exacts a reality check. General Mills has been grabbing market share with a serial based on the video game sensation pacman now the competition is preparing to flood the supermarkets circuits with cereals based on Popular Movies Toys T._v. shows and video games up against E.. Donkey Kong and Mr T. Tony. The Tiger seems like yesterday's hero look. There's no denying the appeal these tie in cereals so I wanted to make a cereal based on a popular character to the executives exchange worried looks Kellogg's is a conservative company. It prefers to stick with what it knows and it's never put other people's characters on cereal boxes before but in this case the moths willing to break with tradition within limits. We need a character with a wholesome image. Not I want some trendy video game. It's got to be a name with staying power that will I'll still be in demand five years from now. One of the younger executives offers a suggestion. My Kids Love that New Star Wars movie returned the Djeddai. How about a character from that? You Know Maybe C. Three P._O.. Lamothe the most stares blankly at his colleague like he's speaking a foreign language C. Three Watt C. Three P._o.. He's a robot in the star wars movies. My kids think he's hilarious. He's real family friendly. He never hurts anyone in spring nineteen eighty-four Kellogg's C. Three P._o.. Cereal arrives in a blaze of publicity now. It's here the excitement the adventure of use force at breakfast. We'll call them news C. E.. O.'S CEREAL KELLOGG'S WE but Kellogg's is late to the licensing party by the time of C.. Three PEOs launch the shelves are bursting with licensed cereal. These cereals do sell well but the licensing deals eat into profits so Kellogg's focuses on a much bigger and more lucrative trend grownups seeking healthy options in the serial aisles and in summer nineteen eighty four just months after introducing its intergalactic cereal Kellogg's hits on a plan that will win over adults by rekindling cereals original bowel loosening mission home business wars is brought to you by chase so you're ready to buy your first home but the market for your dream home is insanely competitive edge face vague. It chases closing guarantee I._T.. Gives you the edge. You need to stand out as a chase customer. You're guaranteed to close quickly or you get one thousand dollars so you can show homeowners. You're serious about buying without the personal letter or gift basket or Sky Riding it over over their house getting your first home even faster with chase learn more at chase dot com slash V._W.. Chase make more of what's yours all home. Lending products are subject to credit and property approval rates program terms terms and conditions are subject to change without notice. Not all products were available in all states or for all amounts of the restrictions and limitations apply home lending products offered by J. P. Morgan Chase bag in an equal housing lender from wondering I'm David Brown and this is business wars on the last episode General Mills Banked on marshmallows in cartoon characters to push past post in second place. Now General Mills has set its sights on Kellogg's but Kellogg's is about to strike back. It's clocking how the nation's eighty million baby boomers. Are Slowly but surely paying more and more attention to their health. They're watching their cholesterol. Cutting back on the CIGS buying Jane Fonda keep fit videos and leg warmers and swapping beef chicken and Kellogg's catalogs smells opportunity in the trend and opportunity to win dollars by returning to cereals roots and promising people healthier breakfast. This is episode five tricks of the trade. It's June nineteen eighty-four and in Battle Creek. There's an awkward silence in the Kellogg's Conference Room. The companies ad agencies just presented an idea for an all brand campaign. That's left Kellogg's executives lost for words Executive Vice President Horst Schroeder breaks the silence cancer. You want to promote our cereal by talking about cancer are you insane Schroeder's Tall German who came to battle creek a year ago after proving himself a high flier while running Kellogg's operations nations in Europe he glares through his thin rimmed glasses at the agency's bearded creative director. The admin tries explaining yes. I know it's bold bold bold. Is that what you call it. The the Adleman knows it's a tough sell in one thousand nine hundred four cancer is a word people avoid saying out loud so using cancer to promote cereal as downright shocking but he also knows all brand needs a radical campaign. It's sales are stuck in a downward spiral and the cereals bowel cleansing image isn't helping. I know this sounds risky but but just listen people don't eat brand cereals because they taste good. They eat eat it because they think it's good for them. But general claims of all brand being healthy aren't enough to overcome the taste challenge. We need to make a specific health claim for the serial Schroeder arisen sure where this is going but he's willing to hear the man out the National Cancer Institute says a High Fiber Diet can reduce the risk of cancer and all brands the highest five or cereal on the market turns out the National Cancer Institute what is keen to be involved in this fiber campaign even though it won't actually endorse all brand the institute just wants to get its health advice out there however it can Schroeder's signals the ad man to keep keep going. We'll put the National Cancer Institute's phone number in the ads so people can get more information about diet and cancer and while we won't directly say all brand reduces cancer risk people will connect the dots shoulders face breaks into a big toothy smile. Now that's smart on October Seventh Nineteen eighty-four the all brand maximum fiber ads appear on television in one of the ads a tastefully dressed thirty. Something woman is shown in close up confiding in viewers about her new discovery at our tenth anniversary last week. Maybe think about things like cereal sound silly silly but I just read about new reports from the National Cancer Institute. Some studies suggest a high fiber low fat diet may reduce the risk of some kinds of cancer so we made some changes like eating this Kelloggs all bran maximum fiber Kelloggs Kelloggs all bran the campaigns impact is huge thousands of people call the National Cancer Institute hotline sales of all brand jumped thirty percent pushing Kellogg's market share back towards the forty percents mark however response is not all positive some doctors slam Kellogg's for preying on People's fears the U._S. Food and Drug Administration warns that by implying that all brand can help reduce cancer risk the ads are blurring the regulatory divide between medicine and food posts chairman accuses Kellogg's of Eroding Trust in advertising but with all brand selling fast rival cereal makers soon can stop criticizing and start copying in July nineteen eighty-five General Mills tries to muscle in on the brand action with fiber won. A new serial backed with copycat ads if you're like most people. You probably think you're getting enough fiber in your diet know what you're probably not. In fact the National Cancer Institute says we're probably getting only half the fiber we meet so I'm getting the half I missing with this fiber live a one serial one but while general mills is playing catch up on the brand front Kellogg's is already working on its next health minded option. It's late nineteen eighty-five and back at Kellogg's Battle Creek Headquarters Schroeder's pitching a serial inspired by his childhood in West Germany. I want to bring Muesli to America. It's very popular in Europe and has a history as old as cornflakes. I believe Muesli can be successful. In America to Kellogg's marketing director shakes his head Mueslis a no go. We tried that back in Gosh. When was that Kellogg C._E._O.? William Lamothe fills in the blank mid seventies thank you it didn't work work because the role dotes in Muesli aren't bait so it's too mushy. Americans like crush Schroeder locks eyes with the marketing director so will reinvent Muesli Americanize it. The marketing director turns to both but no one eats Muesli in America right boss but Lhamo doesn't agree with his marketing exotic. Actually I think horst is onto something. I'm approving the project over the next two years Schroeder battles layer after layer of internal opposition he pushes Kellogg's food developers to make a Muesli out of toasted whole grain flakes instead of rolled oats he he also strong arms. The Marketing Department is spending thirty million dollars on the cereals launch. Finally in November nineteen eighty-seven Schroeder's Americanized Muesli goes on sale breakfast words it was meant to be it would be centuries old balance of fruits grains and the breakfast Europeans called museum. Now music comes to America as Kellogg's music turns out Lamothe was right toback Schroeder newslink's catches the health food wave and becomes a hundred million dollar product Lamothe responds by promoting Schroeder to president making the German executive next in line to A. B. C. E. O. while Kellogg's is on a roll general mills contender in the brand war fiber one is trailing behind all brand but then in April nineteen eighty eight a new study showing that eating out brand can can reduce cholesterol hits the news the finding sparks and oats frenzy people start shunning wheat and corn cereals in favor of O._D.. Alternatives and this is great news for General Mills for decades. It's been using OAT based serial to distinguish itself from Kellogg's and posts more corn wheat based offerings now that decisions paying off sales of Cheerios sore fans of Kellogg's Raisin Bran Defect to General Mills oatmeal Raisin Crisp by Nineteen eighty-nine General Mills is gaining ground fast. It's market share climbs to twenty seven percent in less than a year while Kellogg shared airdrops below forty percent for the first time since the all brand campaign and general mills is about to turn up the heat. It's May nineteen eighty-nine and in Chicago thousands thousands of food industry movers and shakers file into the vast McCormick Place Convention Center. They're here for the food. Marketing Institute show an annual Expo where more than one thousand food companies are showing off their latest products this this year oat bran is everywhere. Exhibitors are touting Oat Bran Pretzels. There are huge displays of Oat bran tortilla chips people roaming the floor handing out brand doughnuts one companies even selling shakers for sprinkling goat Brown on stake like salt and general mills is wowing the crowd with benefit a new flake cereal made from oat Bran and silly him a supermarket buyer checks out benefits blue and white like boxing calls over at General Mills representative. Excuse me what's silly him selling him as a grain from India that has eight times more fiber than Oat bran research shows that eating benefit as part of a low fat diet can reduce cholesterol nine. Percent Compared with cornflakes the buyer raises an eyebrow ever since the all brand campaign implied health claims about cereals have become the norm but with benefit general mills is going further. It's claiming its new cereal. Cereal is proven to cut cholesterol. It sounds more like a pharmaceutical than breakfast. Come on how much of that is really down to benefit the general mills representative smiles actually actually two thirds of the reduced cholesterol was directly related to benefit the buyer is impressed but for Kellogg's President Schroeder benefit is anything but good news Schroeder's under immense pressure stock Kellogg's out driven sales dive the last thing he needs is General Mills Turning Sy- Liam Cereal into a cholesterol cutting sensation and accelerating Kellogg's decline so he orders his team to get silly cereal onto the market a s a p. It's August nine hundred eighty nine and Schroders at a news conference in New York City ready to unveil Kellogg's Sy- Liam Counterattack Counterattack heartwise. He's got forty million dollar marketing campaign behind it. He stands before the press pack looking confident today we announced Kellogg's heartwise natural multi grain cereal according to medical research diet low in fat in high in fiber can help lower cholesterol heartwise can be part of such a diet but the reporters are in a combative mood food general mills claims about benefit have sparked questions about why food companies can make wild health claims based on shaky research while drug companies need extensive evidence to make similar claims so when Schroeder takes questions the reporters pouts. What are the studies that support your claim is seldom even save billions a laxative? Why are you putting it in cereal? Shouldn't you face the same tests as drug companies before making these claims Fuming Schroeder turned his back on the reporters forcing C._E._O.. William Lamothe to face the onslaught Lamothe handles the questions more deftly but the reporters leave unconvinced by his reassurances about the health claims behind heartwise it wise two weeks later Kellogg's gets more bad news. It's official General Mills Cheerios has replaced Kellogg's frosted flakes as the nation's best selling cereal lamothe loath fires Schroeder by December nineteen eighty-nine Kellogg's is in crisis. It might still be the biggest cereal maker but it's market share is tanking and for the first time in eighty years a rival five. Oh companies cereal is the top seller Kellogg's thirty seven year run of record breaking profits is over and to make matters worse. General Mills has pulled benefit from the market leaving kellogs to face the political storm over serial health claims alone the good ship Kellogg's is sinking and Lamothe Scott to make repairs fast. We live in a demanding time with endless requests for our time and attention coming out of twenty four seven. It's no wonder you get overwhelmed when you're faced with even the smallest of tasks let alone something as important as hiring for your business but there's one place you can go. Were hiring is simple fast and smart that places ziprecruiter dot com slash V._W.. 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Ah It's early January nineteen ninety and in South Brunswick New Jersey but thirtysomething mom is pushing a shopping cart down the serial of the Grand Union supermarket she reaches for the familiar violent box of Kellogg's Raisin Bran and stops on the shell right next to the Kellogg cereal are boxes of Grand Union in Raisin Bran and assign reading compare and save she checks the price of the supermarket brand a dollar ninety nine hole dollar cheaper than Kellogg's when she reaches the checkout counter. There's a box of Grand Union Raisin Bran Card and she's become the latest convert to private label cereal. These copycats have been chip chip chipping away at the sales of the big name cereals for years together. They own five percent of the six billion dollar cereal market. It's enough to give Kellogg sixty three year old C._E._o.. William Lamothe palpitations it's January nineteenth nineteen ninety Lamothe's hosting a board meeting at Kellogg's Battle Creek headquarters topping the agenda is his plan to get the company back on its feet after the beating took from general mills and Cheerios the year before Lamothe is ready to retaliate we start by refocusing on our biggest sellers so that means fewer new products and more aggressive marketing to shore up sales of core brands like frosted flakes. He also takes aim at private label store brand cereals. These are as big a challenge to us as General Mills. They are targeting us because many of our best selling cereals have descriptive names like Raisin Bran and cornflakes that they can copy because we're telling them what's in the box. It's less less of a problem for general mills because serials like Cheerios have brand names. The private labels cannot use lamothe stops his tirade just long enough to take a sip of water so here's what we'll do. Since price is the main appeal the private label cereal will only raise prices in line with inflation. We will also spend more money on in store promotions and coupons. The board is all for it. They love the idea of squeezing the copycats. The cats and undercutting general mills within months Kellogg's is filling newspapers and mailboxes across America with discount coupons customers can redeem when they buy Kellogg's cereals General Mills is forced to follow suit to stop Kellogg's getting the price advantage. The company redirects tens of millions of marketing dollars from T._V.. Commercials to discount coupons sparking a coupon arms race with Kellogg's coupons offering shoppers a dollar or more off store prices become commonplace soon more than forty percent of all breakfast cereal in America is being purchased with coupons but as the use of coupons spirals out of Control General Mills starts having second thoughts it's spring nineteen ninety four and in general mills headquarters in Golden Valley Minnesota President Steve Sanger's thumbing through data on the company's cereal coupons a broad shouldered executive of the greying Moustache Sanger's astounded by the figures general mills is distributing two billion cereal coupons a year on average each coupon used save shoppers fifty. He sent for processing them cost the company seventy five cents multiplied by the forty million coupons used. That's thirty million dollars off the bottom line every year sanger slumps into his chair there surely there's a better way to win the price war a week later. He meets with a serial divisions senior team. I've looked at the numbers coupons appear to be a really inefficient way to lower prices. Che's we should scale back on coupons and just cut prices when executive warns it could backfire people like clipping coupons and they drive sales. We've been steadily gaining market share. Why risk that by giving Kellogg's the coupon upon advantage sanger considers the warning before responding sure it's a risk but consumers are making cereal choices based on what coupons are in that week's newspaper coupons are totally eroding brand loyalty and that's an even bigger risk a few weeks later general mills cuts back on coupons and reduces cereal prices by around ten percent to stay competitive Kellogg's cuts prices too soon Kellogg's general mills and post are locked in a vicious price war? It's a slug fest that bloodies them all but none of them are willing to concede the fight so they keep on slashing slashing prices but General Mills isn't relying on price alone to beat its rivals to keep the private label manufacturers at Bay General Mills begins enhancing around a third of its cereals every year it turns tricks corn balls into fruity shapes and adds Blue Moon marshmallows to lucky charms. The constant changes mean the copycats have a hard time keeping up and spend even more time imitating Kellogg's products General Mills puts local athletes on limited edition wheaties boxes boosting sales by turning them into collector's items and to ensure its ads are reaching the right viewers it moves it's kids cereal advertising away from network ATV and onto cable cartoon channels and since honey nut cheerios is hugely popular general mills launches more spinoff serials like multi grain cheerios and honey frosted wheaties by nineteen ninety-seven things are going so well. The General Mills called a halt to the price war it started and that leaves Kellogg's executives with a tough decision to make Kellogg's Kellogg's lead over General Mills is now razor thin so Kellogg's chief Financial Officer Leans on the company's C._E._o.. Arnold Langbo to follow General Mills and Jack Up Prices The the price wars seriously hurt our profits. Let's use this opportunity to raise prices and boost our bottom line. No if we keep our prices low for another year we can maximize the price advantage general mills has given us but low prices are no longer enough to stop General Mills Terminator like advance and Store Label cereals are still eroding sales of Kellogg's brands in early nineteen ninety nine general mills is neck and neck with Kellogg's is in market share and by year's end general mills finally overtakes Kellogg's gets taken general mills more than sixty years but it has at long last toppled the mighty Kellogg's but Kellogg's isn't waiting for general mills to do a victory lap. Oh No it's making battle plans on the next episode. Kellogg company fights back freeze dried fruit route makes a comeback and cereal sales. Go sought from wondering this is business wars. We hope you enjoyed this episode and we invite you to subscribe on Apple podcasts spotify Google podcast stitcher iheartradio for wherever find podcasts or served you'll find a link on the episode notes just tap or Swipe over the cover art. You'll also see some offers mar sponsors and we hope you'll support poured our show by supporting them. It would be swell if you give us a five star rating. Tell your friends how to subscribe while you're at it. There's another way you can support us. Check out the short survey at one dot com slash survey while you're there. Tell us what business war stories you'd. You'd like to hear a quick note about the conversations in this episode. We can't know exactly what was said but this dialogue is based on our best research. I'm your host. David Brown tristen Donovan wrote this story Karen Low is our senior producer and editor Donna. Hi edited the.

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