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Kellogg Marks 100th Year in Business By JAMES PRICHARD, AP Business Writer
Sun Feb 12, 3:07 PM ET
BATTLE CREEK, Mich. - It was 1894, and the chief physician at the Battle Creek Sanatorium and his younger brother were experimenting in the hospital's kitchen, trying to create a better-tasting replacement for the nutritious but bland bread served to patients.
Instead, Dr. John Harvey Kellogg and William Keith Kellogg ended up accidentally inventing flaked cereal. The discovery eventually led the business-savvy "W.K." Kellogg to establish what is now the Kellogg Co., which marks its 100th anniversary on Feb. 19.
The business has grown into the world's largest maker of ready-to-eat cereals, with net sales of $10.2 billion in 2005. Its products, including Rice Krispies and Special K cereals, Eggo frozen waffles and Keebler cookies, are marketed in more than 180 countries.
While founder W.K. Kellogg was a firm believer in healthy nutrition and exercise, his company has come under fire for selling sugary cereals to children and contributing to the growing epidemic of obesity in America.
Kellogg and its largest U.S. competitors — General Mills Inc., Kraft Foods Inc. (makers of Post cereals) and PepsiCo. Inc. (Quaker Foods) — have long emphasized the importance of good nutrition in its cereals and other breakfast products, fortifying them with vitamins, minerals and fiber.
Now, they are in a race to find new ways to improve the nutritional value of their products — and new ways to market them.
In fall 2004, General Mills, the nation's No. 2 cereal maker, announced that all of its cereals would be made from whole-grain flour, which is healthier than the wheat flour or refined corn meal used in most cereals.
Earlier that year, General Mills and Kellogg started using less sugar in some of their children's cereals.
Last December, Kellogg announced that it will start using oil this year made from genetically modified soybeans in place of the partially hydrogenated oil and saturated fats found in some of its crackers and snacks. The soybean oil may also be used in some frozen foods.
The oil, called Vistive and developed by St. Louis-based Monsanto Co., contains no trans fatty acids or saturated fatty acids. Studies indicate that these two types of fatty acids contribute to higher levels of "bad" cholesterol, which can increase the risk of heart disease.
"It's becoming increasingly common knowledge that trans fat is as bad for you as saturated fat," said Gale Strasburg, a food chemist who is chairman of the Department of Food Science and Human Nutrition at Michigan State University. "Some would argue it's even worse."
With the first baby boomers turning 60 this year, Kellogg is developing products for older, health-conscious consumers aimed at strengthening bones and even improving memory, said Donna Banks, who heads up the company's research and development.
When Kellogg announced its fourth-quarter earnings last month, David Mackay, president and chief operating officer, told industry analysts during a teleconference that they can expect to hear more in the future "about health and wellness, not only from Kellogg but from many companies."
Kellogg signed a 15-year agreement with Columbia, Md.-based Martek Biosciences Corp. last February to supply Kellogg an omega-3 fatty acid called docosahexaenoic acid, or DHA, which it produces from vegetarian sources.
The Food and Drug Administration a few months earlier said DHA could be marketed for its benefits to the heart, but Kellogg didn't say whether it will put DHA in any of its products. Omega-3 fatty acids are found naturally in walnuts, soybeans, eggs and fish such as mackerel, salmon, tuna and lake trout, and are believed to help prevent cardiovascular disease.
Not everyone is convinced about the overall dietetic value of Kellogg's product lineup.
In January, the nonprofit Center for Science in the Public Interest, an advocacy group, said it planned to file a lawsuit later this month in a Massachusetts court against Kellogg and Viacom Inc., parent company of the Nickelodeon, accusing the companies of marketing junk food to children.
Kellogg spokeswoman Jill Saletta says the company is proud of its contributions to healthy diets and will continue educating people about good nutrition and exercise.
Meryl Gardner, a consumer psychologist and associate professor of marketing at the University of Delaware, says companies that market their products to children have varying levels of success because parents usually have the final say on purchases.
"I know very few kids who take their allowance money and spend their allowance money on Frosted Flakes," Gardner said.
Marvin Goldberg, a marketing professor at Penn State University whose research has focused on the effectiveness of advertising directed at children, said cereal commercials can be aimed at parents, children or both.
"My bet is that you could plot the level of sugar in a cereal with the proportion of advertising that is targeted to kids versus say both parents and kids or only the parents," he said.