RXBAR and Kashi: Lessons (not) Learned?

When Kellogg’s bought Kashi in 2002 the small cereal firm had $50 million in sales. Kellogg’s CEO was David Mackay, and the Battle Creek giant pledged to maintain the entrepreneurial spirit and independence of Kashi. Kellogg’s kept Kashi’s headquarters in California, and Kashi became an innovator in healthy snacks and even extended its brand umbrella into frozen pizza. By 2012 it had reached sales of $650 million – a true success story.

In 2013 Kellogg’s decided to bring the Kashi business into Battle Creek, presumably to realize “cost synergies” through reduction of dedicated Kashi employees in favor of relying on a pool of Kellogg functional experts. Not surprisingly, the Kashi business then stalled. Its business needs and innovation activities were no longer a priority within the shared resource scheme.

Finally, in 2016, Kashi was re-established as an independent entity in California. Kashi sales have begun to rebound, as pointed out in the 2018 Kellogg’s investor presentation.

Now fast forward just a bit to the 2017 acquisition of RXBAR. The business at the time of acquisition had sales of $100 million. At a purchase price of $600 million, there was clearly an expectation that RXBAR would continue to grow rapidly and even have its growth accelerated by access to the global sales capabilities of Kellogg’s.

Kellogg’s announced in late 2018 it was cutting headcount at RXBAR’s Chicago headquarters, and moving responsibility for selected functions to Battle Creek. Presumably RXBAR will now be reliant on a pool of “shared service” Kellogg’s employees, and runs a very high risk of being de-prioritized. That means sales are unlikely to continue to grow at the same meteoric pace. And perhaps even more importantly, morale among the remaining RXBAR staff is adversely impacted as they consider the security of their posts.

A little more color around the Kellogg’s-driven staff cuts at RXBAR. Approximately 20% of the RXBAR corporate staff was cut, including personnel in quality testing, market research, and HR. These dedicated functions are crucial to supporting rapid expansion.

I could be wrong, but I think we are likely to see Kellogg’s announce in a year or two that sales had not materialized per the acquisition plan, and that a goodwill charge (recognition that they overpaid for growth that never came) of several hundred million dollars was being taken.

Kellogg’s is rightly a well-respected company and does many things right. It has a history of not over-paying for acquisitions, and has moved its own branded portfolio (think Special K) toward healthier snack, cereal, and beverage offerings. So hopefully it will rapidly reverse course on RXBAR independence. And not wait three years as it did with Kashi.