Kellogg's Mass Organics

03/07/06 Americans are a food-obsessed nation. In recent years, the media's increased focus on health and wellness has fueled growing concern over food safety and nutritional content. That's created a boom for organic food vendors such as Whole Foods Market, but an announcement today from Kellogg may herald even greater prominence for the organic food business. However, it's not clear whether Kellogg's move will ultimately be wise for the famous food company.

Kellogg revealed today that a new product, Keebler Toasteds Organic Harvest Wheat Crackers, will be hitting store shelves in late June. Admittedly, Kellogg and other major packaged foods companies like General Mills and Kraft already sell a variety of organic items. But in most cases, these goods are sold under less-well-known labels. An organic product under the popular Keebler brand is something of a milestone.

The crackers are likely only a first step. Kellogg reportedly has organic versions of staples like Raisin Bran, Mini-Wheats, and Rice Krispies in the works. The cracker and other organic items will likely show up on Wal-Mart's shelves, since the discounting giant is undertaking a major effort to introduce organic foods to a much broader set of consumers.

There is little doubt that organics have been a very good business. Sales in that market have been growing at nearly 20% per year for the past several years. However, it's not clear that Kellogg can expect a boon from "mass organics."

For one thing, even though Kellogg's new organics are expected to be priced lower than other organics, it's not clear that everyday consumers will be willing to pay even a modest premium, especially since many experts question the health benefits of such foods. As a result, mass organics could suffer the same ignominious fate as the high-protein products introduced during the Atkins diet craze. (The diet company went bankrupt last year as the fad fizzled.) On the other hand, if mainstream organics do take off, it's possible that such sales will cannibalize the sales of Kellogg's premium-priced, niche-brand organics, which is likely a high-margin business.

Given these possibilities, Kellogg's move into popular organics might not be good -- or grrrrrrrreat -- for the company as a whole.