Caso United Cereal

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C H R I S T O P H E R A . B A R T L E T T

C A R O L E C A R L S O N

United Cereal:

Lora Brill’s Eurobrand Challenge

Lora Brill, United Cereal’s European vice president, was alone in her office early on a cold March morning in 2010. "I've given approval to a dozen big product launches in my career," she thought.

"But the implications that this one has for our European strategy and organization make it by far the most difficult I've had to make."

The decision related to Healthy Berry Crunch, a new breakfast cereal that the French subsidiary wanted to launch. But Europe's changing market and competitive conditions had led Brill to consider making this the company's first coordinated multimarket Eurobrand launch. It was a possibility that had surfaced some equally challenging organizational questions. "Well it's only 7 AM," Brill thought to herself, smiling. "I have until my lunch appointment to decide!"

United Cereal: Breakfast Cereal Pioneer

In 2010, United Cereal celebrated its 100th birthday. Established in 1910 by Jed Thomas, an immigrant grocer from England, the company's first product was a packaged mix of cracked wheat, rolled oats, and malt flakes that Thomas sold in his Kalamazoo, Michigan, grocery store. UC, as it was known in the industry, eventually diversified into snack foods, dairy products, drinks and beverages, frozen foods, and baked goods. By 2010 UC was a $9 billion business, but breakfast cereals still accounted for one-third of its revenues and even more of its profits.

UC’s Corporate Values, Policies, and Practices

Thomas grew the company with strong set of values that endured through its history, and

"commitment, diligence, and loyalty" were watchwords in UC. As a result, it attracted people who wanted to make a career with the company, and it promoted managers from within.

Among its managers United Cereal instilled a strong commitment to “The UC Way,” a set of time-tested policies, processes, and practices embedded in iconic company phrases. For example, "Listen to ________________________________________________________________________________________________________________

HBS Professor Christopher A. Bartlett and writer Carole Carlson prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.

Copyright © 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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the customer" was a deeply rooted belief that led UC to become a pioneer in the use of consumer research and focus groups. "Spot the trend, make the market" was another iconic phrase reflecting the high value placed on extensive market testing prior to launching new products. Finally, the value of

"Honoring the past while embracing the future" led UC to reject the conventional wisdom that processed food brands had fixed life cycles. Through continuous innovation in marketing and product development, many of its products remained market leaders despite being more than half a century old.

United Cereal had a well-earned reputation as an innovator. During its 100-year history, its R&D

labs had secured more product and process patents than any other competitor. The company had also pioneered the “brand management” system in the food industry, giving brand managers leadership of cross-functional teams that included manufacturing, marketing, and other functions.

Each brand was managed as a profit center and was constantly measured against other brands. Brand managers also competed for R&D and product development resources.

Although this system reduced lateral communication, vertical communication was strong, and top managers were very involved in seemingly mundane brand decisions. For example, advertising copy and label changes could require up to a dozen sign-offs before obtaining final approval at the corporate VP level. "It's due to the high value we attach to our brands and our image," explained a senior executive. "But it’s also because we give our brand managers responsibility at a very young age." While the company took few risks (a failed launch could cost millions even in small markets), it balanced deliberate cautiousness with a willingness to invest in products it decided to support. "The competitors can see us coming months ahead and miles away," the senior executives said. "But they know that when we get there, we'll bet the farm."

The Breakfast Cereal Market

Breakfast cereal was in its infancy when UC was founded, but it soon grew to be one of the great food commercialization successes of the 20th century. From the 1890s when Keith Kellogg created corn flakes in his attempt to improve the diet of hospital patients, the industry had grown to achieve worldwide revenues exceeding $21 billion in 2009. The U.S. industry included more than 30

companies with combined annual revenues of $12 billion. But just five players accounted for 80% of sales.

The industry recognized two categories of cereals—hot and ready-to-eat. The latter accounted for 90% of sales in both the United States and Europe. In this highly competitive industry, more than 10% of revenues was spent on advertising and marketing. Profitability also depended on operating efficiently, managing materials costs, and maximizing retail shelf space. Larger companies had significant advantages in purchasing, distribution, and marketing.

In the fight for share, several new-product introductions typically occurred each year. Developing a new brand was time-intensive and expensive, typically taking two to four years. Brand extensions—for example, General Mills’s creation of Honey Nut Cheerios—were generally less expensive and less risky due to scale economies that could be leveraged in both production and marketing. But for most U.S. cereal

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