Kashi Company

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Kashi Company

Post Office Box 8557
La Jolla, California 92038
U.S.A .
Telephone: (858) 274-8870
Fax: (858) 274-8894
Web site: http://www.kashi.com

Wholly Owned Subsidiary of Kellogg Company
Incorporated: 1984
Employees: 300
Sales: $200 million (2006 est.)
NAIC: 311230 Breakfast Cereal Manufacturing; 311910 Other Snack Food Manufacturing; 311991 Perishable Prepared Food Manufacturing

ORIGINS

RAPID GROWTH

KASHI AND KELLOGG CO. UNITE IN 2000

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

Kashi’s founders, Philip and Gayle Tauber, entered the natural foods business in the early 1980s, well before the widespread popularity of preservative free, nutrient rich foods turned the sector into a multibillion dollar industry. The market was a niche market, and Kashi, accordingly, was a niche player when it started out, operating on the periphery of the broadly defined grocery market. Grocery store shelves offered little room, if at all, to the types of products that later would be referred to as “functional foods,” foods that provided health benefits beyond basic nutrition. Over the course of decades, retailers, heeding the call of consumers, changed their attitude to functional and organic foods, enabling Kashi to shed its status as a niche player and move closer to the mainstream. The growth of its market allowed Kashi to launch product lines targeting numerous subcategories of the grocery business, but at first the company’s founders struggled to sell a single item, a box of cereal.

The Taubers’ initial idea was to market a whole-grain cereal. They had developed a special blend of seven whole grains and sesame that they dubbed Kashi Pilaf. The combination of minimally processed, raw grains and sesame was the center point of a business model balked at by bankers. The Taubers failed to get a loan to finance their start-up venture, so they risked everything and invested their life savings of $25,000 to get the business up and running. It was a precarious start for the entrepreneurs, one that required them to seek alternative ways to bring their product to market. They convinced a manufacturer in nearby San Diego to give them 90 days’ credit to produce their recipe and they negotiated a deal with a factoring company, which agreed to buy their invoices for 92 cents on the dollar, helping them resolve some of their cash flow problems. (A business in need of cash quickly can chose to sell its accounts receivables to a factor, who will immediately pay the face value of the invoice less a discount fee, freeing the business from waiting 30, 60, or 90 days, the period that usually constitutes a billing cycle.) After squeaking through the first phase of setting up their company, the Taubers were able to introduce their cereal in October 1983, but the initial response was disappointing. Kashi Pilaf needed to be cooked for at least 25 minutes, presenting too much of a chore to breakfast eaters. The Taubers had hoped for a more positive response, but, having gambled everything on their entrepreneurial creation, they had no choice but to press ahead.

There was no dramatic reversal in the initial tepid reaction to Kashi Pilaf. The product’s reception by the public gradually improved, though. Several months after the Taubers first introduced Kashi Pilaf, they began selling the whole grain mixture to health spas. In the summer of 1984, they became among the first food purveyors to engage in product sampling at sporting events when they distributed samples of Kashi Pilaf at the Olympic Games in Los Angeles. A small coterie of Kashi Pilaf enthusiasts developed, marking the beginning of a loyal following attached to the Kashi brand. Athletes, diabetics, dieticians, vegetarians, and people suffering from heart problems formed the core of the Kashi constituency, providing the Taubers with enough business to keep financially afloat.

By staying in business, the Taubers ensured they would see the day when natural foods began to move into the mainstream. The Kashi coterie of the early 1980s became a genuine customer base, one that stretched from coast to coast and up into Canada by the end of the 1990s, turning the couple’s lackluster start into a rousing success story. The Taubers’ triumphant rise drew its power from their efforts, their persistence, the quality of Kashi products, and from circumstances largely outside their control, namely consumers’ tastes and the number of retailers stocking functional foods. The interplay between consumers and retailers, each feeding off the impulses of the other, created the sea of change that pushed functional foods into the realm of big business. Kashi was indebted to both.

On the retail side, Kashi needed a sizable network of outlets to distribute its products to before it could realize genuine success. One of the main contributors to the growth of the natural foods retail industry was John Mackey, a six-time college dropout raised in Houston, Texas. Mackey owned a small health food store in Austin, Texas, in the early 1980s, but he had dreams of presiding over a much larger retail business. He and several other health food store operators from around the country would convene occasionally to talk about the vagaries of their business, each united by the “sense that mainstream grocers dismissed them as a bunch of soy-milk-sipping hippies with no clue how to run a business,” according to the July 20, 2007, edition of the Wall Street Journal. At one of the gatherings, Mackey proposed uniting local health-food stores into a national chain, an idea greeted with silence that Mackey embraced nonetheless. In 1984, just as the Taubers were starting out, Mackey borrowed money from his father and formed Whole Foods Market Inc., opening two stores in Texas before expanding into Louisiana and California. He took Whole Foods public in 1992 and began pursuing in earnest his idea of creating a national chain, embarking on an acquisition campaign that gave him control over more than ten natural-foods chains from Florida to California. “We didn’t have any clue how he put that together,” Tauber explained in a July 20, 2007, interview with the Wall Street Journal. “For him to do that, he needed to have a compulsive, highly competitive leadership quality.” For the Taubers, Mackey’s accomplishments provided an audience for their products, a customer base that could no longer be ignored by mainstream grocers.

COMPANY PERSPECTIVES

Kashi Company was created to empower people to achieve health and well-being by offering all natural foods. As proponents of “whole foods,” Kashi strives to develop foods with healthy and nutritious ingredients that are less processed and free of artificial sweeteners, colors and preservatives. We recognize that quality, great taste and effectiveness are the foremost considerations of individuals making the transition to a healthful diet.

RAPID GROWTH

The growth of Whole Foods and similarly oriented retail chains did not occur in a vacuum. Consumers, in increasing numbers, were seeking healthier foods. The natural-foods category became known as the “wellness” category, as more and more people adopted healthier lifestyles and looked for products with ingredients and supplements such as echinacea, gingko biloba, guarana, and taurine. Kashi answered the demand for nutritious foods by churning out a bevy of selections in the breakfast category, a foundation the company would later use to enter other categories in the grocery market. The company introduced Kashi Heart to Heart, a cereal formulated with soluble fiber, vitamins, antioxidants, and botanicals. Kashi Seven in the Morning appeared on store shelves, offering a high-fiber, low-fat, and whole-grain addition to the Kashi product mix. The company developed Kashi GOLEAN, a combination of soy protein grahams, high-fiber twigs, and its signature combination of seven whole grains and sesame. Kashi GOLEAN waffles debuted, as did Kashi TLC snack crackers, and Kashi GOLEAN Bars, a cereal bar available in a variety of flavors. One of the products that attracted the most attention from industry observers was the release of Kashi go in 1998. Kashi go was made from essentially the same formula that the Taubers peddled around San Diego in the early 1980s, but the new version was precooked, packaged in a single serving container and available in six flavors. The armada of products lifted Kashi’s sales upward, exposing the company to a market enjoying tremendous growth by the end of the 1990s.

KASHI AND KELLOGG CO. UNITE IN 2000

There was no greater evidence of the popularity of natural foods in the marketplace than the event that passed ownership of the Kashi brand to new hands. Michigan-based Kellogg Company, the largest cereal maker in the world, saw the tremendous growth in the natural-foods category and realized it needed to take a position in the growing market. In November 1999, Kellogg acquired Worthington Foods, the producer of Morningstar Farms and Harvest Burger vegetarian patties, and made the company part of its natural and functional foods division. In June 2000, Kellogg strengthened the division by paying $32 million for Kashi, taking control of a company that had recorded a 115 percent increase in sales in 1999, when it generated $25 million in revenue. For the Taubers, the acquisition marked the beginning of a new era for their 16-year-old company. “Distribution is what we have worked on the hardest,” Philip Tauber said in a July 24, 2000, interview with Supermarket News. “We are totally direct in the West, East, Chicago, and pockets of Florida. When Kashi has gained that shelf space, it’s been at the expense of the big cereal companies. We have had to buy our way onto those shelves. Now, with Kellogg, we will be on the center of the aisle, a better position.”

Under Kellogg’s ownership, Kashi benefited greatly from its parent company’s vast distribution network and massive advertising budget. Sales shot up during the first years of Kellogg’s control, making exponential leaps. The might supporting the company was on full display midway through the decade, when annual revenue hovered near $200 million. Kellogg spent $25 million on advertising the Kashi brand in 2004, up substantially from the $17 million earmarked the previous year. In 2005, Kellogg funded the first national marketing campaign for Kashi GOLEAN Crunch cereal, releasing advertisements that appeared in print and on network and cable television. Kellogg also prepared to launch the Kashi brand in the United Kingdom in 2005, picking two cereal varieties, Kashi Original Seven Grains and Kashi Honey, as well as Kashi snack bars, to establish a presence overseas.

As Kashi looked to the future, it was prepared to tackle new categories of the grocery business. The years of limiting itself to breakfast foods were over, ushering in a period of expansion that promised to see the Kashi brand affixed to a broad range of foods and beverages. In 2006, the company took a significant step toward becoming a far more diverse food producer when it entered the $5 billion frozen dinner and entrée category. In mid-July, Kashi introduced six varieties of frozen dinners, each paired with the company’s seven whole grains and sesame pilaf. In early 2007, the company announced it was entering the frozen pizza category, revealing it intended to introduce three varieties of pizza midway through the year. In the years ahead, the company was expected to make additional forays into new product categories, as the Kashi brand extended its reach into the $25-billion-a-year natural-foods market.

Jeffrey L. Covell