Kellog Quaker Oats Case

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KEL182

CHRISTIE L. NORDHIELM

Quaker Oats’s Oatmeal Division
Polly Kawalek emerged from Bob Morrison’s office after her annual review in December 1998. By any measure, 1998 had not been a successful year for Quaker Oats’s oatmeal division (“Oatmeal”), and culpability fell on Kawalek’s shoulders. It had been the warmest winter in memory across the country, causing demand for oatmeal to drop, and failed product releases had cost sales and led to trade marketing spending deficits. Furthermore, consumer interest in the oatmeal category was waning, and the relevance of a 125-year-old brand was in question. Quaker was among the top major brands mentioned when consumers were asked to list the healthiest, most nutritious foods, so the “brand equity was bullet-proof nutritionally and evoked wonderful memories, but it was a little old-fashioned, and everybody thought they already knew all about it,” Kawalek explained. (See Exhibit 1 for consumer perceptions of brands’ nutritional value.) Faced with dozens of substitute breakfast products, consumers were not loyal to oatmeal, and Quaker struggled to breathe excitement into the category to attract buyers and keep current customers. In defining a strategy for selling oatmeal, Kawalek had confronted fundamental questions faced by the company as a whole. Who was Quaker’s core consumer? What did he or she value about Quaker brands, and how could those values be served by Quaker Oatmeal? “How can Quaker get a breakthrough message that provides a reason for consumers to eat oatmeal?” she wondered as she trudged back to her own office. Kawalek had been promoted to corporate senior vice president and president of Quaker’s hot breakfast division in November 1996. The following year, Quaker hired a new CEO, Bob Morrison, who immediately eliminated all executive vice presidents, the only layer between Kawalek’s position and the CEO. Invigorated by her greater level of authority and by the challenge of taking the reins of a mature product that showed no obvious signs of growth potential, Kawalek set out to rebuild Quaker Oatmeal. During the first eighteen months in her new position, Kawalek did achieve record sales results and maintained Quaker’s number-one share position, with command of 60 percent of the hot cereal market. The degree of that dominance was shrinking, however, and the robust growth that she envisioned had not materialized. By the end of 1998, Oatmeal was stagnating. (See Exhibit 2 for Quaker hot cereal sales trends.) Though she was frustrated after her review, Kawalek was confident in the plans she had already put in place for improvements in 1999 and beyond. There were bright spots on Oatmeal’s horizon, and Kawalek believed that her approach would capitalize on them. She was still left to wonder, though, at what rate a mature product like oatmeal could realistically be expected to grow. Was oatmeal a product that could fulfill the changing needs of Quaker consumers, or was it a relic of the past? As a company, Quaker made repeated decisions about resource allocations— ©2006 by the Kellogg School of Management, Northwestern University. This case was prepared by Gretchen Hall ’01 under the supervision of Professor Christie L. Nordhielm. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail custserv@hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.

QUAKER OATS’S OATMEAL DIVISION

KEL182

decisions based on the growth prospects of each brand. Was it reasonable for...
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