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Looking to Grow, Co. Returns to S.D. Roots

Kashi, the San Diego homegrown natural cereal business that had its local office closed last year by owner Kellogg Co. and moved to Michigan, is returning to its roots.

The move was announced last month by Kellogg Chairman and CEO John Bryant, who said the consolidation hasn’t worked out.

“Kashi hasn’t performed as well as we would have liked over the past few years,” Bryant said in a conference call with stock analysts. “And while much of the recent decline is due to lower distribution, we need to address the brand’s positioning and our ability to execute quickly enough in the evolving world of natural and organic foods.”

Kellogg spokesman Kris Charles confirmed that Kashi will be re-established as a stand-alone natural foods business. It will be led by David Denholm, former president of Kellogg’s U.S. Morning Foods division, who will report directly to Bryant.

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Charles didn’t answer questions about the number of initial employees at Kashi’s office in University Towne Center area, or how large the division will get.

Kashi closed down its office in early 2013 in a move that eliminated about 30 positions.

At that time, Charles said the company was moving Kashi’s operations to Kellogg headquarters in Battle Creek, Mich., to better position the business for continued growth.

Not So ‘G-r-r-reat’ Cereal Sales

But Kellogg recently admitted it needs to make changes. The largest cereal company in the nation reported lower than expected profit and revenue for the second quarter of this year. Net income declined 16 percent from the like quarter in 2013 to $295 million, while quarterly sales fell to $3.69 billion, missing consensus analysts’ expectations by about $20 million.

The company amended its forecast for sales in the year to shrink between 1 to 2 percent instead of increasing 1 percent from 2013.

Kellogg said sales in both its cereal and snack division are struggling this year amidst a trend away from calorie counting, with sales in its Special K brand of foods particularly falling.

To a question on relocating Kashi back to San Diego, Bryant said he expected to have a team in place in La Jolla by the end of the year.

A Need for Speed

“The whole purpose of moving the business back to La Jolla is to increase the rate of speed, the agility, to be able to get on trends much faster and be more aligned with that community,” he said. “However it will take some time because it is still one of the largest natural foods businesses in the United States, in fact, in the world.”

Bryant said Kashi annualized revenue had decreased to the low $400 million mark compared with more than $500 million before the company consolidation.

Carlotta Mast, senior director of content for New Hope Natural Media in Boulder, Col., a publisher of several trade magazines covering the natural foods industry, said the relocation back to San Diego appears to make sense.

“It will enable the brand to be distanced from its parent company Kellogg and at least have the appearance of being a more entrepreneurial brand,” Mast said. “The natural products industry is very entrepreneurial in spirit, and those brands that are nimble enough to stay ahead of the big-food world curve in terms of trends and shifting consumer preferences tend to be the winners in this space.”

Founded in San Diego in 1983 by Phil and Gayle Tauber, Kashi’s initial cereal was a mixture of seven whole grains and sesame seeds called Kashi Pilaf. It added other nutritional cereals and later expanded to include crackers, waffles, cereal bars and other food products. When the founders sold the business to Kellogg in 2000 for $32 million, it was generating about $25 million in annual revenue, and had about 20 employees.

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