Malt O Meal Company Business Information, Profile, and History

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History of Malt O Meal Company

Malt-O-Meal Company is the fifth largest cereal manufacturer in the United States, holding slightly more than 7 percent of the $7.1 billion U.S. cereal market. Best known as a manufacturer of hot wheat cereals for the majority of its years in business, Malt-O-Meal has evolved into a leader in the value-priced, bagged ready-to-eat U.S. cereal market while still selling its mainstay products; it also makes four varieties of instant oatmeal. The low-profile company produces and markets cereals under its own and private-label names, distributing its products in more than 70 percent of the nation's retail grocery stores. Its facilities include two manufacturing plants in Northfield, Minnesota, and one in Tremonton, Utah, as well as distribution centers in Grove City, Ohio; Coppel, Texas; and Salt Lake City, Utah. The firm remains privately owned by members of the Brooks and Fort families, descendants of the founder.

The Early Years: 1910s-50s

Malt-O-Meal Company founder John S. Campbell's first job was in his father's grain milling company. After serving in World War I, Campbell returned home to Owatonna, Minnesota, and invested $800 (poker earnings, according to a 1969 Minneapolis Tribune article by Charles B. McFadden) in his own business venture. "My idea was to make a cereal that tasted better and cooked quicker than the top-selling wheat farina product, Cream of Wheat, which then took about 30 minutes to cook. Malt gave me the flavor I wanted and toasting reduced the cooking time of my finished product to two or three minutes."

In 1919 Campbell Cereal Company began operating out of an old creamery building rented for $11 per month. Initially a one-man venture, Campbell processed the malt and wheat in an iron cylinder with a gas burner, then packaged and sold the cereal he named Malt-O-Meal. He quickly found there was an art to selling a new product and hired a salesman, who offered free customer samples to retail grocers. Distribution was limited to southern Minnesota and northern Iowa during the first few years.

Campbell experimented with radio promotion in 1925 on WLS in Chicago. Kids were offered the chance to win a free toy by sending in a joke and Malt-O-Meal box top to the Steamboat Bill show. Grocers were swamped with requests for the cereal, and Malt-O-Meal began gaining shelf space. The WLS promotion, which began as a two-week trial, ran for more than a year. Additional promotions were aired on stations in the Midwest, Southwest, and West.

With business booming, Campbell moved the company into the Simpson Mill, which had once been operated by his father and an uncle. In 1927 the company relocated to Northfield, Minnesota, in the Ames Mill, which had been built in 1869. The southwestern market opened up in the late 1920s thanks to a Texas businessman named C.C. Lindley. Campbell established a Minneapolis sales and marketing office in 1932 and began working with an advertising agency. In 1936 the corporate headquarters also were shifted to Minneapolis.

Campbell's Corn Flakes was introduced in 1939. Because of stiff competition from the Kellogg Company, the ready-to-eat cereal was dropped in 1942. Meanwhile, Malt-O-Meal sales climbed steadily. Box sizes changed in the late 1940s, but the product itself remained the same. In 1953 Campbell Cereal Company was renamed Malt-O-Meal Company. Sales by the privately held business nearly doubled from 1948 to 1958.

Changing Marketplace: 1960s-70s

Competitor Cream of Wheat was purchased by the National Biscuit Company in 1961, the year Malt-O-Meal added a second flavor. Chocolate Flavored Malt-O-Meal kept the company's momentum going as industrywide sales began to drop off. Also in 1961 Malt-O-Meal expanded its manufacturing space in Northfield with the purchase of the Carnation Creamery building, which was renamed the Campbell Mill. John Campbell was succeeded as president of Malt-O-Meal by his son-in-law Glenn S. Brooks in 1966. Brooks had joined the company in 1956 and had been appointed vice-president and general manager in 1965.

Malt-O-Meal sales flattened out in the mid-1960s. U.S. consumers were buying more and more convenience and sweetened foods. In 1966, Malt-O-Meal began producing State Fair brand Puffed Wheat and Puffed Rice at its new plant site. The next year, Malt-O-Meal entered the snack food market with Soy Town roasted and salted soybeans. The purchase of Profile Extrusion Company marked the first major diversification for the 46-year-old company. The 20-employee, vinyl plastic subsidiary produced component parts for other manufacturers.

Malt-O-Meal employed a total of 55 people in its two Northfield plants and Minneapolis office by 1969. Malt-O-Meal 100 Plus, which the company touted as the first hot cereal with 100 percent of the established daily minimum requirements of vitamins and iron, was added to the hot cereal line in 1969 but discontinued four years later. Pophitt Cereals, Inc., purchased in 1970, bolstered Malt-O-Meal's ready-to-eat cereal segment with its Whiffs and Sunland Puffed Wheat and Puffed Rice line.

Chairman and CEO John Campbell died in 1971. The company he founded had extended its reach throughout the western two-thirds of the country. Yet Malt-O-Meal remained a relatively small independent company holding less than 3 percent of the hot cereal market versus the 64 percent held by the Quaker Oats Company.

Malt-O-Meal took another bite into the ready-to-eat cereal market in the early 1970s, when the company began to box private-label cereals for grocery store chains such as Super Valu and Kroger. In 1975 Malt-O-Meal introduced Toasty O's, a lower-cost, bagged version of General Mills, Inc.'s Cheerios. A second major brand imitation, Sugar Puffs, hit the market in 1980. The push into the ready-to-eat market helped revenues double between 1975 and 1980.

Accelerating Expansion in the 1980s

During the first half of the 1980s, the company introduced several more national brand knockoffs: Raisin Bran, Corn Flakes, Crispy Rice, Sugar Frosted Flakes, and Honey & Nut Toasty O's. In 1985 the ready-to-eat cereal segment of the business contributed about two-thirds of the year's estimated $50 million in revenues. Malt-O-Meal's revenues had doubled again between 1980 and 1985. John W. Lettmann, who worked in the marketing department at General Mills before coming on board as Brooks's assistant in 1971, was named president in 1986, the same year that the firm opened a distribution center in Northfield.

Malt-O-Meal increased the size of its package in 1982. With the exception of instant products, the hot cereal market had continued to stagnate. Malt-O-Meal introduced an instant hot cereal in 1987, but the latecomer never gained significant market share and was discontinued in 1990. Malt-O-Meal Plus 40% Oat Bran was manufactured between 1988 to 1992. The company divested itself of two other business ventures in the 1980s: the snack food business was sold, and Profile Extrusion became an independent company.

Chair and CEO Brooks died in 1988. During his tenure the company had grown from 20 to 300 employees and revenues reached an estimated $77 million. The company was producing approximately 150 cereal items, including its own brands, private-label brands, and bulk or single-serving cereals for the food-service operations of major cereal companies.

Price increases by the top-of-the-line, ready-to-eat cereal makers had opened a window of opportunity for Malt-O-Meal in the 1980s. Budget-conscious consumers balked at paying upward of $4 a box for national brands. By foregoing expensive advertising and packaging, Malt-O-Meal offered a comparable product for about half the price of the high-profile cereals: limited magazine, radio, and television ads emphasized that message. Selling through food brokers instead of staffing a large internal sales force also helped Malt-O-Meal keep prices down.

Malt-O-Meal's strategy paid off on the bottom line. In a September 1990 Forbes magazine article, John Harris estimated 1989 profits to be $4 million. Harris wrote, "Only a handful of regional and independent cereal companies remain in a business in which a new product introduction can easily cost $15 million." Despite purchase offers, Malt-O-Meal continued to be held by members of the founding family.

Challenges of the 1990s

Revenues reached an estimated $137 million in 1991. Malt-O-Meal sales had grown at a compound annual rate of just less than 17 percent since 1975, according to a May 1992 Minneapolis Star Tribune article by Dick Youngblood. The company added to its production facilities nine times during that same period. The well-trained employees, numbering more than 450, were divided into production teams.

Malt-O-Meal had pumped in about $100 million on plant and equipment during the 1980s and first few years of the 1990s, according to Youngblood. But while its laboratories could copy the ingredients of big name cereals--only trademarks, names, and technologies could be patented--they still faced some marketing barriers. Time-crunched consumers tended to buy familiar brands, and many potential customers viewed Malt-O-Meal as only a hot cereal maker.

So with about a dozen different flavors in its bagged cereal lineup, Malt-O-Meal began experimenting with additional advertising. General Mills quickly complained that the firm's TV ad comparison of Toasty O's to Cheerios was misleading in terms of taste and price. The National Advertising Division of the Better Business Bureau agreed, and Malt-O-Meal pulled the 1992 ad.

Sales topped the $200 million mark in 1993, two years ahead of Lettmann's target date, according to a March 1994 St. Paul Pioneer Press article by Dave Beal. Malt-O-Meal celebrated its 75th anniversary in 1994 with the groundbreaking for a three-year expansion estimated by Beal to cost about $80 million. The 70 percent increase in space would boost the facility to 860,000 square feet and make it one of the largest manufacturing plants in Minnesota.

While Malt-O-Meal bagged cereal sales were growing, the private-label boxed cereals continued to bring in about half the ready-to-eat cereal revenues. Malt-O-Meal held an estimated 25 percent share of the U.S. private-label market. Ralston Purina (later Ralcorp Holdings, Inc.) held about 60 percent. But, according to the Beal article, market analysts believed Ralston's share was falling while Malt-O-Meal was on the rise.

The value end of the cereal business was growing at a faster pace than the overall industry and both small and large companies wanted to tap into the market. Minnesota-based Grist Mill Inc., which packaged granola cereal under its own name and private labels, began offering several more cereal varieties in 1993. Quaker Oats, which held 15 percent of the bagged cereal market through its Stokely Van Camp subsidiary's Popeye brand, began putting its own name on the lower-cost bags in 1994. Malt-O-Meal held about 75 percent of the bagged cereal market.

Malt-O-Meal moved to increase consumer awareness of bagged cereals through a new take on its advertising. Laurie Freeman wrote in a July 1995 Advertising Age article, "The 'Walk This Way' spot shows regular folks doing a duck walk--squatting down and waddling by the lower shelves of the cereal aisle, where Malt-O-Meal cereals are usually found." The humorous television ad aired in 13 key markets, including Minneapolis, Seattle, and Phoenix, and on network cable. But Malt-O-Meal's ad budget remained minuscule compared with those of the national brands.

Production commenced on five more ready-to-eat cereals, Tootie Fruities, Apple Cinnamon Toasty O's, Coco Roos, Marshmallow Mateys, and Corn Bursts, between 1989 and 1994. Malt-O-Meal added Apple & Cinnamon to the hot cereal offerings in 1995. Original and chocolate-flavored cereals, and Maple & Brown Sugar Malt-O-Meal, which had been produced since 1992, completed the line that produced about 15 percent of total company sales of about $250 million.

Sales grew to an estimated $275 million by 1996, aided by the opening of three distribution centers located around the country: Salt Lake City in 1993; Grove City, Ohio, in 1995; and Coppel, Texas, in 1996. Also in 1996 Malt-O-Meal was the first value-priced cereal maker to lower its prices in response to price cuts by Kellogg, General Mills, and Philip Morris Companies Inc., owner of Post and Nabisco brands. The companies were trying to halt market share erosion caused by the value-priced offerings. Although Malt-O-Meal had not raised its prices in five years, an average of 12 percent was knocked off ten of its cereals to maintain an 80 cents to $1.00 price differentiation.

Malt-O-Meal continued introducing new products--all knockoffs of other brands--in the late 1990s. These included Berry Colossal Crunch (1996), Honey Buzzers and Frosted Mini Spooners (1997), Apple Zings (1998), and Cocoa Dyno-Bites and Fruity Dyno-Bites (1999). In addition, the packaging for Malt-O-Meal's bagged cereals began featuring zip-off tops with resealable pour spouts in 1998, an innovation that the company touted as a way for consumers to keep the product fresher after opening.

In June 1998 Malt-O-Meal recalled about three million pounds of its Toasty O's, Toasted Oats, and private-label plain toasted oat cereals after finding that some of its toasted oat cereal was the likely culprit in an outbreak of salmonella poisoning that at the time had reportedly sickened more than 200 people in 12 states in the Midwest and Northeast, sending nearly 50 of them to the hospital. A class-action lawsuit was soon filed against Malt-O-Meal on behalf of those affected. Final approval of a settlement was granted in 2002, whereby the company, without admitting any liability or wrongdoing, agreed to pay $2 million to the plaintiffs, which by then numbered more than 1,000.

By 1998, despite the recall, Malt-O-Meal had captured 4 percent of the overall U.S. cereal market, more than doubling its share of five years earlier. Revenues reached about $350 million that year. Late in the year the company broke ground in Tremonton, Utah, for a new 200,000-square-foot manufacturing plant as well as a new western distribution center that would replace the one in Salt Lake City. Seeking a town in the West similar to Northfield--small but within a reasonable distance to a major metropolitan area--Malt-O-Meal officials settled on Tremonton, a town of about 5,000 in northwestern Utah, located in Box Elder County about 70 miles north of Salt Lake City. Cost of construction was estimated at about $90 million.

Growth Initiatives in the Early 2000s

This plant, however, fell victim--at least temporarily--to the cereal price wars. The cereal market took a sharp turn for the worse in 2000, leading competitors such as Post and Kellogg to slash their prices by as much as 20 percent. Forced to cut its own prices, Malt-O-Meal saw its revenues fall and its margins squeezed. It halted construction of the Tremonton plant just short of completion.

As its potential new plant sat idle, Malt-O-Meal moved forward with several new products. In 2000 it introduced a new line of instant oatmeals under the Big Bowl brand. The following year the company debuted two more bagged cereals: Toasted Cinnamon Twists, a knockoff of General Mills' Cinnamon Toast Crunch, and Honey Graham Squares, a knockoff of Golden Grahams, yet another General Mills product.

In December 2002 Malt-O-Meal announced that it had bought the U.S. bagged cereal business of Quaker, which had been purchased by PepsiCo, Inc. two years earlier. Malt-O-Meal gained a line of 40 bagged cereals marketed under the Quaker brand, including Frosted Flakes, Marshmallow Safari, Apple Zaps, and Cocoa Blasts. Quaker agreed to continue manufacturing the line for up to two years, during which time Malt-O-Meal could use the Quaker name under license.

The deal breathed new life into the Tremonton plant. Knowing that it would eventually need more manufacturing capacity to produce the acquired products on its own, Malt-O-Meal restarted work on the plant. It finally opened in January 2004, producing Toasted Cinnamon Twists and Golden Puffs. Additional products were slated to be produced at the plant over the next two to three years, during which time the firm also planned to move its distribution center from Salt Lake City to Tremonton. Also by early 2004, the company had completed its conversion of the Quaker bagged cereals to the Malt-O-Meal brand.

Meantime, Malt-O-Meal took its bagged cereal line in a new direction in 2003 with the introduction of Balance with Berries. Featuring wheat flakes and freeze-dried strawberries, this new cereal was not a knockoff but the first in what the company said would be a Malt-O-Meal Originals line of unique cereals. Balance with Berries also targeted the fast-growing "cereal with fruit" segment of the market. Aided by this new introduction and the acquired Quaker line, Malt-O-Meal reported a sales increase for 2003 of 28.8 percent, compared with flat sales for cereals industrywide. This pushed sales up to about $520 million, translating into a market share of about 7.3 percent. Through its most recent moves, Malt-O-Meal had clearly strengthened its position in the highly competitive cereal market.

Principal Competitors: Kellogg Company; General Mills, Inc.; Kraft Foods Inc.; PepsiCo, Inc.; Ralcorp Holdings, Inc.

Chronology

• Key Dates:
• 1919: John S. Campbell founds the Campbell Cereal Company in Owatonna, Minnesota, producing a new cereal he calls Malt-O-Meal.
• 1927: The company relocates to Northfield, Minnesota, in the Ames Mill.
• 1936: Company headquarters are moved to Minneapolis.
• 1953: Campbell Cereal is renamed Malt-O-Meal Company.
• 1961: Manufacturing space in Northfield is expanded with the purchase of the Carnation Creamery building, which is renamed the Campbell Mill.
• Early 1970s:Malt-O-Meal begins boxing private-label cereals for grocery store chains.
• 1975: The company introduces Toasty O's, a lower-cost, bagged version of Cheerios.
• 1993: A distribution center in Salt Lake City is opened.
• 1995: A Grove City, Ohio, distribution center is opened.
• 1996: The company opens a distribution center in Coppel, Texas.
• 1998: An outbreak of salmonella poisoning forces Malt-O-Meal to recall about three million pounds of its toasted oat cereals; the company breaks ground on a new plant and distribution center in Tremonton, Utah.
• 2000: Construction of the Tremonton plant is halted because of a cereal price war; Big Bowl brand of instant oatmeal debuts.
• 2002: Malt-O-Meal acquires Quaker's U.S. bagged cereal line and announces that construction of its Utah plant will resume.
• 2003: Balance with Berries is introduced as the first in a new Malt-O-Meal Originals line of unique cereals.
• 2004: Production begins at the Tremonton plant.