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Battle Creek: Changing tastes, economy strain link to Kellogg

On June 11, thousands will descend upon downtown for the annual Battle Creek Cereal Festival, home of the World's Longest Breakfast Table.

The tradition put on by the 110-year-old Kellogg Co., which gave the city its nickname, "Cereal City," has occurred on and off for more than 50 years. Children and adults alike will pour cold milk over tiny bowls of cereal. But fewer of the festival goers, and breakfast eaters around the globe, pick up boxes of Kellogg's cereal at the market, and even fewer are employed at the hometown Fortune 500 company.

The result is common among many small cities across the U.S. — a company sweet on local workers turned salty as economics change.

Globalization, changing diets and the culture clash between Kellogg and the depressed city — the city's per capita income is 13 percent lower than the state average, and 21.8 percent of the city's residents live in poverty — has put a strain on the symbiotic relationship upheld by a town in need of its once-largest corporate resident and a publicly traded company in need of profits.

For more than a decade, the cereal business has declined as more people reach for granola bars, yogurt and other "on-the-go" options. And if they do eat cereal, the brands of Kellogg's or Post or General Mills are losing out to store brands from Meijer or Kroger or Trader Joe's.

U.S. cereal sales declined 19 percent between 2005 and 2015, according to market analysis firm Euromonitor. Consumers bought an average of 12.3 pounds of cereal in 2005, dropping to just 9.9 pounds by 2015 — or just under 11 boxes per consumer per year. Cereal makers are projected to lose another $1 billion in U.S. sales in the next five years, according to Euromonitor.

Kellogg reported net income of $1.3 billion in 2015 on revenue of $13.5 billion, but cereal sales continue to slide, down to $5.9 billion last year from $6.6 billion in 2014.

But the pain caused by cereal sales hit Battle Creek far before the trends hit the papers. Kellogg employs only about 385 Bakery, Confectionery, Tobacco Workers and Grain Millers International Union Local 3G workers at its Battle Creek plant, down from 2,150 in 1990 and 3,455 in 1970.

"From a business standpoint, automation took away a lot of these jobs, but we've seen the company make decisions that impact (the workforce) in major ways," said Trevor Bidelman, president of the union. "We've become a culture indulged on return on investment, and that's caused jobs to leave Battle Creek."

The remaining union jobs at Kellogg in Battle Creek pay $30 to $31 per hour, Bidelman said.

Kellogg employs just over 2,000 in Battle Creek, most at its global headquarters downtown and its R&D center.

In 1999, Kellogg shuttered much of its hometown cereal plant under then-CEO Carlos Gutierrez, shipping much of the work to a plant in Mexico, which was projected to save the company up to $45 million annually.

Battle Creek's unemployment rate, which historically rests below the national average, spiked following the partial closure of its Battle Creek plant. The unemployment rate hit 3.9 percent in November 1999, climbing to 7.5 percent in June 2003, years ahead of the Great Recession.

John Bryant, Kellogg CEO, said in a statement to Crain's that the company is committed to the city, even during times of contraction.

"For Kellogg, being a good corporate citizen means investing in our community as well as building a business that delivers sustainable growth for the long term," Bryant, said. "Since 2000, we've invested more than $54 million in the expansion of the W.K. Kellogg Institute for Food and Nutrition Research, our R&D center, and have contributed more than $50 million to local charities and economic development projects."

In 2015, Kellogg and its nonprofit, the W.K. Kellogg Foundation, created a community development initiative, called BC Vision, to diversify Battle Creek's economy, create new jobs and improve education. The BC Vision steering committee held its first public meeting on March 24 and said it was on track to reach one goal of creating 1,000 new jobs in the community, the Battle Creek Enquirer reported. The foundation, established by Kellogg founder W.K. Kellogg in 1930, is Michigan's largest nonprofit foundation with $7.3 billion in assets.

Bryant said Kellogg is leading BC Vision's large business task force "to develop an economic plan that builds on the core competencies of Battle Creek — including food and agriculture, aviation, national defense, logistics and manufacturing — to attract a variety of industries."

Kellogg itself, however, is currently in the middle of another contraction, under a program announced in 2013 called "Project K," which is expected to reduce its global workforce by 7 percent.

Under that program, Kellogg opened a regional service center in Cascade Township, near Grand Rapids, in 2014. The plan, which called for the creation of up to 600 jobs, resulted in the loss of up to 200 jobs in Battle Creek.

Bryant, in a statement to Crain's, said the move was necessary to find talent.

"Together with an independent consultant experienced in creating successful service centers for global companies, we conducted an in-depth suitability study of nine potential locations — including Battle Creek — based on a number of factors," Bryant told Crain's. "A particularly critical factor in the sustained success of global business service center operations is locating them where there's a mature service center infrastructure already in place, with a sustainable pool of talent. It is not something that can be created quickly if it does not already exist. Keeping jobs in our home state of Michigan was also a critical factor, so Grand Rapids rose to the top."

But the move came as a surprise to Battle Creek, former Mayor Joe Schwarz told the Battle Creek Enquirer following the announcement.

"This was a unilateral action by the Kellogg Company — blindside, if you will," Schwarz told the Enquirer. "And that's not the way people in Battle Creek, especially those that have been here a long time and worked with Kellogg on so many issues like myself, that simply is not the type of behavior we've come to expect from the company."

Mike McCullough, executive director and managing editor of the Battle Creek Enquirer, said the move is representative of a company not in touch with its community.

"When I think of a company town, I think of a sense of pride and identity; I don't see any of that," McCullough said. "(Moving jobs to Grand Rapids) is just a reminder how precarious the world is now. The rules are different. There was a time when corporate responsibility meant being invested in your community."

McCullough, who arrived in Battle Creek in 1998, said the city's troubles stem from far more than job losses at Kellogg.

"I got here during emotional times; economically, in the city, there was a sense that the waning days of the company town mentality were ending," McCullough said. "What made Battle Creek a company town, the connection and the investing in the local community, I don't see anymore. I don't think a top executive even lives in (metro) Battle Creek anymore, and there are simply fewer ties to the city itself."

The last C-suite executive to live in Battle Creek was Gutierrez, McCullough said.

"There was a time that Kellogg's executives were expected to live in Battle Creek, that doesn't exist anymore; and Kalamazoo isn't Manhattan, but it offers more amenities and diversity," McCullough said. "I'm not saying it's the right thing to do (to make executives live in Battle Creek), I'm saying there are consequences. Beyond a United Way payroll deduction, I don't see executive involvement in the city, and we're not creating an upper-middle class here."

Yet Battle Creek's unemployment rate, 4.4 percent in February, remains below the state average of 4.8 percent largely due to expansion of automotive parts suppliers in the city's Fort Custer Industrial Park — which was created in the 1970s to diversify the workforce from cereal production.

Denso Manufacturing Michigan Inc., a subsidiary of Denso Corp., is now the city's largest employer at more than 2,907 at its operations in the Fort.

It opened in 1986 as Nippondenso Manufacturing U.S.A. Inc. with just 325 employees and never planned to expand beyond 1,000 employees, said Karen Boyer, vice president of general administration at Denso Manufacturing Michigan.

"We came to Battle Creek to support our primary customers, the Japanese automakers, but eventually branched out and we're now supporting every major automaker," Boyer said. "Sitting at the I-94 and I-69 corridor, it's a central location, and you can't get better than that for (supplying auto parts)."

Yet the boom of the auto industry hasn't boosted wages. Basic production workers at the nonunion plants earn between $13 per hour and $17 per hour, according to Denso's online jobs portal.

"What we've seen is good-paying jobs go out the door for jobs that pay $15 or $17 an hour," Bidelman said. "Yes, we've got jobs, and that's maybe living wage, but barely."

Nevertheless, the auto industry continues to expand in the city and is becoming ever-more involved in its operations.

Denso, for example, is working with the city to expand services as employment at the Fort grows, Boyer said. Denso operates a third shift and is seeking to have the city buses run during the night, as well as daycare options, Boyer said. The W.K. Kellogg Foundation is assisting in those projects, Boyer said.

The services are needed as the industrial park continues to expand, Boyer said. Denso recently invested $53.6 million into its Battle Creek operations.

Despite the auto industry's employment of thousands more than Kellogg or Post in Battle Creek, the city still retains the moniker of "Cereal City."

"When I travel and tell people where I live, they always say 'Oh, where Kellogg's cereal is made,'" Boyer said. "But it's not just Tony the Tiger anymore."

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