Michigan keeps grip on cereal-making as Kellogg reverses layoff plan

• Battle Creek will remain Cereal City now that Kellogg plans to keep two of three production lines running
• Doing so saves 170 jobs in the state, which approved $24 million in incentives on Tuesday
• The move comes just a few months after the cereal division was spunout into a separate company from the bigger snack division, now called Kellanova

W.K. Kellogg Co. came close to laying off about half of the workers at its Battle Creek factory this month as it planned to move operations to Canada, but scrapped the plan after a request from employees, company officials said Tuesday.

The iconic breakfast cereal company — home to brands like Rice Krispies, Froot Loops and Corn Flakes — now will retain the 170 workers whose jobs had been in danger and continue to operate two of three production shifts in Michigan.

The news emerged Tuesday as Kellogg met with state economic developers considering an incentive request.

Avoiding the layoffs is “something that we believe really is very special,” Stacy Flathau, chief corporate affairs officer with Kellogg, told Michigan economic development officials on Tuesday.

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With the move, the company said it is committed to investing up to $143 million to keep making its signature product in Michigan’s “Cereal City.” That investment also could result in nearly four dozen new positions as the cereal company works with staff to trim production costs and make the Michigan factory more efficient.

The state will support the company with incentives totaling about $24 million that were approved Tuesday by the Michigan Strategic Fund, the funding arm of the Michigan Economic Development Corporation (MEDC). That includes a $5 million grant if Kellogg meets investment and hiring goals and a 15-year Renaissance Zone tax abatement that will save the company about $1.27 million per year in property taxes.

By reversing course and staying in Battle Creek, Kellogg is recommitting to the area, said Joe Sobieralski, president and CEO of Battle Creek Unlimited economic development group.

The decision follows years of little Kellogg investment in Battle Creek operations, so “this move is anchoring them to the community,” he told Bridge Michigan on Tuesday. 

While the Kellogg name is familiar around the globe, the W.K. Kellogg is now a cereal-only spinoff of the former Kellogg Co. It was formed in October after the bigger snack division — which saw treats like Cheez-It crackers and Pringles potato chips outsell cereal by nearly five times — renamed itself Kellanova and moved a portion of its headquarters from Battle Creek to Chicago.

The cereal-only Kellogg now employs about 3,000 people including about 700 in Michigan. About half work in the Battle Creek factory, which makes Raisin Bran, Raisin Bran Crunch, Special K Fruit and Yogurt and some specialty cereals like Cinnabon, Elf on the Shelf and Rainbow Rice Krispies.

The corporate split came two years after cereal sales fell sharply during a labor strike, which affected the Battle Creek factory among several others in the U.S. By the time the contract was settled in December 2021, the company faced rebuilding lost market share and cereal profits.

The cereal outlook, at the same time, also changed. During the pandemic, sales of the easy-to-prepare breakfast leapt, but then fell as consumers once again turned to more portable morning meals. Over the next decade, industry forecasts predict that the breakfast cereal market will grow 4 to 5 percent, while snacks at Kellanova could see double-digit growth. 

As Kellogg’s snack division pursued the cereal spinout, the leadership team at Kellogg went to each production site to talk to workers, Flathau said. In Battle Creek, the workers asked if there was something they could do to save their jobs. 

Those discussions helped the new company realize that the production shift to Canada — made to save about $20 million — was determined by the leadership team that was shifting into Kellanova. The new Kellogg executives, who themselves felt committed to working in Battle Creek, realized that keeping production nearby also would benefit the community, Flathau said.

The reversal, she said, was “a little unusual, a little cutting edge, a little something unexpected.”

The news was welcomed by the state since it retains a fully staffed factory by a company that started in Michigan 117 years ago, economic development officials said Tuesday. 

“We feel an urgency to ensure that companies that have grown up here in Michigan continue to employ Michiganders with family-sustaining jobs,” said Quentin Messer Jr., CEO of the MEDC, during a media briefing. 

Officials from The Bakery, Confectionary, Tobacco Workers and Grain Millers Union Local 3-G, which represents the Battle Creek workers at Kellogg, were not available on Tuesday.

Sobieralski said the Kellogg manufacturing jobs are particularly well-paid, with top earnings at about $100,000 per year. 

Keeping all three Kellogg production lines in Michigan means the workers had to agree to cross-train on various jobs. The effort will help to close the gap with the $20 million savings the company would have realized had it moved production to Canada. 

In June 2022, when the corporate split was announced, Kellogg Co. was the fifth-largest Michigan-based public company, with a market capitalization of $22 billion. 

W. K. Kellogg [NYSE: KLG] was valued at $1.03 billion on Tuesday, with its stock trading at about $12.50 per share. The stock fell 26 percent from its first day of trading after the spinoff in October through December 12.

Kellanova [NYSE:K] was valued at $18.5 billion on Tuesday, with stock trading at about $54.04. The stock price increased 2 percent since the corporate split.