The Billion Dollar Breakfast Revolution

Hello! This is Deep Pockets #24.

I generally do not like the phrase “serial entrepreneur.” I think it’s totally overused by people who probably haven’t earned the distinction. In fact, I just made the mistake of searching LinkedIn for the phrase “serial entrepreneur,” and my computer crashed.

So, in protest of my disdain for the phrase “serial entrepreneur,” today we’re going to talk about two…

Cereal Entrepreneurs

Specifically, two brothers, John and Will Kellogg, who made a fortune revolutionizing the way we eat breakfast. Well, one of them made a fortune…

DEEP DIVE: The Cereal Entrepreneur

John Harvey Kellogg and Will Keith Kellogg were born in 1852 and 1860, respectively. They were two of their father’s 11 children from his SECOND marriage. Their father had SIX children from his FIRST marriage!

Their father, John Preston Kellogg, was an evangelical follower of the Seventh-day Adventist Church (SDA). The SDA church was born out of a fringe Baptist movement in upstate New York that believed Jesus Christ was going to return to earth sometime between 1843 and 1844 to bring his followers to heaven. The very specific last possible day for Jesus to return was October 22, 1844. When that day came and went without the world ending or Jesus returning, the followers were left despondent. They had spent the last several years preparing for and assuming the world was ending.

This event, or lack thereof, is now called “The Great Disappointment.”

In the wake of the Great Disappointment, an offshoot of followers adjusted their beliefs to the idea that Jesus was returning… at some point soon. Not at a specific date. Just soon.

That core belief, combined with a dozen other ideals, became the theology of what would soon be called the Seventh-Day Adventist church. Most of the SDA’s beliefs and values were written and published by church co-founder Ellen White. In addition to all the various religious observances, Ellen preached the importance of living a holistic, healthy lifestyle that emphasized physical strength, vegetarianism, and abstaining from tobacco and alcohol.

In 1855, John Preston Kellogg was one of several influential SDA followers who convinced Ellen and her husband to move the church from upstate New York to Battle Creek, Michigan, where he believed they could build a community of like-minded believers. The Seventh-Day Adventist church was officially founded in Battle Creek, Michigan, on May 21, 1863.

In Battle Creek, Ellen White and her husband, James, opened a Health Reform Institute and a publishing business for Ellen’s writings.

Because they believed the end of the world was imminent, the Kellogg children barely attended school. When Will Kellogg did attend school, everyone thought he was slow because he couldn’t read the chalkboard. As it turned out, he just needed glasses, something he did not learn until he was 20 years old.

When John Harvey Kellogg was 12, he left school and became a protegé of Ellen and James White at their magazine, “The Health Reformer.” He helped edit, publish, and promote the magazine. He also eventually suggested a name change. Realizing that people wanted to learn about health but didn’t want to be “reformed,” at his urging, the magazine was re-named “Good Health.” Good Health grew to have more than 20,000 subscribers and was published until 1955.

Ellen was so impressed by the young Kellogg’s potential that she sponsored his medical education at Bellvue Hospital Medical College in New York.

Meanwhile, little brother Will spent his young adult years selling brooms.

Upon completing his medical degree in 1875, 23-year-old Dr. Kellogg returned to Battle Creek to become superintendent of the Health Reform Institute.

By this time, Dr. Kellogg had become a fanatic of what he called “biologic living,” which meant eating a vegetarian diet, abstaining from alcohol, tobacco, and caffeine, eating minimal dairy, and exercising frequently. That may not sound like a crazy way of life today, but it was highly unusual in the late 1800s.

Battle Creek Sanitarium

In 1876, Dr. Kellogg renamed the Health Reform Institute the “Battle Creek Sanitarium.” He actually invented the term “Sanitarium” that we commonly use today. At the time, there was a term called “sanatorium” which described a medical facility that was a hybrid of a hospital and resort. It’s where people suffering from long-term diseases like tuberculosis or soldiers with devastating wounds were treated for months or years at a time. Dr. Kellogg combined “sanatorium” with “sanitary” to create “Sanitarium.”

By the turn of the century, “The San,” as it was called, was the premier wellness destination in the United States. After a devastating fire in 1902, an even bigger version of The San was constructed in its place. A 30-building complex spread over 30 acres that could house 1,300 guests, with a full-time hospital, nursing school, and research facility.

Here’s how it looked before the fire in 1902:

And here’s what they rebuilt after the fire:

The San’s patients were typically dealing with some form of digestive or stomach issue, but they treated all kinds of ailments, from mental illnesses to STDs.

Following Dr. Kellogg’s “biologic living” plan, patients were fed a low-fat, vegetarian diet focused on whole grains, fruits, vegetables, and nuts.

They drank lots of water. They were prohibited from consuming all stimulants, including tea, coffee, tobacco, and alcohol.

They did daily calisthenics, hiking, and gardening.

They rested and relaxed.

They sat in vibrating chairs and stood in front of “slapping machines.” They took hot and cold baths. They got massages and took saunas.

Patients received frequent enemas. Sometimes YOGURT enemas 😁 

Other than the slapping machines and yogurt enemas, I could see lots of health-minded influencer types signing up for a week at this clinic today.

And to be clear, though he did have some highly unusual practices, Dr. Kellogg was not a quack. He was a thoughtful and passionate doctor who worked diligently to help all of his patients feel better. He was not interested in money except to keep his facilities operating and expanding. He held free public lectures, released books, and even a vinyl record where he encouraged listeners to perform various exercises.

Unlike the vast majority of doctors at the time who waited for an illness and then treated it as best they could, Dr. Kellogg looked for the root cause of an illness so it could be prevented. And his basic belief was that poor diet and lack of exercise led to many common health issues, especially digestive issues. If he was alive today, Dr. Kellogg would have like 10 million followers on Instagram and would be a regular guest on Joe Rogan.

Some of his beliefs were also very wrong. For example, he was passionate about eugenics. In 1914, he founded an entire organization devoted to eugenics called the Race Betterment Foundation. And, spoiler, upon his death, he left his entire estate to this foundation.

One of Dr. Kellogg’s biggest enemies was the common American breakfast. Around this time, a well-off American would typically eat a breakfast consisting of potatoes, eggs, and bacon fried in fat leftover from the previous night’s dinner. Breakfast would be washed down with a pot of black coffee.

Less well-off Americans ate grains and porridge that had little nutritional value. Oatmeal existed, but it took 12 hours to make, not exactly convenient.

Rich or poor, exercising was not a concept.

In 1877, Dr. Kellogg began developing an innovative new breakfast to serve patients at The San. What he initially called “Granula” was made of wheat, oats, and corn that were baked at high temperatures overnight and then broken into crumbs. After a trademark dispute, he renamed his invention “Granola.” It was a hit.

In 1880, John’s little brother Will came to work at The San. The two brothers could not have been more different. John was gregarious, vibrant, trim, and overflowing with brilliant new ideas and experiments. Will was quiet, shy, overweight, and wore glasses.

The relationship between the Kellogg brothers was complicated. Growing up, Will was incessantly bullied by John. That bullying continued at The San. On a good day, John treated Will as his lackey. On a bad day, he was borderline abusive. John was known to force Will to take notes while he was going #2 in the bathroom, and a common site around campus was the pudgy Will huffing behind John on a bike while he dictated.

But they were a good match. John had no interest in business other than generating money to keep The San running and expanding. Will managed thousands of patients and thousands of employees. He ran human resources, legal, and accounting.

It was Will’s idea to offer takeaway packages of their food products for sale to patients. It was Will’s idea to open a mail-order branch of the business, mainly targeted at these same former patients who wanted to continue with the Kellogg diet at home. It was Will’s idea to form a separate business called the Sanitas Food Company to market their to-go products.

Will also helped his brother with his various food experiments. And one of those experiments would soon revolutionize the concept of breakfast.

One night in 1894, John left a batch of wheat dough in the kitchen out overnight. They normally would have thrown it away the next morning, but someone put the batch through rollers. The end result was a bunch of delicate flakes. Those flakes were then baked in an oven, and voila. Cereal!

In 1895, Dr. Kellogg was granted US patent #558,393 for:

“Flaked Cereals and the Process of Preparing Same.”

While Dr. Kellogg may have gotten the patent and the glory, it was actually Will’s idea to combine the cereal with milk. And what would cereal be today without milk?

It was also Will’s idea to use the same cereal process but with corn maize instead of wheat because he believed corn would be more palatable. In 1898, the Kellogg brothers released “Sanitas Toasted Corn Flakes.”

Cornflakes would soon turn Kellogg into a household name while earning one of the brothers an enormous fortune. But which brother?

A Kellogg Family Feud

As we’ve made clear, other than supporting The San and spreading his gospel of healthy living, John Kellogg was not interested in business.

Will Kellogg, on the other hand, could see they were sitting on a goldmine.

Will spent years begging John to let him run with his business expansion ideas. If John’s goal was to reach more people, Will argued they should try to make as much money as possible to open Sanitariums around the world. John wouldn’t budge. It was yet another humiliation at the hands of his older brother.

Two disputed ideas, in particular, were the last straw for Will Kellogg.

First, Will wanted to use advertisements to expand their mail-order business beyond former patients. John flatly refused.

Second, Will wanted to create a version of their cornflakes that contained sugar to make them a bit tastier. As you might imagine, Dr. John was adamantly opposed.

Tragedy Creates Opportunity

Remember how we said the original Sanitarium was destroyed in 1902? Dr. Kellogg spent $1 million ($35 million in today’s dollars) constructing the new 30-building state-of-the-art complex. Unfortunately, servicing the construction debt left Dr. Kellogg in financial straights by 1906. That gave Will the opportunity of a lifetime.

In 1906, having just raised a bunch of venture capital, Will Kellogg bought the rights to the cornflake recipe and patent from his brother and formed his own venture:

The Battle Creek Toasted Corn Flake Company.

After building a factory and hiring a workforce, Will’s first product was a batch of cornflakes with sugar added. He called the result “Kellogg’s Toasted Cornflakes.”

The second thing he did was launch an advertising campaign.

Kellogg’s Toasted Cornflakes were a smash hit. By 1909, the newly renamed Kellogg Toasted Corn Flake Company was producing 120,000 cases of Corn Flakes… EVERY DAY.

Perhaps not surprisingly, Dr. Kellogg was not happy about his brother’s enormous and fast success.

And Will was not happy to learn that his brother went out and produced his own package of cornflakes that also featured the Kellogg name. Worst of all, Dr. Kellogg’s cornflakes tasted terrible and were causing consumer confusion.

The two brothers spent the next 15 years battling over their last name in court. The legal fight reached all the way up to the Michigan Supreme Court. In December 1920, the court ruled in Will’s favor. From that point on, if Dr. Kellogg released a cereal, he could only put his name in tiny writing at the bottom of the box.

In 1922, Will renamed his company once again, this time to the Kellogg Company.

Not only did Dr. Kellogg spend a fortune over the years, but he was also ordered to pay his brothers’ legal fees. He was totally overextended in 1928 when the construction of a new 14-story tower at The San was completed. Then, the Great Depression hit.

In 1933, The San slipped into receivership. The buildings sat abandoned for years. In 1942, the main Battle Creek Sanitarium building was purchased by the U.S. Army and was reconstructed as the Percy Jones Army Hospital.

After the war, the complex was converted to federal buildings. In 2003, it was renamed the Hart-Dole-Inouye Federal Center. The building is named in honor of Philip Hart, Bob Dole, and Daniel Inouye. Hart, Dole, and Inouye met while being treated at the Percy Jones Army Hospital after being wounded in WW2. Later in life, they each went on to become U.S. Senators.

Dr. John Harvey Kellogg died on December 14, 1943, at the age of 91. He and his wife never had any biological children, but they did foster 42 kids over the years, legally adopting eight.

At the time of his death, John was worth around $700,000. That’s the same as around $12 million in today’s dollars.

Dr. Kellogg left 100% of his estate to his dubious Race Betterment Foundation. Twenty years after his death, the assets were gone, its trustees were indicted, and the foundation was shuttered.

The Kellogg brothers never spoke again after their legal war. However, later in life, John had a change of heart and even went so far as to write a very thoughtful apology letter to his younger brother:

“It was the greatest possible misfortune that circumstances arose which led you and me in different channels and separated our interests. Your better-balanced judgment has allowed you to achieve magnificent success, for which generations to come will owe you gratitude.”

Unfortunately, Will did not receive the letter until six years AFTER John died. John’s secretary secretly refused to send it, thinking it made him look bad.

Will Kellogg

Two decades before his death, in 1930, Will donated $66 million to a newly established foundation called the W.K. Kellogg Foundation. That was 97% of his entire fortune. He kept $2 million for personal use.

$66 million in 1930 is the same as around $1.3 billion in today’s dollars.

$2 million is the same as around $40 million.

Today, the W.K. Kellogg Foundation is one of the largest philanthropic foundations in the world, with $9 billion in assets.

Just like his brother, Will also lived to 91. He died in October 1951.

Three months later, Kellogg’s became a public company. Over the next half-century, Kellogg’s launched a dozen brands that became iconic in their own right, for example:

• Frosted Flakes

• Rice Krispies

• Pringles

• Eggo waffles

• Cheez-Its

• Raisin Bran

• Froot Loops

In October 2023, Kellogg’s was split into two companies:

1. The WK Kellogg Co. owns the North American cereal division.

2. The newly-formed Kellanova owns the snack brands and the international cereal operation.

The two companies have a combined market cap of around $25 billion and a combined 2023 revenue of $14 billion.

We’ve reached the end of this story, but I have a surprise. The Kellogg fortune wasn’t even the biggest cereal fortune created out of Battle Creek in the 1900s!!!

While the Kellogg brothers were fighting in court, a rival cereal company was founded right under their noses in their backyard. By a former patient. Who paid for his services by… working in their kitchen.

FINAL WORD

On the next edition of “Deep Pockets,” we’ll tell the story of C.W. Post, whose life was literally saved by the Kellogg brothers and The San. So how did he repay them? He stole their best recipes, started a rival company and made way more money.

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