Kellogg to Fire New Salvo in Oat Bran War : Cereal Giant’s Second New Product to Debut

Kellogg Co. will put the crackle back into the oat bran war this morning when it introduces its new cereal Heartwise, a bran-and-psyllium breakfast food and its second new product in as many weeks.

Heartwise and Oatbake, which was introduced last Thursday, are an effort by the Battle Creek, Mich., cereal giant to work its way back into the nation’s breakfast bowls and gain ground lost to General Mills Inc., maker of oat-based Cheerios and Benefit.

In addition to oat bran, Benefit also contains a controversial grain called psyllium, which is grown in India and is high in soluble fiber. General Mills was the first to manufacture a bran-and-psyllium cereal, introducing Benefit last April. Kellogg became a quick No. 2 with Heartwise.

“What is happening here last week and this week is that Kellogg is positioning itself to benefit from the demand for oat-based products,” said Harry Segalas, analyst for Shearson Lehman Hutton in New York. “General Mills has been gaining share because they’re very well positioned.”

Aggressive Marketing Campaign

The oat bran craze began about two years ago, with a diet book called “The Eight-Week Cholesterol Cure” by Robert E. Kowalski, said Timothy S. Ramey, food industry analyst for County NatWest Securities USA in New York.

“One of the things the book had in there was that oat bran reduced cholesterol levels,” Ramey said. “It had been substantiated a year earlier by a scientific study. This guy was the first to market the idea. Quaker then picked it up and started touting it.”

When “The Eight-Week Cholesterol Cure” was published, General Mills already had an oat-based product on the market: that staple of early morning eating called Cheerios. In April, the company introduced Benefit.

General Mills followed with an aggressive marketing campaign that touted the cereal’s cholesterol-reducing properties, crediting soluble fiber-filled oat bran and psyllium. Studies have linked soluble fiber and a low-fat diet with reduced cholesterol levels.

“There is a very strong demand for cholesterol reduction in the diet and a tremendous explosion in the oat bran cereals in the past two years, the last 12 months in particular,” said Lawrence Adelman, food analyst at Dean Witter Reynolds in New York. “An important part of cereal consumption in the last few years has been very dramatically driven by health considerations.”

It is just those considerations--coupled with General Mills’ market share--that have driven Kellogg to double the number of oat-based cereals that it offers, industry watchers say. Oat-based cereals such as Benefit and Cheerios account for about 40% of General Mills’ cereal volume, Adelman said, compared to only 10% for Kellogg.

“There’s no question that General Mills is gaining some share and Kellogg has lost some share, a moderate shift,” he said. “But Kellogg is coming back like gang busters.”

Until last Thursday, Kellogg’s bit of the bran bonanza consisted of Common Sense Oat Bran and Cracklin’ Oat Bran. Six days ago, the company introduced Oatbake, a whole oats cereal that can be eaten hot or cold, Ramey said.

FDA Developing Rules

And this morning, Ramey said, Heartwise will burst upon the bran world during--appropriately enough--a breakfast news conference at New York’s Waldorf Astoria Hotel. A Kellogg’s spokesman would only confirm that company Chairman William E. LaMothe will introduce a new product and make a “major policy announcement.”

But before the announcement and the product introduction, “leading members of the scientific community, in the area of disease prevention . . . will discuss recent research findings on lowering blood cholesterol,” according to a written statement.

Kathryn Newton, a spokeswoman for General Mills, said she knew nothing about Heartwise, except that it sounds a lot like her company’s controversial cereal Benefit. Soon after Benefit was released, Procter & Gamble Co. asked the Food and Drug Administration to pull the psyllium-based cereal from market shelves.

Instead, the FDA is developing a regulation governing health claims on product labels.

Psyllium is also a part of Metamucil, Procter & Gamble’s fiber laxative. Procter & Gamble had asked the FDA to allow the company to make cholesterol-lowering claims for Metamucil, but the agency said more tests are needed.

Procter & Gamble contends that Benefit is actually a drug and should meet drug-testing requirements.

Dr. Donald B. Hunninghake, director of the Heart Disease Prevention Clinic at the University of Minnesota, supervised the General Mills studies on its Benefit cereal. According to the study, a two-ounce serving of Benefit--coupled with a low-fat diet, resulted in a 5.9% decrease in blood cholesterol.

“In terms of how (oat bran and psyllium) lower cholesterol, I don’t think scientifically we know for sure,” Hunninghake said.

But it’s easy to see what they do for cereal sales.

“The U.S. ready-to-eat cereal market is enjoying phenomenal growth this year,” Segalas said, who estimates that oat-bran cereals account for about $1.5 billion of the $7-billion cereal industry.

“The volume for the industry is at a 5% clip,” he said. “The reason is that there’s been a very strong demand for oat-based products. Historically this market has grown at a 3% to 4% annual rate. “