Amid the urban sprawl of Carson, Calif., a regal grove of huge eucalyptus trees surrounds the five-acre headquarters of Kellogg Garden Products. The Kellogg family, who have owned and managed the 80-year-old fertilizer/soil enhancement company for three generations, try to live according to the motto inscribed on a sign in their reception area—“Establish Your Roots”—by nurturing their niche in the industry and clarifying transition plans from generation to generation.
Many family business leaders hesitate to devise succession plans, or even to discuss the issue, because they are uncomfortable with the notion of their own mortality. Without a plan, unexpected death or disability of the CEO can leave heirs unprepared to run the company. But proactive measures taken by two generations of Kelloggs—and their readiness to discuss death frankly and openly—ensured their business would continue after the leader passed on. “Both my grandfather and my father developed innovative plans for succession to the next generation,” explains Kathy Kellogg Johnson, 40, the corporate secretary. “The succession structure and the splitting of other assets between siblings helped to keep the transition of power uncomplicated between one generation and the next,” adds H. Clay “Hap” Kellogg III, 43, now Kellogg’s president and CEO.
The company has managed to change with the times while maintaining its core values. As noted in the company literature, Kellogg aims to be “pioneering, stable, trade-driven, loyal, generous and operating with integrity”—what it calls its “values of yesterday and today.” Realizing that both change and death are inevitable, the Kellogg family has operated the business accordingly.
“Kellogg is successful because of the vision of the founder to develop products especially for the California landscape and to tie them in with the development of Disneyland, Dodger Stadium and other well-known places,” says Mike Trueblood, a Kellogg consultant for four years and director of the Family Business Council at Cal State Fullerton’s College of Business and Economics. “That success is tied into dedication to good products, a good read of the market and a balance between the various segments of the market, including private nurseries versus warehouse stores,” says Trueblood.
The current Kellogg management is continuing the company tradition of innovation while building on the original vision for the business. Kellogg now has 350 full- and part-time employees. It generates annual revenues of $55 million, up from $10 million in 1987, the year second-generation leader H. Clay (Hi) Kellogg Jr. died of a heart attack at age 59.
The roots
As a surveyor in the early 1920s, Hi’s father, H. Clay Kellogg Sr., watched vegetation thrive along a riverbank despite the generally dry Santa Ana, Calif., climate. He scooped up some of the black sediment, applied it to his orange trees and discovered the trees produced four times as many oranges as the other trees in his orchard. He called his new discovery “Nitrohumus” when he found it was rich in nitrogen and humus.
It was a challenge to market Nitrohumus in the days when farmers simply moved on as land appeared to lose its fertility. But H. Clay kept demonstrating his idea to local farmers. In 1925 he founded Kellogg Supply Inc. to meet the growing demand for his product. H. Clay—whose grandfather was the brother of Battle Creek, Mich., cereal magnates W.K. and John Henry Kellogg—began selling Nitrohumus for all kinds of crops, and the business steadily grew. After World War II, Southern California experienced an economic boom as many rural farms became urban. In response to this change, Kellogg sought new markets for its organic soil amendments and fertilizers.
In 1953, H. Clay bought Globe Fertilizer Company to focus on the homeowner and home gardening markets. Kellogg diversified its product selection and developed a line of fertilizer and soil conditioners specifically suited to California soils. The combined companies moved to the main plant in Carson in 1955.
Walt Disney sought H. Clay Kellogg’s help in developing a jungle scene for Disneyland’s planned Jungle Book ride. Because the tropical plants that flourish in jungles were difficult to cultivate in the dry Anaheim climate, H. Clay mixed Nitrohumus with acidifying materials like bark and redwood. The plants thrived, and local horticulture students visited Disneyland to study them. Kellogg products also played a key role in the development of other regional gardening landscapes, including the flowerbeds at Hearst Castle, the planters at the Getty Museum, the baseball field at Dodger Stadium, the Coliseum football field and the gardens at the Tropicana Hotel in Las Vegas.
Founder H. Clay established a clear line of succession at the company. When he died in 1975, his son H. Clay (Hi) Kellogg Jr.—who had been working at Kellogg for four years—inherited the business. Three vacant lots and a business park that included a bowling alley and retail stores were split equally between H. Clay’s two daughters, Marilyn and Jean. When the siblings’ mother died in 1977, Hi was the executor and Marilyn the trustee for the will, which stipulated that several other Kellogg-owned properties—two ranches and two restaurants—be sold to pay the estate taxes.
Kathy says her grandfather, as well as her father after him, “were smart enough to leave the corporation in the hands of only one of the offspring and equal amounts of assets to the others. It has all been part of our family’s generational planning.” This arrangement ensures that control of the business is left in the hands of those who work to build it.
Hi Kellogg, who took over as company president in 1958, was always looking out for new ways Kellogg could serve and educate its customers, particularly the home gardener. Under Hi’s guidance, Kellogg diversified its product selection and developed a line of fertilizer and soil conditioners specifically for California soils. This included adding organic materials to Nitrohumus and led to the development of various planting mixes and top dressing.
Hi sought to use leftover organic materials, such as rice hulls and biosolids, in the company’s products. He bought leftover bark and went on to pioneer the decorative bark market in the 1950s. He found a way to compost rice hulls and turn them into a soil conditioner called Amend. The third-generation owners are following Hi’s example by continuing to stress an environmentally friendly approach to gardening.
“Most people think composting is a new, exciting field,” says Kathy, who manages regulatory affairs at the company and addresses audiences around the world on environmental issues. “But we’ve been taking organic materials, composting them and making something useful for 70 years, beginning with our first product, Nitrohumus.”
The transition
Hap Kellogg recalls that his father gave the family a vote of confidence to take over the business a couple years before his death. According to Hap, “I remember my dad saying during a car ride between Hemet and Temecula, as we were looking at empty fields, ‘You and your sister have all the ability in the world to keep this company going forward when I die.’ He had a life insurance policy on himself to make cash available for a seamless passing of the baton from one generation to the next. The employees and the family didn’t feel pressured to pay off the IRS or wonder what was going to happen to the company.”
Hi Kellogg’s succession plan put his wife, Janice—now chairman of the board—in charge of the company from 1987 to 1990 while Hap prepared to take over in 1991. “Running the company helped with my grieving,” says Janice, a graduate of San Diego State University and a former teacher. “It gave me a reason to get up every day.”
Janice, 73, who joined Kellogg as vice president in 1982, explains, “I believe my husband anticipated that he might not be around much longer. I was in denial about my husband’s heart condition, but he knew that his death could be imminent. He wanted me to be ready to take over in case something happened. I started attending board meetings for a couple of years and getting familiar with our business before he died. People got used to seeing me, and I got used to the idea of running the company.”
“My mother was groomed by my father to take over the company for five years before his death,” Hap adds. “She knew that she would have to handle the aftermath of my father’s death and hired a consultant within a week to manage the financial perspectives. Even in the midst of her grief, she demonstrated that she is a ‘take-charge’ person.”
“I never questioned that decision,” Janice says. “I now know that I was put in charge to minimize competition.” While she considers the company’s many long-term employees to be “like family,” she reflects that two strong-willed non-family employees might have initiated a power play in the absence of strong leadership. “My being there mitigated the danger of an attempt to compete for the top job,” Janice explains. “Everybody simply turned to me and asked what we would do next. I ran the company full-time until Hap was ready to take over the reins.”
Hap, who has a degree in agricultural business from the University of Wyoming, previously worked for the company as a sales representative serving independent nurseries and garden shops. A year later, he became involved with sales and marketing management. He was promoted to vice president of sales in 1987 and began to focus on opening new markets as well as overseeing the sales force.
“Our father realized that death is inevitable and that we were capable of continuing the business,” says Kathy, who worked for John Hancock as a financial planner after graduating from the University of Southern California with a bachelor’s degree in international business and minors in French and Spanish. She learned about estate planning, insurance and transfer of stock. Although her father was reluctant to trust life insurance sales reps, he was willing to talk to his daughter about estate planning “until the wee hours,” she recalls.
Kathy praises her brother’s leadership skills, particularly his willingness to obtain input from her and others in the company. She describes Hap as “a student as well as an encourager and innovator who solicits my advice and listens respectfully when I have a different way of seeing a situation.”
“My sister is very conceptual and visual, combined with a degree in international finance and an ability to speak several languages,” Hap says. “I’m the manager type who brings to-do lists and other organizational skills. Together, we have a complementary balance of skill sets.”
Hap says his strong Christian faith and his involvement with the CEO organization TEC International, a group of non-competing business leaders, helped him grow into his role as company president and move the company in new directions. His TEC colleagues offered advice on restructuring the company once Hap was ready to admit he needed help analyzing the company’s leadership team, mix of customers and cost structure.
“TEC has helped Kellogg to address leadership positions and strategies as a sounding board outside of the company,” Hap says. “As a result, we’ve been able to develop an effective leadership team and eliminate direct and indirect costs.”
Branching out
Kellogg has expanded from its original base of operations in Los Angeles County to add facilities in Ontario, Calif.; Lockeford, Calif. (near Sacramento); and Longview, Wash. The company’s products are now sold in 3,000 retail outlets from Canada to Mexico and from Hawaii to Utah. In 1999, Kellogg purchased Cascade Forest Products in Northern California, enabling the company to serve the independent nursery trade and landscape professionals.
Family members say they don’t plan to grow Kellogg beyond the region; because the company is capital-intensive, service-based and dependent on freight, they’ve concluded it doesn’t make sense to expand nationally or internationally.
Kathy says Kellogg achieved success because “the stars lined up”—the California weather is conducive to gardening, the soil is in need of organic matter and people are hungry for knowledge about gardening. But luck isn’t the only factor in the company’s longevity.
The Kelloggs say they don’t depend on only one source for anything; they do business with multiple suppliers. In addition, they never sell more than 16% of any product line to a single customer, and they’re judicious in the lines of credit they extend to their clients.
Matriarch Janice adds that a key to the Kellogg family’s continuing business success comes down to a basic, unspoken rule—family roles are separated from business roles. “Family is family, and business is business, and we have to remember that when we interact during the day,” she says.
The whole family—including spouses, who don’t work in the company—holds periodic daylong meetings to discuss pertinent business issues. In addition, “My mother, sister and I meet twice a month for an ownership/family lunch,” Hap says.
This past spring, to commemorate its 80th anniversary, Kellogg honored Janice’s instrumental role in the company by commissioning Star Rose Growers to develop a rose bearing her name.
Ilene Schneider is a freelance writer based in Irvine, Calif.