Kellogg to buy Kraft's Lender's Bagels for $455 million No. 1 cereal maker expands its breakfast line


BATTLE CREEK, Mich. -- Kellogg Co. said yesterday that it will buy Lender's Bagels from Kraft Foods Inc. for $455 million, as the cereal maker seeks to control a greater share of the nation's breakfast plate.

Kellogg, the world's largest maker of cereals, said Lender's should complement its array of cereals such as Frosted Flakes and Rice Krispies, cereal bars and other breakfast foods such as Pop Tarts and Eggo waffles.

Lender's is one of the few national brands in the fast-growing $2.8 billion bagel business, whose growth came largely at the expense of cereal companies such as Kellogg. Analysts said Kellogg is trying to become less dependent on cereals by adding other kinds of breakfast food.

"It's a fortification of a part of their business that's been doing very well," said Michael Mauboussin, an analyst at CS First Boston. "At Kraft, this wasn't a priority business."

Kellogg shares fell 12.5 cents to $68.125 in late trading of 288,100, compared with a three-month daily average of 447,500. Shares of Philip Morris Cos., Kraft's parent, were unchanged at $101.125.

Lender's, the nation's largest maker of frozen, refrigerated and fresh bagels, has annual sales of $275 million and holds a 44 percent share of bagel sales in supermarkets, Kellogg said. It has added fresh and refrigerated bagels to its lineup in the last few years.

"I don't think we've scratched the surface too deeply," said Murray Lender, who sold the company to Kraft in 1984 and remains a pitchman for the division. "How many homes have been penetrated with the product?"

Bagel consumption has grown dramatically, rising to 4.5 pounds per person in 1995 from 2.5 pounds in 1988, according to the U.S. Department of Commerce.

Many bagel eaters, though, are flocking to specialty shops, which bake them fresh, as opposed to the frozen-food case, where Lender's dominates.

"It's like what pizza is. Pizza is not a tremendous segment in the supermarket, but it's big in small restaurants," said Edward Froelich, an analyst at Pershing, a division of Donaldson, Lufkin & Jenrette.

Yet Kellogg officials said Lender's possesses what few small bagel shops can provide: name recognition. "[Lender's] is the only truly national brand," said Kellogg spokesman Joseph Stewart.

Sales of the frozen bagel, Lender's bread-and-butter, fell 8.9 percent in the last year, according to Information Resources Inc. Lender's frozen bagel sales fell 7.2 percent in supermarkets and other mass-merchandisers. For Kraft, the sale completes its exit from baked goods. The company sold most of its margarine and bakery businesses in 1995.

Pub Date: 11/19/96

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