Kellogg’s Feels The Breitbart Effect

Kellogg's vs. Breitbart. The reason I did an article on the controversy surrounding Grubhub’s CEO’s comments about employing bigoted workers was because I noticed a tidal wave size trend of Trump supporters getting outraged at consumer brands for offending them. I said we are living in a new world where it is the political right’s turn to organize protests and boycotts. This means firms have to be very careful in their treatment of conservatives or they will face poor publicity which will lead to declining sales. Corporations need to support their values, but posture towards appealing to conservatives because any false move will bring the powder keg which had previously been dormant.

I’d like to repeat that I am not endorsing this new outrage culture on the right. I am recognizing its existence which allows me to better understand what decisions firms should make. As an investor, you have to watch out for these landmines or you will lose your shirt in the short term. On the bright side, because there will be so many of these boycotts, they will easily be forgotten after a few months.

Today’s new outrage of the day is Kellogg’s decision to stop advertising on Breitbart. The Twitter account Sleeping Giants has been targeting firms who are advertising on Breitbart and pressuring them to remove their ads. This is irrational because advertising on a website is not an endorsement of everything on the website. In fact, firms aren’t aware of all the websites their ads are shown on. They can blacklist a website they find goes against their values which is what Kellogg’s did. Either way, Kellogg decided to give in to the pressures following the past trend of political correctness taking control. However, this time there’s massive blowback for the decision as Breitbart has declared war on Kellogg’s making #DumpKelloggs trend on Facebook and Twitter.

Kellogg’s has a fiduciary duty to maximize shareholder value. Therefore is should have decided where to advertise based on how it would impact sales. Whether or not Kellogg’s advertises on Breitbart will have no effect on sales and will have no impact on Breitbart as there are other websites to advertise on and there are other brands to advertise on Breitbart. This may start hurting Breitbart in the future because firms blacklisting it appears to be a trend.

Kellogg’s is operating under the old playbook where firms would fold to any pressures which claimed they were supporting hate. Kellogg’s folded to a Twitter account with 4,000 followers, irking a website which has 45 million readers and over 500,000 Twitter followers. In hindsight this was a bad decision. Business is a lot like a chess game because you have to forecast how your decision will impact the opponent’s decision making. Kellogg didn’t think about what Breitbart could do to its brand because if it did, there is no way it would’ve chosen this after-effect.

Breitbart’s move is obvious because it lives off controversy. This move by Kellogg’s is worse than Grubhub’s action because this trend has a leader. Other firms are blacklisting Breitbart website, so it needs to attack Kellogg’s to avoid the trend continuing. The Alexa rankings for web traffic are either a glitch or representative of the viral trend boosting Breitbart.com’s rank. It is now the 36th most popular website in America.

alexa

It is definitely a bad thing to have the 36th most popular website in America have a front page which looks like this. The top 4 articles on the front page criticize Kellogg’s with one article even criticizing it for using child labor. Breitbart is pulling out all the stops to attack Kellogg’s. There is even an organized boycott of Kellogg’s products which has received over 100,000 signatures. Kellogg’s cannot respond to the attacks because it will only add fuel to the fire. It also cannot backtrack on the decision because now more liberals will know that it advertises on Breitbart than ever before. They will organize their own boycott if Kellogg’s backtracks.

breitbart

Businesses need to understand this changing landscape or they will be doomed to make the same mistake Kellogg’s made. Kellogg’s should have stated “We do not endorse any of the articles written on Breitbart as we don’t individually choose which websites our ads are shown on. However, we don’t see the need to blacklist the site that many conservatives rely on for their news. Kellogg’s ads are seen on many liberal news websites as well. Kellogg’s will not choose sides in political debates. As Americans we need to do business with those we disagree with in order to come together as one country.”

Kellogg’s needs to offend the least amount of people as possible in order to keep its reputation high. Because of this controversy Kellogg’s brand value will decline in millions of customers’ minds. This brand took decades to create and only one day to diminish. Kellogg’s is a more popular and recognizable brand than Grubhub, so more people will participate in the boycott.

Looking at the stock, GrubHub has recovered its losses as it no longer has headline risk. We will see in the next report what the boycott did to sales. The website’s traffic has declined over the past few weeks, but it had been declining in the prior few months. Kellogg’s stock only fell 2.2% today due to this controversy. I expect this to be a few days long selloff for the stock, so short-term it would be best to avoid it. It’s tough to imagine this having a long-term effect on the stock because, in the 24-hour news cycle, a new event always occurs a few days later. It remains to be seen how many of what I expect to be several hundred thousand signups on the boycott website will actually follow through on the boycott. It is tough to remember to boycott Kellogg’s because of the amount of brands it has. Will consumers remember which brands to boycott or check the back of the box to see if it’s a Kellogg’s product? Probably not.

Conclusion

            Kellogg’s unknowingly started a war with Breitbart which will cause its stock to fall over the next few days and see its reputation diminish. This may not have a long term effect on the brand, but I wouldn’t want several hundred thousand people boycotting my products. There is a new trend where conservatives are ready to boycott products which they feel aren’t on their side. Brands need to be as apolitical as possible to avoid being in the crossfire like the one Kellogg’s finds itself in.

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5 Comments

  • Mark Hoffman

    December 1, 2016

    Mr Galt:
    I find you position of putting profits ahead of civic moral responsibility repugnant. Many of Breitbart's supporters would like to have Don Kaufman in their office in the form of a lamp shade. By your standards it's okay as long as it doesn't interfere with sales.

    • John Galt

      December 3, 2016

      Yes, sales are the most important thing. In my opinion Brietbart is a sensationalist news website which is biased towards Trump. I don't see anything wrong with doing business with people you disagree with.

  • TJP

    December 1, 2016

    wow. how many more pro alt-right articles are you going to write this week?

    • John Galt

      December 3, 2016

      I'm not pro alt-right. However, I do think if you are a business, it's best not to get them angry.

  • Ryszard

    December 1, 2016

    I will never, ever, from now on, buy any Kellogg's product. I will spread the word to everyone I know to avoid this brand/company. They just stepped in a heap of doo-doo and it's going to stink for a long time. I promise.