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Kellogg Company (K), Delta Air Lines, Inc. (DAL)…Collapse, Consolidation, and Accidental Greatness

On this day in economic and business history …

On April 14, 2000, all but the most hopeless optimists probably sensed that the era of endless dot-com gains was finally over. That day, a four-day streak of losses became a five-day market rout as investors reacted to unexpected growth in consumer prices by selling off en masse.

The Dow Jones Industrial Average (INDEXDJX:.DJI) lost 616.23 points — a 5.7% plunge — narrowly avoiding a 700-point drop but nevertheless setting what was then an all-time record for losses in terms of points. The losses became so bad so quickly during the day’s trading that circuit breakers tripped at the New York Stock Exchange, leading us to wonder how much worse the drop might have been without this protection. The once red-hot NASDAQ Composite (INDEXNASDAQ:.IXIC) collapsed, losing more than 9% in its largest one-day drop on record, capping a week that had shaved off a full quarter of its value. Over the course of the week, investors in American stocks lost $2 trillion in total wealth.

As is often the case at the beginning of a serious bear market, some traders and pundits found it hard to believe that the crash was closer to its beginning than to its end. Brian Finnerty of C.E. Unterberg Towbin told CNN, “They’re selling the good with the bad because they can … and that’s irrational, but that’s also when a bottom is formed.” Bill Meehan of Cantor Fitzgerald said: “I think you’ll see healthier and broader advances in the market. Now is the time for optimism.”

They were, of course, very wrong. The stock slide continued for more than two years, reducing the Dow Jones Industrial Average (INDEXDJX:.DJI)’s value by nearly 30% more and absolutely destroying the Nasdaq, which collapsed another 66% before finding its real bottom. The Dow eventually recovered, but the NASDAQ Composite (INDEXNASDAQ:.IXIC) never did — its April 14, 2000, closing value of 3,321.17 remains higher than any closing value reached in the subsequent decade.

A patented breakfast product

Kellogg Company (NYSE:K) can trace its origins to 1894, when Dr. John Harvey Kellogg and Will Keith Kellogg invented corn flakes by accident. That invention gained legal legitimacy on April 14, 1896, when the U.S. Patent Office granted Dr. Kellogg a patent for the new “flaked cereal.” For several years, the two brothers tried to market the product together under the banner of the Sanitas Nut Food Company, which defended the corn-flake patent vigorously against imitators.
Kellogg Company (NYSE:K)

Dr. Kellogg formed Sanitas — possibly named after the Battle Creek Sanitarium in Michigan, where corn flakes were invented — in 1899 and brought brother Will on to help manage the business, which would sell the cereal through mail order. A number of copycats sprang up, so numerous that more than 40 factories were thought to be operating near the Battle Creek Sanitarium making similar breakfast cereals by 1902. In 1903, the Kellogg Company (NYSE:K)s sued one of the largest copycats, the Voigt Milling Company and its subsidiary Voigt Cereal.

The lawsuit failed, but it taught Will Kellogg a valuable lesson regarding the power of branding in a largely commoditized market. Sanitas, owned by Dr. Kellogg, has since vanished, but the Battle Creek Toasted Corn Flake Company, founded in 1906 and operated by Will Kellogg, became a huge success through advertising. In its first year of operation, the company eventually to be known as Kellogg had spent $90,000 on advertising. By 1912, it was spending a million dollars on ads.

Great friction arose between the two brothers, however. Will Kellogg often used his name, or simply “Kellogg Company (NYSE:K)’s,” to advertise the cereals, which undermined Dr. Kellogg’s request that his name not be used for promotional purposes, as it might damage his reputation as a physician.

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