Can the cereal industry reignite itself?
In the mid-1990s, strolling down the cereal aisle was a favorite pastime for grocery shoppers. From kids ogling the latest breakfast sugar rush to parents scooping up big boxes of iconic classics like Cheerios and Corn Flakes, cold cereal was a way of life for breakfast lovers across the country.
But times are changing for Big Cereal. According to Euromonitor, ready-to-eat cereal can still be found in around 90% of U.S. households, but the industry as a whole is down from nearly $14 billion in annual sales in 2000 to about $10 billion in 2013.
In the one-year period ending Nov. 3, 2013, the cereal industry was down about 2.5% in dollar sales and about 2% in unit sales. These sales drops have affected companies across the board, including giants like Kellogg, General Mills, Post, MOM Brands, and Quaker. So the question is, what has changed so much since cereal’s heyday in the '90s?
Health food trends dominate breakfast
Cereal sales have dipped in the past due to various fads, such as the Atkins diet or bagel mania. But because most cereals are not high-protein or gluten-free, they don’t resonate with the growing number of dieters that are gluten intolerant or following the paleo and other grain-free diets. Between these dieters and millennials’ preferences for unprocessed and healthier foods, cereal is slowly losing steam.
Experts turn to Greek yogurt’s growth and a shift toward a more protein-centric diet as reasons for the decline in cereal sales. Greek yogurt has dominated the push for protein-based diets, as a regular 6-ounce serving has 15 to 20 grams of protein as compared to the same serving of regular yogurt with just 9 grams. It also has about half the carbs as regular yogurt, perfect for low-carb dieters.
As of May 2014, Greek yogurt made up nearly half of the U.S. yogurt market, a huge leap from just 1% in 2007. Growth was led by Chobani, with 35% of the market. While cold cereal was still the top choice for breakfast in the U.S. in 2013, Greek yogurt came in at number two. Companies like General Mills are even seeing their cereal sales being eaten by their own yogurt brands.
To combat sagging sales and keep up with consumer health trends, the cereal industry is innovating its product selection and rethinking the way it approaches product development and rebranding.
Learning to adapt with new, trendier brands
In 2013, Post attempted to capitalize on the shift toward Greek yogurt and granola for breakfast with its Honey Bunches of Oats Greek brand. The new cereal paired whole grain flakes with Greek yogurt and granola, which itself is a health food sector that saw 17% growth in 2013. In 2014, Post aimed to further boost Honey Bunches of Oats with a new Morning Energy brand that promotes protein and high levels of whole grain, an appeal to consumers’ preference for a healthier morning energy boost. Post also expanded distribution of Honey Bunches of Oats Granola, another push to attract a health food crowd.
Also taking the health-food route, General Mills unveiled more than 150 products last summer to appeal to consumer health trends like high-protein, gluten-free, and whole grains. For example, to fight lagging Cheerios sales, which fell about 7% from November 2012 to November 2013 (Multi Grain Cheerios fell 21%), General Mills released Cheerios Protein in May 2014. The new cereal has four more grams of protein per serving than pre-milk Original Cheerios. The company also launched Nature Valley Protein Granola, which has 10 grams of protein per serving.
Kellogg also jumped in with new trendy health options, including cereals that are gluten-free, high-protein, and use sprouted grains. These include Special K Gluten Free, Kashi Sprouted Grains Multi-Grain, and Special K Protein Cinnamon Brown Sugar Crunch.
In addition to new product development, cereal companies also renovated some of their existing brands. General Mills retooled and rebranded Original Cheerios as GMO-free in January 2014.
If you can’t beat ‘em, buy ‘em
Some cereal makers have looked beyond retooling and creating their own products to the prospect of acquiring healthier cereal brands to supplement their product selection and offset falling sales.
In 2012, Post acquired natural and organic cereal maker Attune Foods and in 2013, the private label cereal, granola, and snacks businesses of Hearthside Food Solutions, all of which are mainly sold via the natural and health food markets. These acquisitions paved the way for Post into the natural specialty foods market. In this segment, natural and organic cereals are seeing high single-digit growth, which presented a fresh opportunity for the company to expand into the health food arena.
Just last month, it was revealed Post will acquire MOM Brands Co., the fourth-largest cereal producer in the country. MOM Brands has its own Mom’s Best line of boxed cereal marketed as affordable, eco-friendly, and free of ingredients targeted by health food advocates, such as artificial flavors and preservatives.
Can the industry bounce back?
While cereal companies are seeing drooping sales, some manufacturers and their executives believe opportunity still exists for the cereal industry to bounce back. General Mills has recently turned to nostalgia to boost sales of some of its cereal lines, including a new Lucky Charms marketing campaign targeted toward adults and a retooled Cinnamon Toast Crunch flavor, along with the re-release of French Toast Crunch, in response to consumer demand.
Kellogg too has high hopes for the cereal industry's future.
“More and more consumers are eating breakfast,” Noel Geoffroy, Kellogg’s senior vice president for morning foods marketing and innovation, said in a New York Times article. “The absolute market is growing — and along with that, so are the choices of what consumers eat for breakfast.”
If this sentiment is true, all that’s left for cereal companies to do may be to innovate, tweak recipes, and release new products that change the mindset of consumers toward cereal in general. This way, cereal producers can do their best to remain competitive in the breakfast foods industry.