Executives in the cereal and soda categories have been working on new ideas and fresh approaches to bringing products to market and delivering the right messages to consumers. Both segments have seen consistent sales declines, and companies are identifying the innovations and messaging it will take to resonate with today’s consumers and turn these businesses around. Cereal sales declined at a CAGR of 1.5% from 2009 and 2014, according to Nielsen, and 2015 was soda’s 11th straight year of sales declines, with a 2.2% drop in U.S. sales volumes.

Cereal and soda have struggled with growth in recent years, due in part to changing consumer preferences, but both segments are working toward a turnaround. Between the challenges cereal and soda face and the strategies they're using to rebound, other categories can take away valuable lessons in terms of what not to do and how to become more nimble and adaptive in an ultra-competitive and ever-changing food and beverage environment.

Cereal: Product and marketing innovations take the reins

By the numbers

In addition to the 1.5% decline for cereal over the previous five years, a more recent Nielsen report found that trend continued last year with another 2% sales decrease. But companies have seen mixed results. Sales for Kellogg’s morning foods business, which includes cereal, dipped 2.6% last quarter, the third straight quarter of falling sales for the segment, but morning cold cereal itself was flat, according to Business Insider. General Mills shared its competition’s woes, having reported a 5% decline in U.S. cereal sales last quarter, though the previous quarter saw a 4% gain. General Mills won over Kellogg in a Food Dive food fight last year for its better positioning within areas for growth and innovation, particularly earnings performance, marketing, and investments.

What the industry thinks

Recent performance aside, management for these two cereal giants are confident the category will rebound. In September, The Wall Street Journal reported "that an aging population and a growing interest in cereal as a snack or dessert will strengthen iconic brands like Special K, Frosted Flakes, and Froot Loops," per an interview with Kellogg CEO John Bryant.

That same month, General Mills CEO Ken Powell told TheStreet, "We think [cereal is] stabilizing because there is more investment coming into the category on advertising, and most importantly there is good innovation coming into the category — and those things are always the formula for success."

Analysts like Credit Suisse's Robert Moskow agree. Moskow said in his November report, "Recent tracking data has showed consistent sequential improvements in Kellogg’s cereal business and in the cereal category as a whole. We expect Kellogg’s cereal business … to return to growth in 2016 behind the revitalization of the Kashi and Special K brands."

Cereal producers have had to depend on younger demographics for a significant portion of sales — and that's a problem today. Birth rates for millennials are decreasing, and Mike Van Ausdeln, senior brand strategist at Stealing Share, told The Atlantic that today's kids today aren't as interested in cereal as previous generations were.

How cereal is out for change

Cereal manufacturers are looking primarily to innovation and marketing to combat other rising breakfast categories, such as snack bars and Greek yogurt. Efforts include continuing to "update ... recipes to reflect what consumers want in their cereal bowls today," according to Lauren Pradhan, senior marketing manager for General Mills Cereal.

So far, manufacturers have done this by removing artificial colors and flavors (as both Kellogg and General Mills are), making or labeling cereals gluten-free (think: Cheerios and Lucky Charms), and strategically investing in brands that align with consumer demands (as Kellogg has with Kashi).

Another key strategy is to promote cereal as a food for occasions outside of just breakfast. Kellogg has run with this concept, having introduced cereal-based snacks like Kellogg's To Go Breakfast Mix and teamed up with celebrity chefs to demonstrate how, with creativity, consumers can make cereal part of any meal of the day.

"I think they’re trying to get cereal back on the menu any way they can," Jared Koerten, senior food analyst for U.S. packaged foods at Euromonitor, told Food Dive.

Soda: Looking within and beyond the category

Challenges the category faces

Most significant among challenges facing soda are health concerns from consumers and public health advocates, but legislators have also been working against soda. They passed a sugary drink tax in Berkeley, CA, and are introducing similar taxess are being introduced in several states this year. The UN also recently made a soda tax recommendation. Legislators have also backed sugary beverage warning labels, though that legislation did not make it to the Senate floor in California.

Diet soda took the most severe hit in recent years. Diet Coke lost its No. 2 U.S. soda spot to Pepsi-Cola based on 2014 sales, and sales for Diet Coke fell 8% in Coca-Cola’s most recent quarter. A study last year linked diet soda to unhealthy eating habits, and even the diet soda label had been called into question as "deceptive, false and misleading," though the FTC dismissed those claims.

Beverage segments like bottled water, ready-to-drink tea, and sparkling water have grown fast, with the latter deemed "the future of beverage" by Sodastream CEO Daniel Birnbaum in a Bloomberg interview last year. SodaStream has notably removed itself from the soda business to instead rebrand itself as a sparkling water purveyor, a growing category that threatens soda's dominance among carbonated beverages.

Taking on sugar 

The WHO, FDA, and 2015 Dietary Guidelines have recommended caps on consumers’ daily sugar intake, and soda’s inextricable link to sugar is one obstacle the industry has attempted to overcome. One strategy has been to use calorie-free or low-calorie artificial sweeteners, though not all are widely accepted for health or flavor reasons. PepsiCo found out when it swapped out aspartame for sucralose in Diet Pepsi last year. Soda companies have also introduced stevia-sweetened sodas like Coca-Cola Life and Pepsi True.

"I don’t think that means in 10 years we’re not going to have any carbonates in the U.S. — that’s completely unrealistic," said Eric Penicka, U.S. research analyst specializing drinks and tobacco industry at Euromonitor. "But I think there’s going to be a shift toward limiting how much soda you consume and by extension how much sugar you consume."

Packaging, marketing are key

Mini cans are proving to be a solution soda companies can depend on to maintain their sales numbers. Though U.S. store soda sales fell 2.2% last year, on a dollar basis, sales fell only 0.1%, which was the best performance the industry had seen since reporting flat sales in 2012, according to Nielsen.

The key factor in those numbers was the growth of mini cans, which of course command higher prices for less product, meaning companies see bigger returns. Coca-Cola and PepsiCo both reported sales volume declines for larger packaging, but sales of smaller packaging like 7.5-ounce mini cans and 8-ounce mini bottles rose.

Marketing strategies are also at the heart of soda's comeback. Coca-Cola recently launched a one brand marketing overhaul that is more product-centric and focuses on the experiences associated with drinking Coke products rather than lofty concepts that can feel disconnected from the brand. However, Diet Coke and Coke Zero will continue to have their own campaigns in the U.S. for now, meaning the company's largest market won't yet see the full effects of this campaign, despite the confidence Coca-Cola exudes behind it. 

PepsiCo is looking beyond the grocery store and subtly integrating the soda concept into a restaurant format, Kola House in New York City, which focuses its menu on the kola nut, a bitter fruit from which "cola" gets its name. But not everyone agrees this is a smart move for PepsiCo: Quartz called the restaurant "baffling" and a counterintuitive way to drive conversation online.

Why not diversify?

"I think focusing on just (carbonated soft drinks) is a thing of the past," PepsiCo CEO Indra Nooyi said in October.

Diversification has been an important strategy for soda companies as the industry faces so many challenges. Coca-Cola has taken minority stakes in Monster Beverage energy drinks and Suja cold-pressed juices. Dr Pepper Snapple acquired a minority stake in sports drink startup Body Armor.

"The name of their company [Coca-Cola, PepsiCo] still corresponds with soda, but their portfolio of brands is well beyond soda, and they’re looking to those categories to support themselves," said Penicka.

Diversification aside, Coca-Cola CEO Muhtar Kent said in a recent CNBC interview that he was confident both his company and the soda industry were on a path for growth, even if soda’s growth is at its own pace in the beverage industry.

Manufacturers have taken on their struggling segments’ challenges using a variety of strategies with mixed outcomes. Cereal and soda are central to these companies' sales and portfolios. Diversification is part of the plan, but executives aren't giving up on these vital categories. The strategies that revive once dismissed categories like soda and cereal will be integral for the rest of the industry, being mindful that what works for one category won't always bring success to another.