Wake-up call: Can cereal makers revive a flagging category?
Consumers are abandoning the breakfast item, but manufacturers say there’s growth to be had — even if it doesn’t involve a bowl and a spoon.
Once synonymous with breakfast, the bowl of cereal drenched in milk has lost its crunch as more U.S. consumers gravitate toward portable foods and products with less artificial ingredients and colors.
Sales of ready-to-eat cereals have declined during the past few years, with most brands showing little sign of rebounding as consumers reach for bars, shakes, yogurt and other handheld items. Market research firm Euromonitor projects cereal will decline 2% in volume and 5% in sales during the next four years alone.
The gloomy news has not deterred cereal manufacturers who remain on the outlook for new products to help an industry that continues to generate billions of dollars in annual sales despite the recent decline. Kellogg, General Mills, Post Holdings and other cereal makers are introducing line extensions, healthy innovations and new brands. They’re also thinking outside the bowl with cereal snacks and promotions that encourage consumption beyond the morning hours.
“We really believe in this category,” Dana McNabb, president of U.S. retail cereal for General Mills, told Food Dive. “We’re committed to investing in innovation and renovation to make it as relevant as possible to U.S. consumers.”
COMPETITION POURS IT ON
While cereal may be the most consumed breakfast food in the U.S., with a 90% household penetration, upstart categories such as Greek yogurt, breakfast bars and biscuits have eroded the category’s dominance. Since 2009, cereal sales in the U.S. have dropped from $12.7 billion to $10.4 billion, a 17% decline, according to research firm IBISWorld.
In addition, fast food and fast-casual restaurants such as Taco Bell and Panera have convinced consumers to grab breakfast on the go with all-day menus and flavor-forward offerings like breakfast paninis, burritos and even breakfast burgers. McDonald's, the world's largest fast food chain, saw a big gain in sales after it made many of its popular breakfast items available throughout the day.
“I think over the last few years cereal manufacturers could be accused a little of not bringing enough renovation and new product innovations to keep the category exciting. As the leaders in this category, we knew we had to bring more of that.”
President of U.S. retail cereal for General Mills
Tom Vierhile, a director at research firm GlobalData, noted cereal, which used to be a leader in flavor and format innovations, has taken a back seat to bars, new portable options and even oatmeal. He pointed to new releases such as Jimmy Dean Frittatas and Rachel’s Overnight Oats — an oatmeal made with superfoods like chia and hempseed that can be prepared overnight by soaking in water — as examples of products that are catching the consumer's attention.
Vierhile noted the demand for protein, which is especially important to breakfast eaters, also has worked against cereal companies. Some manufacturers have added protein to their cereals, but these reformulations haven’t gone over well with consumers, he said. In the case of General Mills’ Cheerios Protein, the company battled a lawsuit over the increase in sugar that accompanied the new product.
Manufacturers such as General Mills and Kellogg also have fueled innovation outside the cereal category. Kellogg’s Special K brand recently came out with a Crustless Quiche while General Mills’ Yoplait brand makes Greek yogurt packaged with honey and oat crisps meant for dipping.
But the companies say they’re not backing away from their highest revenue category. During a recent conference call with investors, Kellogg’s executives noted that although cereal sales were declining overall, its “core six” brands — including Raisin Bran, Frosted Flakes and Special K — were stabilizing and remained a core focus for the company.
In a recent interview with the Minneapolis Star Tribune, Post Consumer Brands’ president and CEO Chris Neugent said two years after purchasing MOM Brands, the maker of Malt-O-Meal cereals, the company had no plans to acquire new brands or otherwise expand beyond the cereal category.
“We are very focused,” he said. “New in-house products will be cereal-based.”
McNabb admitted cereal makers such as General Mills haven’t been as innovative lately as they should have been, but that the rollout of new products and the expansion of older brands will be a focus for the company going forward.
“I think over the last few years cereal manufacturers could be accused a little of not bringing enough renovation and new product innovations to keep the category exciting,” she said. “As the leaders in this category, we knew we had to bring more of that.”
Few bright spots for growth
There are some signs of growth in the cereal industry, but the bright spots are few and far between. According to Euromonitor, granola and muesli, which are perceived as healthier, less processed options, were the only segments within the breakfast cereal category that grew last year, with volumes up 2% and sales increasing 5%. Muesli and granola only account for 4% of total cereal sales.
To further capitalize on growth, manufacturers have focused new releases and innovation efforts on the muesli and granola category. PepsiCo’s Quaker brand last year released a SuperGrains Granola made with ingredients such as red quinoa, flaxseed and amaranth. Bob’s Red Mill, which makes hot cereal and baking mixes, partnered with yogurt maker Tilamook to offer “Farmstyle” yogurt parfaits that incorporated its granola.
“We identified consumer desire around taste exploration, particularly millennial consumers, who were getting bored with traditional ingredients and traditional combinations of ingredients."
Vice president of marketing with Bear Naked
Kellogg’s Bear Naked brand granola, meanwhile, recently ventured into direct-to-consumer sales with an online custom-granola maker. Targeted at millennials, the tool lets users choose from ingredients including salted edamame and coffee brittle, mixing them to create more than 5,000 different combinations.
“We identified consumer desire around taste exploration, particularly millennial consumers, who were getting bored with traditional ingredients and traditional combinations of ingredients,” Chris Tutor, Bear Naked’s vice president of marketing, told Food Dive.
GlobalData's Vierhile acknowledged while granola isn’t necessarily less processed than other types of cereal, its growing demand nevertheless reflects an affinity for more “natural” ingredients and products. Cereal makers have taken notice, with many companies in the midst of a collective effort to phase out sugar, artificial colors and preservatives across their brand portfolios. General Mills recently noted that the phase-out of artificial colors and flavors in its Trix brand had boosted sales.
“We know that for some consumers that was a barrier to buying our products, and that doing so has brought them back to the category,” said McNabb.
Kellogg and Post, which also are phasing out artificial ingredients in their cereals, have posted increasing market share for their natural brands. Paul Norman, president of Kellogg North America, singled out its Kashi brand in a recent earnings call as a top performer for the company.
Despite all the focus on health and scaling back processed ingredients, manufacturers emphasize they’re focused on taste first and foremost.
“We’ve reduced sugar in some of our cereals, but we would only do that if it didn’t impact the taste that our consumers love,” McNabb said.
LOOKING BEYOND BREAKFAST
Even as they focus on innovation, new brands and line extensions in cold cereals, manufacturers are tacitly acknowledging the tradition of consuming milk-soaked bowls of flakes and o’s for breakfast is waning. All three major players have repurposed many of their top cereals as bars, biscuits and pouched snacks, providing the sort of on-the-go convenience that consumers increasingly demand.
General Mills now sells its Golden Grahams, Trix and Honey Nut Cheerios cereals in bar forms, while Kellogg promotes its Raisin Bran cereal as a snack.
The demand for portability at breakfast, Vierhile said, is accompanied by an equally strong trend with consumers foregoing a single meal in favor of snacking throughout the morning and into the rest of the day. According to GlobalData research, 33% of consumers in 2016 said they’re snacking between breakfast and lunch, compared to 26% in 2014.
Will boxed cereal ever return to its former glory? Manufacturers including General Mills are optimistic, though they confess the confines of breakfast may limit its growth. In addition to rolling out new brands and expanding the reach of existing ones, companies are promoting cereal consumption later in the day. Millennials who are turning to cereal for a quick afternoon meal or snack, and even downing bowlfuls in the wee hours, are a prime target. McNabb said General Mills has invested in digital advertising to position cereal as an anytime food.
Mike Siemienas, General Mills’ spokesman, said the company has found a receptive audience in the video game community where Reese’s Puffs and Cinnamon Toast Crunch are fueling late-night sessions. The company sponsors gaming tournaments, which have expanded with the rise of eSports, and has invested in digital ads targeting these players.
“There are little things we’re doing to target those people that are eating the cereals as a late-night snack,” Siemienas told Food Dive. “It’s something they can easily eat while playing their games.”
Still, Vierhile isn’t quite so optimistic on cereal’s outlook. Manufacturers are still too focused on indulgent brands that were popular in the ‘90s and early this century, but that are increasingly viewed with suspicion by consumers. The repurposing of old brands with new colors, flavors, sizes or ingredients, along with the introduction of new products, has long been cereal makers’ go-to for growth. The problem is that innovation may have finally reached its limit in the category, he noted.
“Cereal almost needs to be reinvented,” said Vierhile.
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