Ready to eat cereal?
Dec. 10, 2013
by Eric Schroeder
A staple of the breakfast routine for generations, ready-to-eat cereal isn’t going anywhere anytime soon. But over the past year R.-T.-E. cereal makers have seen cause for concern as dollar and unit sales have slipped. Food service chains such as McDonald’s, Burger King and Starbucks have stepped up their morning daypart offerings, while cereal makers themselves have begun dabbling in alternative breakfast options such as bars, oatmeals, yogurt and beverages.
In the 52 weeks ended Nov. 3, dollar sales of the R.-T.-E. cereal category totaled $9,293,050,000, down 2.5% from the same period a year ago, while unit sales were 2,903,038,000, down 2%, according to Information Resources, Inc., a Chicago-based market research firm.
None of the major category players has been immune to the downtrend. Kellogg, General Mills, Post, MOM Brands, Quaker and even private label all sustained dollar and unit sales declines during the past 52 weeks, according to I.R.I. Private label, especially, has found the going tough. Dollar sales of private label cereal were down 7% in the 52 weeks ended Nov. 3, while unit sales were down 8%.
Keying in on Kashi
Kellogg Co., Battle Creek, Mich., experienced “disappointing” growth during the first two-thirds of fiscal 2013, as innovation efforts failed to resonate with consumers in a meaningful way. John Bryant, president and chief executive officer of Kellogg, said during a Nov. 4 conference call that the company experienced a “slower-than-expected recovery” in its Kashi brand and continued challenges in the adult segment of the portfolio.
“I think Kashi has been a great source of growth over many years, and our opportunity on Kashi is to push it back toward that pioneering nutrition — it became a little bit too mainstream,” Mr. Bryant explained. “That’s one of the reasons why we have an issue with Kashi right now and why we’re innovating more toward those forward-leaning nutritionists, the people who are on the edge of the nutrition forward thinkers, forward leaners, however you want to describe them. And so parts of our portfolio will do that and other parts of our portfolio will be mainstream.”
In the 52 weeks ended Nov. 3, Kashi R.-T.-E. cereal sales totaled $242,632,400, down 13% from the same period a year ago, according to I.R.I. Unit sales were 70,837,290, down 11% from a year ago.
Other parts of Kellogg’s R.-T.-E. cereal business have hit the mark, though. Dollar sales for the company’s Special K, Fruit Loops, Frosted Flakes and Raisin Bran cereals improved 45%, 8%, 6% and 3%, respectively, during the past year.
Kellogg’s Raisin Bran brand has performed well, boosted by a new Raisin Bran with omega-3 fatty acids and strong support from the company’s healthy dividends campaign. Rice Krispies is also included in the healthy dividends campaign and posted sales growth during the third quarter, although dollar sales for the 52 weeks ended Nov. 3 were down nearly 5% for the brand, according to I.R.I. And Special K Protein, which was launched last year, performed well as consumers continue to seek new sources of protein.
“Obviously, we need to do more to provide innovative nutrition and we have plans for 2014 that will help us continue to address this broad consumer trend, including the introduction of new organic Kashi cereals, which include grains such as quinoa, and some of which are gluten free,” Mr. Bryant said.
New approaches to traditional brands
General Mills, Inc., Minneapolis, has introduced new cereals and adopted new approaches to promote traditional brands in an attempt to ignite Big G cereal sales. At $2,807,269,000, R.-T.-E. cereal dollar sales at General Mills were down 2.7% from the same period a year ago.
Consumer trends regarding the company’s flagship Cheerios brand was a mixed bag. Honey Nut Cheerios maintained its position as the No. 1 R.-T.-E. cereal brand with dollar sales of $557,481,100 in the 52 weeks ended Nov. 3, up 2% from the same period a year ago, according to I.R.I. But dollar sales of the base yellow box Cheerios brand were down nearly 7% in the period, and Multi Grain Cheerios plummeted 21%.
General Mills’ other top cereal brands, Cinnamon Toast Crunch and Lucky Charms, fell 1% and rose 9%, respectively, during the period.
Executives at General Mills have stressed that in order for the R.-T.-E. cereal category to grow, there needs to be product news and effective consumer marketing. Donal Mulligan, executive vice-president and chief financial officer, said the company plans to deliver both in 2014.
“Historically, cereal category sales have been sparked by new product benefits, from vitamin fortification to the cholesterol reducing benefits of whole grain oats,” Mr. Mulligan said during the Morgan Stanley Global Consumer and Retail Conference held Nov. 20. “This year Big G is bringing protein to the cereal aisle with Nature Valley Protein Granola. These cereals deliver 10 grams of protein per serving — that’s more than twice the cereal category average. Nature Valley Protein Granola tastes terrific and we are excited about the early results. After just five months in market it is already among the top turning granola items in a segment that is growing 17% year to date.”
Mr. Mulligan also noted that product renovation can be just as successful as product innovation. He pointed to the company’s Chex brand as a shining star.
“In 2010, after a number of years of decline, we brought gluten-free news to the Chex franchise,” he said. “Retail sales have been growing ever since and are up another 6% in current year-to-date, including contributions from a new vanilla variety.”
Transformation in progress at Post
Terry Block, president and chief operating officer of St. Louis-based Post Holdings, Inc., said during a Nov. 21 conference call with analysts that three areas of focus — center store, active nutrition and private label — have provided access to new customers and channels for Post. Additionally, he said Post’s acquisition of Attune Foods and the Hearthside Golden Temple granola business has provided entry into the natural specialty channels, where natural and organic cereals are experiencing high single-digit growth.
Mr. Block said Attune Foods turned in a record fourth quarter, with results driven by strength in organic, non-bioengineered, gluten-free cereals, especially the recently introduced Erewhon super grain line and Peace Cereal.
Looking at the company’s ready-to-eat cereal business, Mr. Block said the number of brands that have grown or shown stable dollar share is greater than at any time in at least the past two years.
For the 52 weeks ended Nov. 3, dollar sales of Great Grains grew 20%, according to I.R.I. The increase was driven by strong advertising and distribution gains behind two new items that Mr. Block said deliver on consumers’ desire for more protein in the diet. In 2014, Post plans to further invest behind the brand to appeal to the ingredient-conscious consumer with non-bioengineered offerings as well as the introduction of two new Great Grains digestive blend items.
Mr. Block described Honey Bunches of Oats as “a work in process,” with sequential improvement during the fourth quarter. In the 52 weeks ended Nov. 3, dollar sales of Honey Bunches of Oats were $371,599,300, down nearly 9% from the same period a year ago, according to I.R.I.
“The brand is becoming more competitive,” he said. “We remain focused on executing the fundamentals of pricing, pack size architecture, shelving, and merchandising on (Honey Bunches of Oats). The brand will also have a new marketing campaign in 2014 and will introduce (Honey Bunches of Oats) Morning Energy and two flavors that leverage protein and high levels of whole grain designed to tap into consumers’ increasing desires for healthy energy. We are also encouraged by the early results of Honey Bunches of Oats granola and will be expanding distribution on those items throughout 2014.”
A focus on “fruity” and “cocoa” flavors led to dollar sales growth of 0.4% in the two varieties of Pebbles business during the past 52 weeks. But overall, total franchise sales were down 3.2% in the past 52 weeks, as Post discontinued Marshmallow Pebbles and Boulders. Mr. Block said Post once again will try to invigorate the Pebbles brand with the launch of Poppin’ Pebbles in 2014. The new cereal will give children a “fizzy popping sensation with each bite,” he said.