Special K Nourish and Special K Red Berries cereal
Several cereal makers found a way to get back in consumers’ good graces after a difficult 2014.

A small decline in year-over-year dollar sales within the ready-to-eat cereal category hasn’t dampened the spirits of executives at the nation’s largest cereal makers. In fact, several companies found a way to get back in consumers’ good graces after a difficult 2014.

In the 52 weeks ended Nov. 1, dollar sales in the R.-T.-E. cereal category totaled $7,624,640,000, down 1.4% from the same period a year ago, while unit sales slipped 1.89% to 2,381,515,264, according to Information Resources, Inc., a Chicago-based market research firm.

While 2014 may have been “a very difficult year for U.S. cereal,” 2015 has exhibited “significantly better trends,” John Bryant, chairman, president and chief executive officer of Kellogg Co., said during the Battle Creek, Mich.-based company’s analyst day on Nov. 20.

“In the last four weeks, (U.S. cereal has been) better still, and, quite frankly, the four weeks published after this, (will be) even better,” Mr. Bryant said. “So we’re seeing the business return to growth. (We’re) feeling very good about the progress in our cereal business.”

Craig Bahner, president of U.S. Morning Foods at Kellogg, pointed to the importance of growing the Special K brand, calling it Kellogg’s “biggest and most important cereal brand.” In the 52 weeks ended Nov. 1, dollar sales of Special K and Special K Red Berries totaled $137,545,056 and $116,358,368, respectively, according to I.R.I.

“Driving Special K is essential to having a thriving cereal business,” Mr. Bahner said. “We talked about renovation, giving consumers more of what they want and taking away the things that they don’t want. Well, guess what? On Special K Red Berries, what they want? You guessed it, more red berries. We put more berries in. This variant is up 6.3%. It’s stabilizing and driving our Special K business back to growth. In fact, past four week data, Special K grew 6.6% as a total brand franchise.”

But Kellogg’s return to growth goes beyond Special K, Mr. Bahner said.

Raisin Bran and Raisin Bran Crunch cereals
Raisin Bran is in its third consecutive year of growth.

“Raisin Bran is in its third consecutive year of growth,” he explained. “In fact, in 2015 we’re up nearly 8% year to date. We launched a new line extension, Raisin Bran with Cranberries, that has continued to fuel the growth of Raisin Bran. In fact, that initiative has hit 70% ahead of our going-in expectations.

“Frosted Mini-Wheats, it’s our third-largest brand. This fall we launched a seasonal item called Pumpkin Spice Frosted Mini-Wheats. It exceeded our expectations. We sold everything we could manufacture; became one of the top Mini-Wheats s.k.u.s (stock-keeping units) at our key customers. And in fact Frosted Mini-Wheats was growing share over the past 4 and 12 weeks.”

Looking ahead to 2016, Mr. Bahner highlighted innovation across Kellogg’s R.-T.-E. cereal portfolio.

“The headliner for 2016 is the launch of a new variant on Special K called Special K Nourish,” he said. “It’s imperative that we continue to fuel the resurgence of the Special K brand, and we’re going to do this with this line extension, signaling to consumers the new look and feel of Special K. This is amazing food. It’s got just what consumers are wanting to eat: ingredients like quinoa and almonds and real fruit and coconut. It’s some of the best food we’ve ever tested in the history of Special K. Customer acceptance has been absolutely outstanding, and we’re investing to drive high levels of awareness and trial behind this initiative and drive our Special K business….

“On Mini-Wheats we’re bringing another premium offering to the table called Harvest Delights. It starts with a very basic shredded wheat biscuit that consumers find to be very nourishing. We put real fruit bits in it, and we drizzle it with an amazingly sweet glaze. It’s awesome food; strong customer acceptance; and we are very, very excited about Mini-Wheats Harvest Delights.

“On Raisin Bran, Raisin Bran Crunch, we want to continue to fuel the growth of Raisin Bran. We’ll take a page out of the Special K playbook, and we understand that what consumers love most about Raisin Bran Crunch are those crunchy clusters, and we’re going to put more clusters in there.”

Challenges with Cheerios

With dollar sales of more than $431.1 million, Honey Nut Cheerios is the top selling ready-to-eat cereal, according to I.R.I. Regular yellow box Cheerios, with sales of more than $276 million, also rank in the top five. But the past few months have been difficult for General Mills and its Cheerios franchise.

Boxes of Cheerios and Honey Nut Cheerios
Honey Nut Cheerios is the top selling ready-to-eat cereal, and regular yellow box Cheerios also rank in the top five.

First, Keri Van Lengen and Deborah Nava on Oct. 30 filed a class action lawsuit in the U.S. District Court for the Eastern District of California against Minneapolis-based General Mills for “deceptive, unfair and false advertising and merchandising practices” regarding the company’s gluten-free Cheerios and Honey Nut Cheerios.

The lawsuit came a little more than three weeks after General Mills apologized for confusion at its Lodi, Calif., facility that the company said it believes led to wheat flour being introduced inadvertently into the plant’s gluten-free oat flour system, tainting cereal produced at the location.

As a result of the incident, General Mills recalled a reported 1.8 million boxes of Cheerios, including 13 lots of Honey Nut Cheerios and 4 lots of original Cheerios.

“We sincerely apologize to the gluten-free community and to anyone who may have been impacted,” Jim Murphy, senior vice-president, and president of the Cereal division, at General Mills, wrote on Oct. 5. “We care deeply about making safe, nutritious, gluten-free products more widely available, and we’ve worked very hard to ensure our products are gluten-free.”

A few weeks later, Cheerios again came under fire after The Center for Science in the Public Interest, a non-profit consumer advocacy group, filed a class action lawsuit against General Mills alleging the cereal manufacturer is misleading consumers
about Cheerios Protein. The C.S.P.I. alleges General Mills is marketing Cheerios Protein as a “high protein, healthful alternative to Cheerios” when it does not contain much more protein than Original Cheerios.

“Rather than protein, the principal ingredient that distinguishes Cheerios Protein from Cheerios is sugar,” the C.S.P.I. notes in its lawsuit.

The Nutrition Facts Panels on the boxes cite a 4-gram difference in protein (7 for Cheerios Protein as opposed to 3 for the original) — but the C.S.P.I. said in its suit that the difference is due to a larger serving size (55 grams (210 calories) as opposed to 27 (104 calories), respectively). The C.S.P.I. also contends that Cheerios Protein has significantly more sugar than Original Cheerios. According to the group, a 1 ¼-cup serving of Cheerios Protein Oats and Honey has 17 grams as opposed to 1 gram for a 1-cup serving of original Cheerios. A 1 ¼-cup serving of the Cinnamon Almond variety has 16 grams, according to the documents.

Per company policy, General Mills has not commented on the C.S.P.I.’s lawsuit.

Post on track with MOM integration

Post Holdings, Inc., St. Louis, is the nation’s third largest R.-T.-E. cereal maker with dollar sales of nearly $1.4 billion, according to I.R.I. But it was the only one of the three major companies to post a year-over-year increase in sales, boosted in large part to its acquisition at the beginning of the year of MOM Brands.

Malt-O-Meal R.-T.-E. cereal varieties
Post Holdings posted a year-over-year increase in sales, boosted in large part to its acquisition at the beginning of the year of MOM Brands.

“Our cereal business is in the midst of the integration between legacy Post Foods and legacy MOM Brands,” Rob Vitale, president and c.e.o. of Post, said during a Nov. 24 conference call with analysts. “Combined, our share of the R.-T.-E. cereal market is now 18% and 20.7% in dollars and volume, respectively. Thus far, we have met each milestone toward a successful integration. Our next key milestone is our conversion this spring to a single E.R.P. system. Operating from a single E.R.P. system becomes the enabling aspect in identifying and executing synergies beyond our initial estimate of $50 million. We are highly confident in delivering the announced synergies by the end of F.Y. 17 or earlier.

“The cereal category has continued to show improvements in its rate of decline. While we would certainly like to be discussing category growth, the first step in getting there is slower decline. We attribute this improvement to an overall increase in cereal advertising, a modestly improving consumer profile, and simply the lapping of weaker comparisons. While trade effectiveness has improved, it too is against weaker comparisons and remains historically inefficient. We are implementing a new trade tool toward the end of 2016 and we expect that greater analytical sophistication and the new scale of business will have a positive impact.”