Here’s a good news-bad news scenario. What’s good is that consumers are waking up to the importance of breakfast. Unfortunately, however, cereals continue to lose share of stomach and the consumer’s food dollar.
Overall, the category declined 5% from 2009-14, reaching sales of $11 billion, at current prices. Greater spending on food away from home—as well as consumer interest in a variety of convenient, low cost, and nutritious breakfast items—all create competition and pose a threat to the cereal category. Mintel predicts the cereal category will grow 2% from 2014-19 to reach sales of $11.1 billion, at current prices.
For the record, the cold cereal segment represents 87% of the total category with estimated sales of $9.6 billion in 2014. Mintel, a global market intelligence agency, finds that the segment continues to decline as a result of competition from more convenient, protein-rich foods.
Meanwhile, the much smaller hot cereal segment continues to grow slowly, yet steadily, over time. Sales reached $1.4 billion in 2014, an increase of 6% from 2012-14. The category benefits from positive health perceptions, especially its fiber and satiating properties. Mintel predicts the segment will increase another 11% from 2014-19.
Category leader Kellogg’s overall sales declined 5% in the 52-week period ending May 18, 2014, but made gains with its Special K brand, which positioned itself as a late night indulgence as well as a breakfast food. General Mills’ sales decreased 3% in the same 52-week period, despite a brand-wide social media campaign that engaged users on Twitter, Facebook, and Instagram through visual storytelling.
PepsiCo’s sales increased 1% due to its Quaker line, which the company marketed as a filling, energy-providing breakfast food through its “Quaker Up” campaign.
Supermarkets remain the preferred retail channel for purchasing hot and cold cereals with 56% market share. Sales reached $6.2 billion in 2014, representing a decline of 6% from 2012. Sales within other retail channels, including supercenters, dollar stores, and convenience stores, also declined, reaching $4.8 billion in 2014, and representing 44% market share. Greater packaging variety, such as pouches and cups, can help increase retail availability, especially in convenience stores.
Here’s an interesting point. Within natural channels, both hot and cold cereal segments are growing, a direct contrast to the category as a whole. This is likely due to the type of cereal sold in these channels that feature attributes that are important to cereal eaters. Cereals sold in natural channels often include varieties from smaller, more niche manufacturers, including those that sell cereals that are gluten free, non-GMO, organic, and/or contain ancient grains. Sales of cereal in natural supermarkets reached $121 million in 2013, representing an increase of 22% from 2011-13. Sales are driven by the cold cereal segment, and gluten-free varieties.
Nearly all US adults (94%) indicate they eat either hot or cold cereal, though consumption skews higher for cold cereal (93%), compared to hot (77%), which aligns with segment sales data. Despite a decline in the category overall, 42% of US adults indicate they are eating more cereal this year, compared to last year. US adults are eating more cold cereal (36%), than hot cereal (24%), including healthier varieties such as high-fiber cereal (18%), granola (14%) and weight-management cereal (13%).
Younger men and women (aged 18-34) are most likely to indicate they are eating more hot and cold cereal, including both better-for-you and heavily sweetened varieties. They also are most likely to indicate they eat four or more types of cereal, compared to older age groups. This may be because they are more likely to agree cereal is easy to eat on the go and that it is a good source of protein.
Among those consumers who indicate they are eating less cereal this year, compared to last, the main reasons are related to the nutritional properties of cereal. One third (33%) indicate they are eating other breakfast items with more protein, while 23% indicate they are eating items with more fiber.
Older consumers are more likely to indicate they are eating other breakfast items with more protein and fiber and also more likely to agree they are eating less cereal because it does not keep them full. The youngest consumers are more likely to indicate they don’t have time to eat breakfast (19%), or agree cereal is inconvenient to eat on the go (17%). This demographic would be receptive to portable cups, or pouches of cereal, as well as other formats that allow for quick preparation.
Nearly one third of cereal eaters (30%) add extra ingredients to their cereal, such as nuts or dried fruit, including nearly half (48%) of those aged 55-64. Brands can promote creativity and customization with mix-ins or partner with manufacturers of cereal mix-ins, to introduce new, co-branded products.
Despite increased snacking occasions influencing single-serving and snack-size packaging, one third of cereal eaters (33%) prefer cereal in large or bulk-size packaging. Men and younger consumers are significantly more likely to indicate such a preference.
Consumers have very positive perceptions of cereal versatility. Some 87% of cereal eaters agree it can be eaten at any time of day, and 76% agree cereal is a great snack. This perception aligns with product innovation, such as snack-size portions, and night-time positioning, manufacturers have launched to help expand cereal usage beyond breakfast.
More than half of cereal eaters (53%) trust cereal health benefits, though 57% wish cereals kept them fuller for longer, and 51% wish cereal gave them more energy. This desire for greater health benefits is even higher among women, and younger consumers.
The youngest generation of consumers, those aged 18-37, is most likely to agree cold cereal boxes take up too much storage space (38%), and that cereal goes stale before they can finish the entire package (37%). Cereal packaged in flexible, resealable materials can make it easier for consumers to store cereal, and maintain its freshness.
The cereal category’s biggest strength is its already-high household penetration rate. The objective now is to renew consumer interest in the category by challenging traditional cereal consumption occasions and catering to consumer nutritional preferences.
The hot cereal segment already benefits from positive health perceptions related to satiety and energy and this is likely to continue for the foreseeable future. However, there is room to improve the nutritional content of cold cereal, especially as the main reasons consumers are eating less cereal, are due to its nutritional content.
Consumers already view cereal as a versatile, convenient, and affordable food, they just need a reason to be excited about the category again. That may come in the form of new packaging, and new products with high fiber or high protein to compete with other popular breakfast and snack foods.
Source: Hot and Cold Cereals-US-August 2014
Amanda Topper is a food analyst at Mintel.