Once a staple at breakfast, the bowl of cereal soaked in milk has lost its appeal as more U.S. consumers opt for portable foods and items with fewer artificial ingredients and colors. Over the past few years, sales of ready-to-eat cereals have dropped, with most brands showing little sign of recovery as consumers turn to bars, shakes, yogurt, and other convenient options. Market research firm Euromonitor forecasts a 2% decline in cereal volume and a 5% drop in sales over the next four years. Despite this grim outlook, cereal manufacturers remain hopeful and are actively seeking new products to revitalize an industry that still generates billions in annual sales, even amid recent declines. Companies like Kellogg, General Mills, and Post Holdings are launching line extensions, healthier innovations, and new brands. They are also thinking beyond breakfast with cereal snacks and promotions that encourage consumption throughout the day. “We truly believe in this category,” stated Dana McNabb, president of U.S. retail cereal for General Mills, during an interview with Food Dive. “We are committed to investing in innovation and renovation to keep it relevant to U.S. consumers.”
While cereal remains the most consumed breakfast food in the U.S., boasting a 90% household penetration, emerging categories such as Greek yogurt, breakfast bars, and biscuits have chipped away at its dominance. According to research firm IBISWorld, cereal sales in the U.S. have fallen from $12.7 billion in 2009 to $10.4 billion, a 17% decline. Additionally, fast food and fast-casual restaurants like Taco Bell and Panera have encouraged consumers to grab breakfast on the go with all-day menus and appealing options like breakfast paninis, burritos, and even breakfast burgers. McDonald’s, the largest fast food chain globally, experienced a significant sales boost after making many of its popular breakfast items available all day.
Tom Vierhile, a director at GlobalData, observed that cereal, once a leader in flavor and format innovations, has taken a back seat to bars and other portable options, including oatmeal. He highlighted products like Jimmy Dean Frittatas and Rachel’s Overnight Oats, which are made with superfoods like chia and hempseed and can be prepared overnight, as examples of offerings gaining consumer attention. Vierhile noted that the rising demand for protein, crucial for breakfast consumers, has also posed challenges for cereal companies. Some manufacturers have attempted to add protein to their cereals, but these reformulations have not resonated well with consumers. For instance, General Mills faced legal challenges over increased sugar levels in its Cheerios Protein product.
Manufacturers like General Mills and Kellogg are also innovating beyond the cereal category. Kellogg’s Special K brand recently launched a Crustless Quiche, while General Mills’ Yoplait brand offers Greek yogurt paired with honey and oat crisps intended for dipping. However, the companies assert they are not stepping back from their highest revenue category. During a recent investor conference call, Kellogg’s executives noted that while overall cereal sales are declining, their “core six” brands, including Raisin Bran, Frosted Flakes, and Special K, are stabilizing and remain a primary focus for the company. In an interview with the Minneapolis Star Tribune, Post Consumer Brands’ president and CEO Chris Neugent stated that two years after acquiring MOM Brands, known for Malt-O-Meal cereals, the company has no plans to pursue new brands or expand beyond the cereal category. “We are very focused,” he asserted. “New in-house products will be cereal-based.”
McNabb acknowledged that cereal manufacturers like General Mills have not been as innovative as they should be, but emphasized that rolling out new products and revitalizing older brands will be a priority moving forward. “I think over the last few years, cereal manufacturers could be accused of not bringing enough renovation and new product innovations to keep the category exciting,” she said. “As leaders in this category, we recognized the need for more of that.”
Despite the challenges, there are some signs of growth within the cereal industry, though they are limited. According to Euromonitor, granola and muesli, perceived as healthier and less processed options, were the only segments in the breakfast cereal category that saw growth last year, with volumes up 2% and sales increasing 5%. However, muesli and granola account for only 4% of total cereal sales. To capitalize on this growth, manufacturers have directed their innovation efforts and new releases toward the muesli and granola categories. For instance, PepsiCo’s Quaker brand launched a SuperGrains Granola made with ingredients like red quinoa, flaxseed, and amaranth last year. Bob’s Red Mill, known for hot cereals and baking mixes, partnered with yogurt maker Tillamook to offer “Farmstyle” yogurt parfaits featuring their granola.
Kellogg’s Bear Naked brand granola recently ventured into direct-to-consumer sales with a custom granola maker aimed at millennials, allowing users to combine ingredients like salted edamame and coffee brittle to create over 5,000 different mixtures. “We identified a consumer desire for taste exploration, especially among millennials who are growing bored with traditional ingredients and combinations,” remarked Chris Tutor, Bear Naked’s vice president of marketing, in an interview with Food Dive.
Vierhile of GlobalData acknowledged that although granola is not necessarily less processed than other cereal types, its rising demand reflects a preference for more “natural” ingredients and products. Cereal manufacturers have taken notice, with many in the midst of a collective effort to eliminate sugar, artificial colors, and preservatives across their brands. General Mills recently mentioned that the removal of artificial colors and flavors from its Trix brand has boosted sales. “We know that for some consumers, this was a barrier to buying our products, and addressing it has brought them back to the category,” McNabb explained. Kellogg and Post are also phasing out artificial ingredients in their cereals and have seen increasing market share for their natural brands. Paul Norman, president of Kellogg North America, highlighted the Kashi brand as a top performer for the company during a recent earnings call.
Despite the emphasis on health and reducing processed ingredients, manufacturers insist their primary focus remains on taste. “We’ve reduced sugar in some of our cereals, but we would only do that if it did not compromise the taste that our consumers love,” McNabb asserted.
LOOKING BEYOND BREAKFAST
Even as they pursue innovation, new brands, and line extensions in cold cereals, manufacturers are implicitly recognizing that the tradition of enjoying milk-soaked bowls of flakes and o’s for breakfast is fading. All three major players have repurposed many of their top cereals into bars, biscuits, and pouch snacks, catering to the on-the-go convenience that consumers increasingly demand. General Mills now offers Golden Grahams, Trix, and Honey Nut Cheerios in bar forms, while Kellogg promotes Raisin Bran as a snack.
The demand for breakfast portability, according to Vierhile, is paired with a significant trend of consumers opting for snacks throughout the morning and into the rest of the day instead of a single meal. Research from GlobalData revealed that 33% of consumers in 2016 reported snacking between breakfast and lunch, up from 26% in 2014. Will boxed cereal ever regain its former glory? Manufacturers, including General Mills, are hopeful, though they admit that the traditional breakfast niche may limit growth. In addition to launching new brands and expanding existing ones, companies are also promoting the idea of cereal consumption later in the day. Millennials, who are turning to cereal for quick afternoon meals or snacks, and even enjoying bowlfuls in the early hours, are a key target market. McNabb stated that General Mills has invested in digital advertising to market cereal as a food for any time of day.
Mike Siemienas, a spokesperson for General Mills, noted that the company has identified a receptive audience in the gaming community, where Reese’s Puffs and Cinnamon Toast Crunch are fueling late-night play sessions. The company sponsors gaming tournaments, which have gained traction with the rise of eSports, and has focused its digital marketing efforts on reaching these players. “There are little things we’re doing to target those who enjoy cereals as a late-night snack,” Siemienas shared with Food Dive. “It’s something they can easily eat while gaming.”
Nevertheless, Vierhile remains skeptical about cereal’s future. He believes manufacturers are still too focused on indulgent brands that were popular in the ‘90s and early 2000s but are increasingly viewed with skepticism by consumers. The strategy of repurposing old brands with new colors, flavors, sizes, or ingredients, along with introducing new products, has long been the go-to approach for cereal makers. However, he cautioned that innovation may have finally reached its limits in the category. “Cereal almost needs to be reinvented,” Vierhile concluded.
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