Cereals in epic struggle as morning tastes, rituals change
Cereal, that bedrock of the American breakfast, has lost some of its snap, crackle and pop.
For the last decade, the cereal business has been declining, as consumers reach for granola bars, yogurt and drive-thru fare in the morning. And the drop-off has accelerated lately, especially among those finicky millennials who tend to graze on healthy options – even if Cheerios and some other brands come in whole-grain varieties fortified with protein.
As a child, Adam Feuerstein started his day with a homemade breakfast. “Growing up, I would combine Frosted Flakes and Cap’n Crunch,” said Feuerstein, a financial reporter at The Street. “I have such vivid memories of it that if I walk down the cereal aisle today, I still gravitate toward those cereals.”
Cereal companies have tried to play on that nostalgia, with commercials featuring generations of Cheerio eaters or couples fighting over the marshmallows in Lucky Charms.
But Feuerstein, 46, isn’t buying the sales pitch. These days, he eats breakfast around 10 or 11 in the morning, preferring juice he makes himself. If he eats cereal at all, it is a Trader Joe’s private label version “as a treat,” he said.
“You realize that it’s just a sugar delivery vehicle,” he said of cereal. “We’ve all gotten a little smarter about the foods we eat, and while there are plenty of healthy cereals out there, I just don’t choose to eat much cereal.”
Cereal consumption peaked in the mid-1990s, according to the NPD Group, a consumer research firm. Still, some 90 percent of American households report buying ready-to-eat cereal, which remains the largest category of breakfast food with some $10 billion in sales last year, according to Euromonitor, down from $13.9 billion in 2000. And the consumer research firm estimates sales will fall further this year to $9.7 billion.
“More and more consumers are eating breakfast,” said Noel Geoffroy, senior vice president for morning foods marketing and innovation at the Kellogg Co. “The absolute market is growing – and along with that, so are the choices of what consumers eat for breakfast.”
Cereal sales have long been subject to dips brought on by food fads such as the Atkins diet or bagel mania. And many cereals are neither gluten-free nor protein-rich, so they fail to resonate with the growing number of consumers who are gluten-intolerant or adherents of the so-called paleo diet.
And, of course, there are the millennials, those consumers between the ages of 14 and 32 who are proving to be a headache for food companies.
“They’re much more likely to be snacking rather than eating three meals a day, and therefore may not have a traditional breakfast at all,” said Jeff Fromm, president of FutureCast, a consumer research firm specializing in millennials. “Additionally, there’s a small but very active and influential group of millennials who are focused on health and don’t like processed food. Guess what, cereal companies? They want to kill you.”
As if those challenges were not enough, new kitchen gadgets make whipping up a smoothie or a custom blend of juices easy to do at home. Plus, a number of new fast-food breakfast options – waffle taco, anyone? – have put dents in cereal sales.
Changing preferences
At General Mills, the company’s yogurt brands have eaten away at sales of its cereals, which include Lucky Charms, Cinnamon Toast Crunch and Cheerios. “Some of my business has definitely gone to my colleague running yogurt,” said Jim Murphy, president of Big G, General Mills’ cereals unit.
Big G has made tweaks in advertising and ingredients to address changing consumer preferences. For instance, it continues to reduce sugar in its cereals, and it pulled Nature Valley cereals out of mothballs and added protein to them in 2013.
Such changes have kept the company’s sales of cereals stable at a time when its competitors are struggling. This month, Post Holdings reported that sales of its cereals, which include Alpha-Bits and Grape-Nuts, were down 3.4 percent in the fiscal third quarter compared with the same period last year, while sales of morning foods at the Kellogg Co., which includes Pop-Tarts, breakfast bars and beverages in addition to its cereal brands, slid 4.9 percent in the second quarter.
John Bryant, the chief executive of Kellogg, was characteristically blunt in explaining the decline to investment analysts on July 31. “The overall decline has been largely due to innovation that hasn’t worked,” Bryant told them, citing disappointing sales of Mini-Wheats Crunch, now discontinued, as well as efforts to alter its FiberPlus and Crunchy Nut brands.
The executive who had been in charge of Kellogg’s cereal business for eight months left the company and was replaced by his predecessor. Kellogg’s also brought back David Denholm from Chobani to run its faltering Kashi brand, which he had previously overseen, and the company said it would move the business back to La Jolla, the San Diego community where it was founded.
Kellogg’s has added protein to Kashi GoLean and Special K, a move that Geoffroy, the marketing executive, said was working well, and it has begun packaging its staple cereals for children, such as Froot Loops, Apple Jacks and Corn Pops, in pouches to make them more convenient for mothers to use as snacks.
Absence of negatives
MOM Brands, formerly Malt-O-Meal, has so far been immune to the trends buffeting the rest of the industry; two years ago, it surpassed Post to become the third-largest cereal maker, largely with simple innovations.
“Over the last 10 years or so, as the category has been going down, we’ve doubled our market share,” said Paul Reppenhagen, senior vice president for marketing and corporate strategy. “We’ve had 5 percent compound annual growth over the last five years.”
MOM, which is owned by the descendants of its founder, John Campbell, and operates a facility in Asheboro, has had success with a relatively new brand, Mom’s Best cereals, “because of an absence of negatives,” Reppenhagen said. “No hydrogenated oils, no preservatives, no artificial flavors and colors – we even use vegetable dyes in the packaging.”
All of those changes, however, would not make a difference to Megan Scott, an account executive at Trozzolo, an advertising and public relations firm in Kansas City, Mo. “I really value my sleep, so typically I won’t wake up any earlier to eat breakfast,” Scott said.
She could not remember the name of the cereal she had eaten as a child, and as a teenager, her mother handed her and her brother cans of Carnation Instant Breakfast drink just to get them to eat something with nutrition in it.
Scott said she liked breakfast but simply didn’t have time for it. So her morning menu is a cup of coffee.
“I hope that breakfast will become a meal for me,” she said. “I feel like it should be, but right now, convenience is more important.”