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Boomers or bust: Is the $10bn US breakfast cereal market in a state of terminal decline?

By Elaine WATSON , 30-Apr-2013

On paper at least, boxed breakfast cereal ticks all the right boxes. It’s quick, great value for money, and nutritious - the perfect recession-proof food. 

Yet US consumption has dropped about 1% every year for the last decade as consumers have sought out more convenient - and often more expensive - alternatives, and ‘breakfast’ has switched from being one of three square meals a day to just another snacking occasion.

So should cereal manufacturers bow to the inevitable, cut prices and enter a margin-crushing race to the bottom as they seek to gain a bigger share of a shrinking market, or can they turn the tide?

In ‘Cereal Killers: Five Trends Revolutionizing the American Breakfast’, Nicholas Fereday, Global Senior Analyst with Rabobank’s Food & Agribusiness Research and Advisory group, says this all depends on how firms adapt to the changing consumer landscape.

If Millennials are a lost cause, is it a case of Boomers or bust?

On the one hand, observes Fereday, demographics are working against the breakfast cereal industry.

For a start, Millennials aren’t sitting down to breakfast anymore, or they are ditching their bowls of cereal and tucking into a protein-packed Greek yogurt or a 300-cal frozen breakfast sandwich that can be heated in the microwave instead.

Secondly, declining birth rates mean “the growth of a key cereal-eating demographic, children, is slowing”, he says, while more consumers are eating breakfast outside the home, with breakfast now accounting for one in five restaurant visits.

However, older adults (a growing demographic) are still big cereal consumers, he points out, and Millennials might yet be wooed back with “innovation and targeted marketing that emphasizes the importance of breakfast as the most important meal”.  

It’s also worth noting that cereals have some great selling points, and “remain a relevant platform to satisfy many current consumer trends”.

Is ‘drinkifying’ breakfast the answer?

So is ‘drinkifying’ cereal - by combining grains and dairy in a convenient breakfast shake format such as General Mills’ shelf-stable BFast product - one way of keeping cereal ‘relevant’?

Fereday is not convinced. Breakfast shakes have done well in Australia, he concedes, but in the US, “attempts to promote the breakfast in a glass concept date back to the 1960s and never caught on”.

Meanwhile, although food marketers like to talk about pleasure without compromise, and how taste and health are not mutually exclusive, manufacturers need to face facts, he says.

By trying to please everyone, there is always the risk of pleasing no one

Under pressure to cut sodium, sugar and fat, cereal makers are increasingly trying to move kids’ cereals in particular from the ‘fun for you’ category into ‘good for you’ or ‘better for you’ categories via recipe engineering, he adds.

But are they kidding themselves?

“Is it really possible to transition a product and take its customer base with it? Isn’t this alchemy rather like trying to turn a cookie into a carrot? Or the soon-to-be resurrected Twinkie into a protein bar?”

By trying to please everyone, there is always the risk of pleasing no one, he suggests, citing a series of products from Campbell’s soup to Kraft’s Alphabits cereal that were reformulated to meet ‘consumer demands’ for less sugar and salt, only to take a sales hit as a result.

Maybe, he says, “the lesson for children’s cereals is to embrace what they are… even if it does mean that their ultimate home will lie in the cookie or the snack aisle.”

‘The time is again ripe to promote chocolate in cereals’

The success of Kellogg’s Krave chocolate cereal also suggests that “the time is again ripe to promote chocolate in cereals”, he says.

There may also be potential in focusing on more gourmet, premium offerings for adults, he adds.

This might mean a switch to more expensive natural sweetening systems to use of more protein-rich nuts and legumes instead of wheat, corn and rice in cereal-type products.

Kellogg: ‘We think we can continue to grow the cereal business quite aggressively’

So what do the key players think?

Speaking at Kellogg’s annual shareholders’ meeting Last Friday, CEO John Bryant said Kellogg is “the clear global leader in cereal, and we think we can continue to grow this business quite aggressively”.

For older adults - many of whom still do sit down for breakfast in the morning - Kellogg has developed new products such as Raisin Bran Omega-3, which is coming out in the middle of the year, while for adults who eat breakfast on the go, it has developed breakfast shake ‘Kellogg's to Go’, which is “basically a bowl of cereal and milk in a portable beverage format, 10g protein, 5g fiber”, said Bryant.

In the UK, meanwhile, it has launched Nutri-Grain breakfast biscuits, while in India and South Africa, where consumers like hot or savory products in the morning, Kellogg is “meeting those consumer needs through different food forms”, he said.

General Mills: ‘Any food category’s growth is the result of the collective innovation’

Bosses at General Mills, meanwhile, say they do not accept that the US breakfast cereal category has peaked.

Speaking at the Barclays Back to School conference in Boston last fall, General Mills executive vice president, US Retail, Ian Friendly, said that declining volumes in the US cereals market could be blamed on “cyclical not structural” issues.

While pound volumes had dropped, this was largely due to “below-par” innovation from branded competitors and price hikes prompted by cost inflation, he argued.

He added: “First and foremost, we believe that any food category’s growth is the result of the collective innovation and marketing that branded players bring to the category, and the fact is that cumulative news and innovation from our branded cereal competitors has been below par for the last couple of years.

“The second factor behind the recent volume decline is price increases, a sharp increase in input costs last year led to a significant rise in cereal pricing and some of that was achieved through package size reduction, which contributed to the pound volume decline.

“We see both of these issues as cyclical, not structural.”

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