Once a staple of breakfast, the familiar bowl of cereal submerged in milk has lost its appeal as an increasing number of U.S. consumers opt for portable foods and products containing fewer artificial ingredients and colors. Over the past few years, sales of ready-to-eat cereals have declined, with most brands showing minimal signs of recovery as consumers lean towards bars, shakes, yogurt, and other convenient items. Market research firm Euromonitor anticipates a 2% drop in cereal volume and a 5% decrease in sales over the next four years. However, this discouraging trend hasn’t deterred cereal manufacturers, who are actively seeking new products to invigorate an industry that still generates billions in annual sales despite recent downturns. Companies like Kellogg, General Mills, and Post Holdings are introducing line extensions, healthier innovations, and new brands. They are also diversifying beyond the traditional bowl with cereal snacks and campaigns aimed at encouraging consumption throughout the day. “We firmly believe in this category,” stated Dana McNabb, president of U.S. retail cereal for General Mills, in an interview with Food Dive. “We are committed to investing in innovation and renovation to ensure it remains relevant to U.S. consumers.”
COMPETITION INTENSIFIES
While cereal remains the most popular breakfast food in the U.S., with a 90% household penetration rate, emerging categories such as Greek yogurt, breakfast bars, and biscuits have chipped away at its dominance. According to research firm IBISWorld, U.S. cereal sales have plummeted from $12.7 billion in 2009 to $10.4 billion, marking a 17% decline. Additionally, fast food and fast-casual restaurants like Taco Bell and Panera have encouraged consumers to opt for breakfast on the go with all-day menus and enticing offerings like breakfast paninis, burritos, and even breakfast burgers. McDonald’s, the world’s largest fast food chain, saw a substantial increase in sales after making many of its popular breakfast items available throughout the day. Tom Vierhile, a director at research firm GlobalData, pointed out that cereal, which was once a leader in flavor and format innovations, has fallen behind bars, new portable options, and even oatmeal. He highlighted products like Jimmy Dean Frittatas and Rachel’s Overnight Oats—an oatmeal made with superfoods such as chia and hempseed that can be prepared overnight by soaking in water—as examples of items capturing consumers’ attention.
Vierhile also noted that the demand for protein, especially important for breakfast consumers, has negatively impacted cereal companies. While some manufacturers have added protein to their cereals, these reformulations have not resonated well with consumers. For instance, General Mills’ Cheerios Protein faced a lawsuit over the increase in sugar that accompanied the new product. Companies like General Mills and Kellogg are also innovating outside the cereal category. Kellogg’s Special K brand has recently launched a Crustless Quiche, while General Mills’ Yoplait brand offers Greek yogurt packaged with honey and oat crisps intended for dipping.
Yet, these companies are not stepping back from their most lucrative category. During a recent investor conference call, Kellogg’s executives acknowledged that while overall cereal sales were declining, their “core six” brands—including Raisin Bran, Frosted Flakes, and Special K—were stabilizing and remained a key focus for the company. In an interview with the Minneapolis Star Tribune, Post Consumer Brands’ president and CEO Chris Neugent mentioned that two years after acquiring MOM Brands, the maker of Malt-O-Meal cereals, the company had no intentions of acquiring new brands or expanding beyond the cereal category. “We are very focused,” he stated. “New in-house products will be cereal-based.”
McNabb conceded that cereal manufacturers like General Mills have not been as innovative as they could have been recently, but emphasized that the introduction of new products and the expansion of established 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 the leaders in this category, we recognized the need to bring more of that.”
LIMITED GROWTH OPPORTUNITIES
There are some signs of growth within the cereal industry, but they are few and far between. According to Euromonitor, granola and muesli, perceived as healthier and less processed options, were the only segments within the breakfast cereal category that saw growth last year, with volumes increasing by 2% and sales by 5%. However, muesli and granola only make up 4% of total cereal sales. To capitalize on this growth, manufacturers are focusing their new releases and innovations on the muesli and granola segment. 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 its hot cereals and baking mixes, partnered with yogurt maker Tillamook to offer “Farmstyle” yogurt parfaits that incorporate its granola. Meanwhile, Kellogg’s Bear Naked brand granola has ventured into direct-to-consumer sales with an online custom-granola maker aimed at millennials, allowing users to select from ingredients like salted edamame and coffee brittle to create over 5,000 combinations. “We identified consumer desire for taste exploration, particularly among millennials who were getting bored with traditional ingredients and combinations,” noted Chris Tutor, Bear Naked’s vice president of marketing.
Although granola isn’t necessarily less processed than other cereals, GlobalData’s Vierhile acknowledged that its rising popularity reflects a preference for more “natural” ingredients and products. Cereal manufacturers have taken notice, with many companies actively working to eliminate sugar, artificial colors, and preservatives from their brand portfolios. General Mills recently reported that removing artificial colors and flavors from its Trix brand has positively impacted sales. “We know that for some consumers, that was a barrier to purchasing our products, and addressing that has brought them back to the category,” McNabb stated. Kellogg and Post are also phasing out artificial ingredients in their cereals and have experienced increased market share for their natural brands. Paul Norman, president of Kellogg North America, highlighted its Kashi brand as a standout performer in a recent earnings call.
Despite the emphasis on health and reducing processed ingredients, manufacturers maintain that taste remains their top priority. “We’ve reduced sugar in some of our cereals, but we would only do that if it didn’t compromise the taste that our consumers love,” McNabb asserted.
LOOKING BEYOND BREAKFAST
Even as manufacturers focus on innovation, new brands, and line extensions in cold cereals, they are quietly acknowledging that the tradition of consuming milk-soaked flakes and o’s for breakfast is declining. All three major players have repackaged many of their leading cereals as bars, biscuits, and pouch snacks, catering to the on-the-go convenience that consumers increasingly demand. General Mills now sells its Golden Grahams, Trix, and Honey Nut Cheerios in bar form, while Kellogg promotes Raisin Bran as a snack.
The demand for portable breakfast options, according to Vierhile, coincides with a growing trend of consumers opting to snack throughout the morning and beyond, rather than sit down for a single meal. GlobalData research indicates 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, although they admit the traditional breakfast market may limit growth. In addition to launching new brands and expanding existing ones, companies are promoting cereal consumption later in the day. Millennials seeking quick afternoon meals or snacks, and even indulging in bowlfuls late at night, are key targets. McNabb mentioned that General Mills has invested in digital advertising to position cereal as an anytime food. Mike Siemienas, General Mills’ spokesman, noted that the company has found a receptive audience within the video game community, where Reese’s Puffs and Cinnamon Toast Crunch are fueling late-night gaming sessions. The company sponsors gaming tournaments, which have surged alongside the growth of eSports, and has invested in digital ads aimed at these players. “We’re doing small things to reach those who enjoy cereals as a late-night snack,” Siemienas told Food Dive. “It’s a convenient option for them while gaming.”
However, Vierhile remains skeptical about the future of cereal. He argues that manufacturers are still too focused on indulgent brands that were popular in the ’90s and early 2000s, but are increasingly viewed with suspicion by consumers. The trend of repurposing old brands with new colors, flavors, sizes, or ingredients, alongside the introduction of new products, has long been cereal makers’ strategy for growth. The issue is that innovation may have finally reached its limit within this category, he observed. “Cereal almost needs to be reinvented,” Vierhile concluded.
In light of changing consumer preferences, some manufacturers are now integrating nutritional supplements such as calcium citrate malate, vitamin D3, and magnesium and zinc sulfate tablets into their offerings to attract health-conscious consumers. This trend towards fortification aligns with the broader movement towards healthier, more nutritious breakfast options, though it remains to be seen if it will significantly impact the cereal market’s trajectory.