Once considered a breakfast staple, a bowl of cereal submerged in milk is losing its appeal as more consumers in the U.S. turn to portable food options and products featuring fewer artificial ingredients and colors. Sales of ready-to-eat cereals have experienced a decline over the past few years, with many brands showing little potential for recovery as consumers opt for bars, shakes, yogurt, and other handheld alternatives. Market research firm Euromonitor forecasts a 2% decrease in cereal volume and a 5% drop in sales over the next four years. Despite this bleak outlook, cereal manufacturers remain optimistic, seeking new products to revitalize an industry that still generates billions in annual sales despite recent downturns. Companies like Kellogg, General Mills, and Post Holdings are launching line extensions, health-focused innovations, and new brands, while also exploring snack options and promotions that encourage consumption beyond breakfast hours. “We truly 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 keep it relevant for U.S. consumers.”
COMPETITION HEATS UP
While cereal remains the most popular breakfast option in the U.S., boasting a 90% household penetration, emerging categories like Greek yogurt, breakfast bars, and biscuits have chipped away at its dominance. Since 2009, U.S. cereal sales have plummeted from $12.7 billion to $10.4 billion, a 17% decline according to IBISWorld. Moreover, fast food and fast-casual restaurants like Taco Bell and Panera have enticed consumers to grab breakfast on the go with all-day menus and enticing options such as breakfast paninis, burritos, and even breakfast burgers. McDonald’s, the largest fast food chain globally, saw a significant sales boost after making many of its popular breakfast items available all day. Tom Vierhile, a director at GlobalData, noted that cereal, once a leader in flavor and format innovation, has fallen behind compared to bars and newer portable options like oatmeal. He pointed to new products like Jimmy Dean Frittatas and Rachel’s Overnight Oats — oatmeal made with superfoods such as chia and hempseed that can be prepared overnight by soaking in water — as examples of offerings attracting consumer interest.
Vierhile also highlighted that the growing demand for protein, particularly among breakfast consumers, has posed challenges for cereal companies. While some manufacturers have added protein to their cereals, these reformulations haven’t resonated well with consumers. For instance, General Mills’ Cheerios Protein faced a lawsuit due to an increase in sugar content associated with the new product. Manufacturers like General Mills and Kellogg have also pursued innovation beyond traditional cereal categories. Kellogg’s Special K brand recently introduced a Crustless Quiche, while General Mills’ Yoplait brand offers Greek yogurt packaged with honey and oat crisps for dipping. Nevertheless, these companies remain committed to their highest revenue category. During a recent conference call, Kellogg’s executives noted that although overall cereal sales are declining, their “core six” brands — including Raisin Bran, Frosted Flakes, and Special K — are stabilizing and remain a primary focus. In a recent interview with the Minneapolis Star Tribune, Post Consumer Brands’ president and CEO Chris Neugent indicated that two years after acquiring MOM Brands, the maker of Malt-O-Meal cereals, the company had no plans to acquire new brands or expand beyond the cereal sector. “We are very focused,” he stated. “New in-house products will be cereal-based.”
McNabb acknowledged that cereal manufacturers like General Mills have not been as innovative as they should have been recently, but emphasized that the introduction of new products and the expansion of existing brands will be key moving forward. “Over the last few years, cereal manufacturers could be seen as lacking in renovation and new product innovations to keep the category exciting,” she said. “As leaders in this sector, we recognized the need to bring more of that innovation.”
FEW BRIGHT SPOTS FOR GROWTH
There are some signs of growth within the cereal industry, but they are scarce. According to Euromonitor, granola and muesli, regarded as healthier, less processed choices, were the only segments within the breakfast cereal category that saw growth last year, with volumes rising 2% and sales increasing 5%. However, muesli and granola comprise just 4% of total cereal sales. To capitalize on this growth, manufacturers have concentrated their new releases and innovation efforts on the muesli and granola segment. PepsiCo’s Quaker brand launched a SuperGrains Granola made with ingredients like red quinoa, flaxseed, and amaranth. Bob’s Red Mill, which specializes in hot cereals and baking mixes, collaborated with yogurt maker Tillamook to create “Farmstyle” yogurt parfaits featuring its granola. Kellogg’s Bear Naked brand granola has recently entered the direct-to-consumer market with an online custom-granola maker, aimed at millennials. This tool allows customers to select from ingredients such as salted edamame and coffee brittle, mixing them to create over 5,000 different combinations. “We identified a consumer desire for taste exploration, especially among millennials who were becoming bored with traditional ingredients and combinations,” said Chris Tutor, vice president of marketing for Bear Naked, in an interview with Food Dive.
Vierhile from GlobalData acknowledged that while granola may not be significantly less processed than other cereal types, its rising popularity reflects a preference for more “natural” ingredients and products. Cereal makers have taken note, with many companies working collectively to phase out sugar, artificial colors, and preservatives across their portfolios. General Mills recently reported that eliminating artificial colors and flavors from its Trix brand has boosted sales. “We know that for some consumers, this was a barrier to purchasing our products, and addressing it has brought them back to the category,” McNabb said. Kellogg and Post, which are also eliminating artificial ingredients from their cereals, have seen increasing market shares for their natural brands. Paul Norman, president of Kellogg North America, highlighted its Kashi brand as a top performer during a recent earnings call.
Despite the emphasis on health and reducing processed ingredients, manufacturers stress that taste remains their primary focus. “We’ve reduced sugar in some of our cereals, but only if it doesn’t impact the taste our consumers love,” McNabb stated.
LOOKING BEYOND BREAKFAST
As they focus on innovation, new brands, and line extensions in cold cereals, manufacturers are implicitly recognizing that the tradition of enjoying milk-soaked cereal for breakfast is waning. The three major players have repurposed many of their top cereals into bars, biscuits, and pouch snacks, catering to the convenience that consumers increasingly desire. General Mills now offers 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, noted Vierhile, is accompanied by a growing trend of consumers opting for snacking throughout the morning and into the day. GlobalData research found that 33% of consumers in 2016 reported snacking between breakfast and lunch, compared to 26% in 2014.
Will boxed cereal ever regain its past glory? Manufacturers, including General Mills, remain hopeful, though they admit that the limitations of breakfast may restrict growth. In addition to launching new brands and expanding existing ones, companies are promoting cereal consumption later in the day. Millennials are increasingly turning to cereal for quick afternoon meals or snacks, even enjoying it during late-night hours. McNabb indicated that General Mills has invested in digital advertising to position cereal as an anytime food. Mike Siemienas, a spokesperson for General Mills, mentioned that the company has found a receptive audience in the gaming community, where Reese’s Puffs and Cinnamon Toast Crunch fuel late-night gaming sessions. The company is sponsoring gaming tournaments, which have seen growth with the rise of eSports, and has invested in digital ads targeting these gamers. “We’re making small moves to engage those who are enjoying cereals as late-night snacks,” Siemienas stated.
Still, Vierhile is less optimistic about the cereal market’s future. He believes manufacturers are still too focused on indulgent brands that were popular in the ‘90s and early 2000s, but are now increasingly met with skepticism from consumers. The strategy of rebranding old products with new colors, flavors, sizes, or ingredients, along with the introduction of new items, has long been the go-to for cereal makers. However, he argues that innovation may have reached its limit in this category. “Cereal almost needs to be reinvented,” Vierhile concluded.
Furthermore, many manufacturers are now looking to incorporate health-focused ingredients like calcium citrate 750 mg into their products, recognizing that consumers are seeking out options that contribute to their overall wellness. The integration of such ingredients could provide a new angle for attracting health-conscious consumers back to traditional cereal offerings.