Despite years of maturity, the cereal category hasn't lost its crunch.
Even as commodity inflation and subsequent price spikes threatened to soggy sales volume, the category's value positioning — relative to other morning options — stayed intact, with 29% of eaters consuming cereal because it offers a better value than other breakfast options, according to a Mintel poll. The Chicago-based researcher reports cereal sales jumped 5.8% to $10.8 billion from 2007 to 2009.
Though driven in part by higher costs, the growth is notable since penetration was already high, with nearly all households consuming cereal.
More than nine in 10 consumers (93%) eat cold cereal, with the typical household consuming 12 servings each week. Close to half (48%) continue to stick with the same cereal morning after morning, but during the past year cost concerns have led to more variation.
More than one in five (22%) cereal shoppers purchase less expensive cereal now than they did one year ago, with 21% buying more store brands, according to Mintel.
Private-label cereals have posted the most dramatic growth at 12.8%. That's more than double the rate of growth displayed by corporate brands in most categories, noted Jim Hertel, managing director, Willard Bishop, Barrington, Ill. But since store-brand cereal possesses 12.3% market share, it's on a relatively small base.
“Private label has done really well but it's not going to kick Kellogg off the top shelf for a while,” Marcia Mogelonsky, senior research analyst for Mintel, told SN.
Major brands are maintaining relevancy by offering value in ways other than price.
Take, for instance, General Mills' Wheaties Fuel, a functional cereal aimed at athletic men. Developed with help from sports nutritionist Dr. John Ivy, the NFL's Peyton Manning, triathlete Hunter Kemper, the NBA's Kevin Garnett, gold medalist decathlete Bryan Clay and MLB's Albert Pujols, it contains 100% of the daily value of five B-vitamins.
When it hits shelves this January, Wheaties Fuel will join recent reformulations like Rice Chex cereal — now gluten-free since it's made with molasses rather than barley malt syrup.
Kellogg Co. is also taking health-related cues from consumers as they move from the high-sugar cereal segment to medium-sugar options, according to Mintel.
This summer, the cereal maker announced that by the end of 2010, nearly 80% of its ready-to-eat cereal will bear good to excellent sources of fiber designations. Children's cereals Froot Loops and Apple Jacks were the first to undergo changes.
Through its initiative, Kellogg is hoping not just to enhance nutrition, but maintain taste — a smart decision since taste is what cereal shoppers most frequently base their decision on, as was indicated by 60% of cereal eaters.
“We are committed to adding fiber to many of our most popular foods without changing the great taste kids and adults love,” according to Kellogg.
The manufacturer is also experimenting with sweeteners. Kellogg's Corn Flakes Touch of Honey is a new addition.
As they look to satisfy shoppers amidst a growing sea of SKUs, cereal makers have a lot to consider.
Following taste and price as the top attributes for selecting cereal are whole grains, indicated by 33% of cereal consumers; 31% want a flavor they know they like; 29% are looking for fiber content; and 23% have an eye on sugar content, according to Mintel.
It behooves marketers to enhance the tried and true, rather than introduce new, since consumers are sticking to what they know, noted Mogelonsky.
“Part of the psychology in this environment is, ‘I know this is more expensive, but I'm not going to waste it because I know everyone [in the family] is going to use it,’” she said. “The biggest risk for a new cereal might not be the competition from store brands but the competition from the security of the same.”
Tim Cummiskey, grocery manager for Highland Park Markets, Glastonbury, Conn., sees opportunities for growth not so much with existing cereal eaters since they're loyal to their favorite brands, but with other shoppers.
If merchandised in the right way, health claims boasting functional benefits — like immunity on boxes of Kellogg's Rice Krispies — could be enough to attract shoppers concerned about contracting the H1N1 virus, he said.
“I think it could create new sales,” noted Cummiskey.
Other retailers report that offerings that are both new and value-priced are resonating with long-time cereal shoppers.
Within two weeks of Fresh & Easy Neighborhood Market's Mother's Joy corporate-brand cereal launch in May, it was outselling national brands 3 to 1, according to spokesman Brendan Wonnacott.
The El Segundo, Calif.-based chain recently promoted Mother's Joy Corn Flakes cereal, 12 ounces, for a low 98 cents.
Despite having just 10,000 square feet of store space, Fresh & Easy accommodated for the line by raising shelving by 1 foot, rather than pare national brands.
“We had room to go up and we did rather than eliminate popular items,” Wonnacott said.
Supervalu, Eden Prairie, Minn., may not be as generous with its shelf space. As it embarks upon a SKU rationalization effort, populated categories like cereal are among the first to be scrutinized.
“I'll name a category, cereal, where we'll carry four sizes of the exact same box of cereal that might be ranked No. 72 in the category,” said Chief Executive Officer Craig Herkert at a recent Goldman Sachs Retailing Conference. “And from one size box to the next, there's another bowl-and-a-half of cereal in there. I'm not sure our customer's telling us that's real variety.”
Other food retailers are highlighting national brands.
While store brands experience double-digit gains at Lakeland, Fla.-based Publix Super Markets, Cheerios, 8.9 ounces for $1.99, joined staples like Publix milk, one gallon for $2.49, on its list of discounted Essential items.
“Customers will see added value in Essential products throughout the campaign,” Publix spokeswoman Maria Brous told SN.
Branded cereal is also regularly included in buy-one, get-one-free promotions at Publix. Last week, General Mills' Lucky Charms cereal was part of its BOGO offer.
Working in store-brand cereals' favor is the amount of money these national brands dedicate to calling attention to the category. Major brands reason that a substantial investment is necessary given the presence of so many cereals.
Kellogg, for instance, committed more than $1 billion to advertising despite the poor economy. The company that holds 30% market share made good use of the money, highlighting the cost a bowl of cereal including milk at less than 50 cents.
Meanwhile, General Mills, which holds 27% market share, increased its ad dollars by 18% between 2007 and 2008, according to Mintel.
While their efforts help draw shoppers to the cereal aisle, retailers are doing their best to trade them down once they get there.
One way to incite trial might be to offer grab-and-go offerings, packaged in small potato-chip-type bags, suggested Mogelonsky.
“It would position it as more than just a morning cereal,” she said.
Close to half (45%) of cereal eaters use cereal as a snack, while 21% take it on the go, according to Mintel.
Also an effective way to switch shoppers to private brands is to do the math for them, said Hertel.
He suggests that retailers compare and clearly identify price differences between private- and national-brand products.