For many families, breakfast means having a bowl of cereal. It could be hot cereal, but nearly 90% of the cereal industry is comprised of cold cereal. Yet cereal isn’t something that is just for breakfast. According to Mintel, 42% of people who identify themselves as cereal consumers would embrace having a bowl as their lunch or their dinner.
The cereal industry contributes an average of $11 billion in sales to the US food market every year.
Because there is such an emphasis on the cold cereal market, brands are looking to create a variety of products to attract new customers. This has helped the industry to have more granola, gluten-free, and non-GMO products than ever before. Organic cereals are also on the rise. Yet despite these changes, the cereal industry is actually experiencing a 5% decline. In the next decade, assuming prices remain static, Mintel expects to see 2% growth.
Why Cereal is Experiencing A Long-Term Decline
- It’s all about the sugar. The cereal industry uses approximately 816 million pounds of sugar each year, as reported by Scott Bruce and Bill Crawford. Or to put that in a different way: that’s 3 pounds of sugar per person per year that’s on the cereal.
- Kid’s cereals are typically the ones that have the most sugar in them. In a survey of over 1,500 breakfast cereals, the ones that are marketed toward children contain 40% more sugar compared to the ones marketed to adults. That means kids who have one bowl of sugar-sweetened cereal per year are adding 1,000 teaspoons of sugar to their diet.
- Americans purchase about 2.7 billion boxes of cereal each year, which is the equivalent of eating 14 pounds of cereal per person.
- Many cereals have begun to market the amount of protein they contain – like Cheerios Protein cereal. Yet the FDA has also acknowledged that cereals may contain protein from animal matter from the manufacturing process from insects and even rats as well.
- There’s also the fact that some breakfast cereals can actually be “over-fortified.” Nearly two-dozen brands in a 2014 survey of cereals showed higher than safe levels of zinc, niacin and vitamin A.
- Because of this, consumers are beginning to rediscover hot cereals. Although just 10% of the cereal industry, sales growth in this category has been steadily upward. Sales reached $1.4 billion in 2014, an increase of 6% from 2012-14. Mintel expects an increase of 11% by the year 2019 in this category.
For the cereal industry, it’s all about perception. When a cereal is perceived to be healthy, then it typically does better in sales. When it is perceived as a cheap sugar high or has very little to offer nutritionally, then sales are going to lag. What we are seeing here is the same trends that other industries selling sugar-sweetened products are experiencing: a focus on personal health, especially when it comes to children right now. Parents are looking to control their weight and they don’t want their children to be in the same situation they were while growing up. This means buying healthy cereals, hot cereals… or no cereal at all.
How Marketing Can Change Everything in the Cereal Industry
- According to Prepared Foods, PepsiCo’s sales increased 1% due to its Quaker line, which the company marketed as a filling, energy-providing breakfast food through its “Quaker Up” campaign.
- Category leader Kellogg’s overall sales declined 5% in the 52-week period ending May 18, 2014, but made gains with its Special K brand, which positioned itself as a late night indulgence as well as a breakfast food.
- General Mills’ sales decreased 3% in the same 52-week period, despite a brand-wide social media campaign that engaged users on Twitter, Facebook, and Instagram through visual storytelling.
- Within natural channels, both hot and cold cereal segments are growing, a direct contrast to the category as a whole. Sales of cereal in natural supermarkets reached $121 million in 2013, representing an increase of 22% from 2011-13. Sales are driven by the cold cereal segment, and gluten-free varieties.
- 42% of US adults indicate they are eating more cereal this year, compared to last year.
- Younger men and women (aged 18-34) are most likely to indicate they are eating more hot and cold cereal, including both better-for-you and heavily sweetened varieties.
- 1 in 3 people say that they are trying to eat cereals which contain more protein in them. 1 in 4 people say that they are looking to cereals which have more fiber in them.
- The youngest consumers responsible for purchasing are more likely to indicate they don’t have time to eat breakfast [19%], or agree cereal is inconvenient to eat on the go [17%], so they avoid purchasing it.
- Younger men and women in the 18-34 age demographic are most likely to indicate they are eating more hot and cold cereal, including both better-for-you and heavily sweetened varieties.
- Younger consumers are more like than older consumers to have a preference of 4+ types of cereal that they eat on a regular basis.
When cereal is marketed as a healthy alternative that promotes some sort of personal benefit, then brands are seeing sales rise. When cereal is marketed as a late-night treat that doesn’t have the same caloric hit as sweetened baked goods, candies, or other treats when a person is feeling peckish, then brands are seeing sales rise. When cereal takes a general marketing approach to market products to younger consumers, then brands are seeing sales fall. Why? Because cereal itself is seen as inconvenient. When there’s a health connection to the cereal, however, consumers are willing to overlook the negative of inconvenience because the positive health effects [real or perceived] outweigh them.
Where There is Opportunity for the Cereal Industry
- About 30% of people who say they eat cereal on a regular basis state that they add extra ingredients to their bowl, including dried fruit. In the 55-64 age demographic, nearly half of all cereal eaters say they do this.
- Although brands are marketing cereal as a snack and offering consumers snack-sized individual portions, 1 in 3 cereal consumers say that they prefer to purchase their products in large boxes or bulk-size packaging. Men especially prefer purchasing cereal in bulk.
- 87% of cereal eaters agree it can be eaten at any time of day and 76% say that a bowl of cereal makes for a great snack. According to CSP magazine, a trade publication covering the convenience store and fuel industries, cereal bar sales jumped by 2.1% in 2013 – with Rice Krispie treats leading the way with $58 million in total revenues earned.
- More than half [57%] of consumers say that they wish a bowl of cereal made them feel full for a longer period of time.
- Storage space for cereal is also a concern, with 1 in 3 saying that the boxes take up too much space. Another 1 in 3 say that their cereal goes stale before they can eat it, despite the industry adding flexible and resealable materials to their products to protect their freshness.
- According to a report from Credit Donkey, researchers found that when the box featured a specific character, brand trust increased by 16% when the character appeared to be making direct eye contact.
- According to the National Association of Wheat Growers, about 75% of all U.S. grain products, including cereal, are made from wheat. This means there is a natural niche market for the cereal industry to target with individuals who cannot eat wheat. About 1 in 130 people are believed to have Celiac disease in the US, which prevents them from eating many cereals today.
- Marketing research data from IRI shows that Honey Nut Cheerios continue to be the top-selling brand, with classic Cheerios landing in fourth place after Frosted Flakes and Honey Bunches of Oats.
- Despite the push for healthier cereal options, fewer than 1 in 5 cereal eaters are eating high-fiber cereals [18%], granola [14%], or weight-management cereals [13%].
- From research presented by the Harvard School of Public Health, eating cereal regularly after a serious heart event could significantly improve mortality rates. Now that’s something to market to health-conscious consumers.
Consumers are looking for a nice balance between sweet and healthy. This is why the top-selling cereals are seen as having certain health benefits, but also have a nice dose of sugar to add in the morning. By adding more protein to the cereals that doesn’t come from “animal origins,” the industry can meet the one main demand that consumers have for this product: to feel full. Consumers already see cereal as a versatile food product that can be consumed virtually any time and anywhere. They just want to feel more satisfied when they do eat it. At the moment, this means consumers are looking to hot cereals to make that happen. If cold cereals can provide this feeling as well, then the growth projections could rocket upward in the next decade for this industry.