How Post and General Mills Will Try to Save Cereal

Cereal sales have gone stale, with the category seeing unit volume decline for the past three years. Kellogg (NYSE: K  ) , for one, reports its cereal sales are down 3%-4% and consumption is down 5%. General Mills  (NYSE: GIM  )  cites "disappointing sales" for most of its franchises. 

It's a sharp reversal of fortune for such a dominant category. In the 1970s and '80s, more than three in four families ate cereal for breakfast; now only 32% do, according to General Mills. Plus, it used to be that cereal makers only had to compete with each other for market share. Now, they face competition from fast food chains, beverage companies, and other aisles of the grocery store.

Still, cereal remains a huge money-maker. Cereal retail sales reach $9.4 trillion each year, according to General Mills. And nine in 10 homes regularly buy cereal. "The fact is ready-to-eat breakfast cereals, even your favorite presweetened variety, more than hold their own in a side-by-side comparison with other nutritious foods," says General Mills' Jim Murphy, president of General Mills' U.S. breakfast cereals business, Big G, speaking at the Morgan Stanley Global Consumer and Retail Conference in November.

Bringing kids to breakfast

Now, three major cereal manufacturers are developing distinct strategies to recapture cereal eaters.

Although the Rabbit is constantly reminded that Trix are for kids, cereal brands have shifted away from targeting children in recent years. This is largely due to pressure from government agencies and watchdog groups over childhood obesity concerns. However, Post Holdings  (NYSE: POST  ) is introducing an unabashedly kid-targeted cereal. Its Pebbles brand, with Flintstones characters, is releasing Popping Pebbles, a pop rocks-type cereal where "kids experience a fizzy popping sensation with each bite," says Post President Terence Block. The cereal will debut at grocers in early 2014.

Meanwhile, General Mills is continuing its effort not to market its cereals to children by going after adults who still eat like children. One in two Lucky Charms eaters is an adult, according to General Mills. Company executives find that adults eat cereal all day, and not just during breakfast. As a result, General Mills now schedules TV ads during the evening hours to capture these consumers.

General Mills has also reintroduced its iconic Monster franchise that includes Boo Berry, Franken Berry, and Count Chocula. This year, Frute Brute and Yummy Mummy were reintroduced after being out of production since 1982 and 1992, respectively.

And Kellogg's is hitting the other end of the spectrum, focusing on "providing progressive nutrition that older consumers are seeking," says John Bryant, president and CEO of Kellogg, during a call with financial analysts. To this end, Kellogg's now sells Raisin Bran with Omega3, Gluten-free Rice Krispies, and Special K Protein. This tactic, company executives hope, will turn around its cereal division, which helped drag down its third quarter profits to $3.72 billion.

"I think we as manufacturers in cereal have the opportunity to step up and reengage consumers on why cereal was such a good benefit as a breakfast occasion," says Kellogg's Bryant. The company also expects to see a sales bump through its sponsorship of the 2014 Winter Olympics, similar to the jump after the 2012 London Summer Olympics.

It remains to be seen if these manufacturers can lure consumers back to cereal with their various strategies, but at the very least, cereal eaters will soon be able to enjoy poppy and fizzy cereal.


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