Fruit Loops

Soggy sales: Consumers are going off some cereals, but not the right ones

In recent years breakfast cereals seem to have lost their snap, crackle and pop. Many contain things that anxious consumers shun, from carbohydrates and gluten to artificial flavours and genetically modified (GM) grain. Add to this a rising disdain for big brands and adoration of small, “authentic” ones, and large cereal-makers have been suffering soggy sales.

The market for “ready-to-eat” cereals shrank by 9% in America between 2012 and 2015, according to Euromonitor. In Britain, the second-biggest cereal market, sales fell by 6%.

Now, the manufacturers are trumpeting a turnaround. On February 16 General Mills told investors that its American cereal sales were stabilising. Kellogg is equally chipper, reporting on February 17 that it expects its American cereal sales to grow this year. But it will take hard work to revive breakfast’s flakiest business.

Cereal firms have tried many ways to cope with waning appetites. They have diversified.

Post Holdings, which sells Honey Bunches of Oats and Grape-Nuts, now also sells eggs and protein shakes. Some firms have acquired trendier brands, with mixed results.

After Kellogg bought Kashi in 2000, many of its oat-munching customers fled. Kellogg is now trying to win them back, returning Kashi’s headquarters to California. A new Kashi cereal features popped sorghum, crispy yellow peas and smashed red beans. Pet hamsters will love it.

Makers are also spending to revive their main brands. Kellogg has put more fruit in its Special K Red Berries cereal. General Mills has stripped GM ingredients and gluten from Cheerios. It plans to remove all artificial flavours and colours from its cereals by 2018.

Some analysts question whether the changes are worth the extra costs. But Robert Moskow of Credit Suisse, a bank, reckons that cereal-makers can compensate by cutting overheads and streamlining supply chains.

Retailers do not want cereal to enter terminal decline—it is too profitable for them. Jim Holbrook, who led Post’s cereal business and is now boss of Daymon Worldwide, a retail consultant, says grocers might boost sales by placing milk or bananas in the cereal aisle.

For now, cereal-makers can take comfort that at least some brands are still thriving. Sales of Kellogg’s Froot Loops and General Mills’ Cinnamon Toast Crunch have risen in recent years, points out Alexia Howard of Sanford C Bernstein, a research firm, even as more virtuous brands such as Fiber One, All-Bran and (until recently) Special K were waning.

Health-conscious shoppers may or may not be lured back to their cereal habit by smashed red beans. But cereal’s most reliable customers are those who don’t mind heaps of sugar, or “red #40” food colouring, in their breakfast bowls. [You have to admire The Economist’s clever, pun-filled journalistic style! Ed]

Source: The Economist