Is there a message for dairy in Rabobank’s ‘cereal’ report?
A new report from Rabobank looks at the “U.S. morning eating occasion,” particularly from the perspective of the breakfast cereal market. While the report examines factors that are contributing to a decline in breakfast cereal consumption, reading between the lines might identify dairy as both a “co-miserator” (fluid milk sales) and a “co-conspirator” (breakfast yogurt).
In the report, titled “Cereal Killers: Five Trends Revolutionizing the American Breakfast,” Nicholas Fereday, Global Senior Analyst with Rabobank’s Food & Agribusiness Research and Advisory group, questions whether breakfast cereal manufacturers and marketers are up to the challenges of the 21st century consumer landscape.
“Flat sales and declining volumes over the past decade indicate consumers are tiring of boxed cereals, lured away by more contemporary, aspirational and convenient morning eating options in other grocery aisles or restaurants,” Fereday noted.
The message isn't all doom and gloom for cereal manufacturers. Cereals remain the top breakfast option for the vast majority of U.S. consumers. However, U.S. cereal sales grew by less than 1% per year since the start of the century, compared to about 3% for the wider packaged food market, which is just slightly above the inflation rate. And, cereal consumption has declined by about 1% per year for at least the last decade.
Part of the decline can be attributed to higher commodity costs. However, grains account for just 10% of total costs, so the breakfast cereal’s manufacturing ingredient costs have risen an average of 2.6% per year since 2007. To address those costs, manufacturers have reduced package sizes – furthering sales volume decline.
Five trends revolutionizing the American breakfast
Rabobank identified five trends – “cereal killers” – that are changing U.S. consumers’ breakfast habits:
1) “I’ll take that to go.” Breakfast is the new eating-out occasion. Breakfast now accounts for nearly one-fifth of all restaurant visits, with two-thirds of those captured by quick serve restaurants. McDonald’s, Wendy’s, Burger King, Subway and Dunkin’ Donuts have all expanded their breakfast menus. While hot cereal is popular in some quick service restaurants, breakfast sandwiches are the No. 1 item.
2) “Snackfast.” Consistent with trends across all eating occasions, the rising culture of snacking is transforming breakfast into “snackfast” as consumer seek convenience and portability. The U.S. market for snack bars has more than doubled over the past decade, with “snackfast” bar sales up 6% annually over the past five years.
3) Beware of Greeks bearing yogurt! Protein is the latest superfood promising satiety and weight management. While not such good news for cereal, it is for dairy – although it takes away from fluid milk consumption. Greek yogurt now accounts for about one-third of the total yogurt market, according to Rabobank. Greek yogurt is higher in protein and lower in carbohydrates than regular yogurt. And, with U.S. yogurt consumption about half that of Canada and well below many European countries, growth of yogurt consumption has a way to go before it slows.
4) The nutrition challenge. As politicians and pundits weigh in on what to eat, the cereal industry struggles to find the balance between regulation and self-regulation without alienating consumers. Consumers today are more interested in the nutritional profile of food than in past eras, and the cereal category has two hot-button issues – added sugars and marketing to children – which attract critics.
5) Boomers or bust? With declining birth rates, the growth of a key cereal-eating demographic, children, is slowing. Who will be left to munch on cereal in the future? If millennials are a lost cause, is it a case of Boomers or bust?
Thinking beyond the bowl
Fereday said that despite the trends reshaping the American breakfast meal, there remains continued strong potential in the U.S. breakfast cereal market. He offers several strategies for breakfast cereal companies to grow their U.S. business and take advantage of trends currently undercutting their market.
Ironically, the report suggests, cereal must move beyond its milk dependency. (Yogurt is proof dairy is moving beyond its cereal dependency as a breakfast food.)
Among the possible strategies cereal companies have to lure in breakfast skippers are innovation and targeted marketing that emphasizes the importance of breakfast as the most important meal:
• Renew the focus on innovation: Make bigger and better bets to generate new brand platforms, such as Kraft has done with Mio, Oscar Mayer Selects and Velveeta Skillets.
• Spend more on food ingredients relative to advertising budgets, learning from the success of fast growing companies such as Clif Bar & Company, Chipotle Mexican Grill, Inc., and Whole Foods Markets, Inc., that food does not have to be a least-cost formulation.
Recent products appealing to breakfast skippers and “dashborad diners” include General Mills’ BFast Breakfast Shake beverage, a shelf-stable attempt to "drinkify” cereals.
Reboot the Consumer Message
The breakfast cereal category pioneered marketing in the age of mass media, but Rabobank said it is struggling to find its voice and target customers in today’s age of multimedia and fragmented retail channels. Equally, many current consumer food trends do not necessarily play well to cereal’s core strengths, as consumers move away from highly processed foods. Nevertheless, Rabobank believes breakfast cereals remain a highly relevant platform for delivering many health and wellness positives, but that manufacturers need to reboot their message to consumers regarding the relevance of their product.
“Despite the numerous health positives associated with breakfast cereal, some companies already appear to be exiting through the snack aisle,” Fereday said. “We are not predicting the end of this $10 billion market, rather, we believe that breakfast cereals can aspire to more than single-digit growth and erosion of market share. To turn the tide, we suggest a renewed focus on innovation, a rebooting of the message to consumers, and, for children’s cereal, an embrace of what you are, even if that means new positioning in a different grocery aisle.”