Cereal manufacturers in the UK are facing a competitive market and flat sales volumes. While overall conditions have been somewhat sluggish, the breakfast category when taken as a whole has seen some pockets of excitement. Manufacturers have looked to capitalise on these and the industry’s response has been a sharp focus on product development, promotional activity and marketing. But, Katy Askew asks, is this enough to breath fresh life into the boxed cereal category?
During 2012, total UK breakfast cereal sales rose by 5% to a total value of GBP1.9bn. However, value gains were driven by higher prices, with manufacturers increasing unit pricing in order to offset increased logistics and ingredient costs. Indeed, according to figures from Euromonitor International, cereal volumes were up just 1% in the period.
These higher sales were driven by a particularly strong performance from hot cereals, which increased value sales by 15% in the period. Growth in this segment was broad based: with traditional hot porridges expanding sales along side “on-the-go” products, which are proving popular.
Gains in this segment have been boosted by a number of factors, IRI senior insight manager Leon Palmer tells just-food. “There is obviously the health benefit to it, but I think it is more about having a filling meal solution: something that will take you through until lunchtime,” Palmer says. “The instant format has also helped grow porridge sales… and it is something you can get in a lot of channels: from grocery and convenience to foodservice.”
PepsiCo’s Quaker Oats has taken a leading role in expanding hot cereal sales – with a portfolio that includes instant and on-the-go options. Quaker has also successfully extended its on-the-go line up through the introduction of added topings.
Bright Foods owned Weetabix has also extended its Alpen brand into the hot cereal category with the well-recieved launch of Alpen porridge containing fruit bits.
Hot cereal sales have benefited from a perception that they are both “better for you” and of a higher quality than certain boxed cereal options, Palmer adds. “The perception of [boxed] cereal was poor nutrition, poor value, lack of taste and a processed image. You can see in the face of that why traditional porridges and mueslis are doing better.”
Poor consumer perceptions of traditional boxed cereals has meant that growth in the cereal segment has also been weighted toward the premium end of the market, another factor that has helped value sales outpace volume growth. Euromonitor research highlights in particular that high-end sales expansion has benefited manufacturers developing gluten-free products, with organic “acting as a secondary driver”.
“With an overall aim of offering consumers better value for money, manufacturers in this category are offering gluten-free, organic products emphasising the consumer taste experience,” research analyst Deborah Cross suggests.
The likes of Dorcet Cereals have been active in developing its premium offering and – as in the hot cereal segment – on-the-go pots have been a strong focus.
A shift in demand towards a more premium offering has also been characterised by an increased focus on more complex and sophisticated flavour profiles, with the introduction of variants such as apple and cinnamon or strawberry and raspberry varieties. The significance consumers place on flavour has also been reflected in a swathe of chocolate-flavoured launches. Interestingly, the use of chocolate flavours has been particularly notable in “better for you” cereal brands, such as Kellogg’s Special K.
Kellogg has also looked to NPD to boost sales of its cereal products aimed at the lucrative kids sector. With falling birthrates in the UK and concerns over health and the marketing of cereals to kids, product development is proving an important weapon in the battle to drive sales of cereals aimed at children.
The drive for convenience, which has been a major factor helping invigorate cereal sales, has also contributed to the development of competing sectors, such as breakfast bars and biscuits. In particular, the runaway success of BelVita, the breakfast biscuit owned by Mondelez International, has prompted a flurry of innovation around breakfast biscuits.
Cereal manufacturers have looked to extend their established brands into the bar and biscuit segments as they compete for a share of the 2.6bn “breakfast skipper” market. For expample, PepsiCo has extended Oat So Simple into bars, Weetabix has launched On the Go breakfast biscuits and Kellogg developed Nutri-Grain breakfast biscuits.
However, cereal makers are not the only food manufacturers looking to capitalise on this growing trend and they have found themselves pitted against brands attempting to leverage their strengths in the growing morning goods sector, such as Premier Foods’ Hovis business.
Mainstream cereal manufacturers have looked to capitalise on emerging trends – and invigorate sales in established areas such as kids cereals – through product launches. According to IRI, approximately 8% of 2012 sales were accounted for by newly launched products and the most active players in the NPD over the past 12 months have been the larger cereal companies: Nestle (CPW), Kellogg, PepsiCo and Weetabix.
However, Tom Vierhile, Datamonitor’s innovation insights director, suggests that more could be done in the field of innovation to excite consumers.
Vierhile observes: “There have been some efforts to try to revitalise [demand] in the last few years with some new flavours, things like chocolate options…. When you look at some of the product launches that are hitting the boxed breakfast cereal category, you don’t really see a lot of new and different products. A lot of it is just items that really are not offering a lot of new and different features to the market place.”
Moving forward, he suggests that cereal manufacturers should look to establish new USPs, focusing on areas like high-protein cereals that could be offered in conjunction with strong health messaging. In addition, Vierhile suggests, manufacturers could look to further extend the appeal of products to beyond the breakfast occasion.
Cereal manufacturers are also working to leverage the strength of their brands in the UK (and differentiate their offerings from cheaper private label alternatives) through marketing. However, here, it seems that companies are finding their efforts constrained by financial imperatives.
“IBISWorld research shows that companies are attempting to increase marketing investment, but this is not always possible as firms emerge and restructure following the recession,” IBISWorld analyst Patrick Ross tells just-food. “[In the UK] the largest firms are best placed to appeal for investment from their parent companies but the perceived rewards have to be assessed. Large companies have been forced into more marketing by the intense competition from supermarket own brands, whereas own brands require little to no marketing as they rely on supermarket footfall alone.”
However, Ross concludes, for the “most part” brands have been successful in communicating their messages – with social media proving a particularly effective avenue.
An important tool in the armoury of branded cereal manufacturers is the ability to invest in promotional activity. Approximately 60% of UK cereal products are sold on promotion and the big companies – with deep pockets to invest in promotion – are best placed to benefit.
Promotions are strongest and most common among the large global companies, as they look to out-do rival brands and incentivise purchase above supermarket own-brand goods… For the category as a whole, promotion can prove a significant barrier to success for smaller operators that are unable to put as much capital behind their marketing. Nonetheless, marketing only takes products so far, and it is obviously the taste and quality that drive future sales,” Ross says.
Click here to read the full just-food briefing into the breakfast cereal sector.