The US market for breakfast cereals has been in steady decline for the past five years, but across the Pacific Euromonitor argues that Japan holds plenty of eastern promise for manufacturers. Clare Harman investigates the differences between the markets and the potential for the future of cereals.

Every morning, millions of Americans wake up, throw on some clothes and rush off to work. Pressured by time and work commitments, for many the nostalgic fantasies of family breakfast rituals complete with golden corn flakes and chilled milk are a thing of the past. Across the other side of the Pacific meanwhile, it seems the Japanese are just waking up to American or European breakfast habits.

Euromonitor report:

Breakfast Cereals: The International Market

For manufacturers of breakfast cereals this presents an interesting and challenging dichotomy, as they are caught in the lull between a saturated and declining US cereals market and a yet-to-truly-emerge sector in Japan. According to a recent Euromonitor report, which has also tracked both markets in terms of volume and sales between 1995-9, the next five years are a critical time for cereal producers in the US, but they are full of eastern promise.

Cereal killers

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The US cereals market declined in volume (-9.1%) and sales (-8.5%) between 1995-9. The ready-to-eat (RTE) cereal products maintained their larger share of the segment, but hot cereals such as porridge made up the fastest growing sector as they capitalised on newly available nutrition information by detailing the benefits of whole-grain products. On the whole, the period saw a general consumer shift away from cereals, and towards alternative breakfast foods selected on the basis of convenience, value, and health.

American consumers are picking up on a “fast and healthy” approach to food that seeks to make a compromise between fastfood and the nutrition of conventional meal times, which are often sacrificed to busier lives, more demanding jobs or the decline of the traditional family unit consisting of a bread winner and a housewife who has time to prepare meals. Morning goods such as bagels, low fat, cheap and portable, are an obvious answer. A more expensive cereal product that requires bowl, spoon, a flat surface and cold milk is not.

Is all this a rude awakening then, for a sector whose products once seemed so inextricably linked to American life that it was part of the family routine? Cereal manufacturers have been quick to innovate with product flavour, size, theme and even format in a bid to retain consumer attention. Single serve cereal packets, for example Kellogg-Dannon’s Breakfast Mates product complete with spoon and milk, and hot cereal-in-a-cup products make the cereal more convenient, and manufacturers are anxious to convince consumers that the product has potential as a snack food, to be enjoyed at any time of the day, or night.

As well as marketing and advertising, new distribution channels may be experimented with to advance this perception, the use of vending machines for example, and products such as cereal bars have been launched. Portable and nutritious, the market for cereal bars was worth US$388m in 1999 and growth is estimated to remain strong at over 4%pa. Kellogg’s Nutri-Grain, introduced in 1991, is the brand leader in the market, but other manufacturers, for example Quaker Oats, are hoping to garner market share with similar products. The sector has also offered opportunities for complementary industries, such as bakeries, to bring out fruit or grain cereal bars.

Despite all the innovation however, Euromonitor Market Direction forecasts that the US breakfast cereals market will carry on decreasing by a further 1.6% in volume terms and 3.2% in value terms during the next five years. So is it just a case of paddling to stay afloat?

Within the highly concentrated market, the picture is bleak for the branded giants General Mills, Kellogg, Quaker Oats and Nabisco, whose large brand portfolios together account for more than 80% of breakfast cereals sales. Euromonitor argues that consumers are increasingly likely to sample private label products and be satisfied with their quality. Private label penetration of the breakfast cereal market has increased from 8.3% of value sales in 1995 to 9.4% in 1999, according to the report, as sales grew from US$844m to US$872m. The growth of the market share for private labels, with the undermining of brand loyalty, does not paint a pretty picture for the likes of Kellogg, General Mills and Quaker Oats, but one way out is to create a premium-price market niche as manufacturers attempt to capitalise on a small group of affluent consumers.

Functional and organic

Another way is for cereal manufacturers to pay increasing attention to developing and advertising the health claims and benefits of their products. In general, Americans are interested in the idea of living a healthy lifestyle, as long as doing so does not require large behavioural changes or inconvenience. “Functional” foods that promise health benefits without significant lifestyle changes are therefore very popular. Modifications were made to existing products to enhance health profiles: General Mills, for example, added calcium to Lucky Charms, Cinnamon Toast Crunch, Cocoa Puffs and Golden Grahams.

Established FDA rulings, under the Nutrition Labelling and Education Act of 1990, allowing health claims on food labelling are expected to continue benefiting cereal sales as manufacturers focus on health ingredients and, importantly, specific consumer groups. Manufacturers can target products at specific groups by addressing their predominant health concerns; whole-grain fibre for men concerned about cholesterol and folic acid fortified cereals for pregnant women, for example.

Catering for the health conscious or environmentally aware consumer, organic cereal options are another opportunity for manufacturers to extend their reach. Organic cereals, with their higher profit margins, are currently a niche product in the overall cereals market, but Euromonitor argues that growth over the 1999-2003 period will hit 23%. One of the main factors influencing this growth is that supermarkets will begin to pick up on the products and increase their distribution outlets, previously limited to health and natural food stores, which accounted for approximately 60% of retail sales in 1999.

Eastern promise

In Japan manufacturers are working with a relatively blank canvass with regard to marketing new products. Breakfast cereals are still a niche market in Japan and in 1999 per capita consumption was just over one box per year. Over the next five years, however, Euromonitor believes that there is considerable potential for future growth and have predicted a surge in volume and value terms, of 32% and 42% respectively.

Cereals have carved out an important niche in Japan over the last five years, reinventing their image of ‘just for children’ through the addition of vitamins and minerals to attract the health conscious adult. The perceived edge of cereals as the primary vehicle of vitamin and mineral fortification may face more competition in such a developed functional food market, but the future is bright as children brought up on cereals tend to sustain their breakfast habits into adulthood, and feed their own children accordingly, thus expanding the consumer base.

In volume terms, almost 99% of breakfast cereals in 1999 were from the RTE sector. Hot cereals are not popular in Japan, compared to the US, and account for only 1.4% of volume sales. The RTE market is highly concentrated, although none of the top three manufacturers view their breakfast cereals sales in Japan as a core business area, focusing instead on other food sectors or international markets. Kellogg’s Japan, Calbee and Nissin Cisco together account for over 88% of total value sales, commanding a 1999 market share of 53%, 28% and 7.6% respectively.

It must be remembered however that while the country’s consumers have not had the time to get bored with RTE cereals, they will still only respond well to products that suit their lifestyles. Manufacturers will still face stiff competition from alternative breakfast choices, whether other Western-style products or the traditional Japanese breakfast dishes such as miso soup, fish and rice. Anything that seeks to undermine these alternatives will need to be convenient, healthy and tasty if it is to prove long-lasting.

What will sell well in Japan?

It seems that “healthy” is the watchword for this market. The creeping westernisation of habits and culture will mean that consumers experiment with breakfast options, but retaining their interest will be more easily achieved if products offer some beneficial aspect. Japanese consumers, according to the report, are increasingly viewing food as medicine and cereal manufacturers would be wise to address the particular health concerns of Japanese consumers with specially tailored products. Levels of calcium intake are still below the recommended daily requirement, and high cholesterol and blood pressure are common health problems for middle-aged and older people in Japan. Products such as All Bran and calcium-enriched cereals have answered these issues and are already proving popular. Mixing functionality with products for children, for example Kellogg’s 1998 launch of its Hoshi No Yasai Batake carrot and pumpkin enriched cereal, has a particularly irresistible pull for consumers and adults worried about their children’s vegetable intake. The inclusion of vegetables also serves to pull the Western breakfast cereals in the direction of more traditional, distinctive Japanese foods.  

In addition to this style of product development, heavy discounting by retailers and manufacturers has widened the consumer base, and meant that branded products in Japan are retaining their market share against large-scale private label penetration.

By the end of the period reviewed by Euromonitor, any nutritionally positioned cereal is tipped to do well in the current US and Japanese consumer climate that favours functional foods. The development of products with an added health benefit is seen as the primary vehicle for growth among the sector’s main players. The goal over the next five years must be the extension of this category and the focus of attention on currently under-exploited niche consumers within this category, for example male consumers, with a view to reinforcing cereals as a dietary staple as well as an impulse snack. Simultaneously, manufacturers should address the issues that caused cereals to relinquish their top spot in breakfast consumption in the first place; notably convenience and price.

To view related research reports, please follow the links below:-

Breakfast Cereals: The International Market

The 2000 World Forecasts of Worked or Prepared Breakfast Cereal Grains Export Supplies

The 2000 World Market Forecasts for Imported Worked or Prepared Breakfast Cereal Grains