Cos. milk new products in struggling sector

Rising commodity costs and brutal competition have been squeezing profits from the ready-to-eat cereal category. Dollar sales for the 52-week period ended Dec. 26, 2010, were down 3%, according to SymphonyIRI Group. Sue Viamari, editor of SymphonyIRI’s Times and Trends, said the category has been in decline during the past several quarters, and there was a 0.7% decline in price per volume during the same period.


To offset rising production costs, some manufactures passed costs on to consumers, while others have held prices and decreased package sizes. Offering coupons and deals has been a given for the past few years in the cereal aisle, limiting private label’s gains.


Viamari said sales also are being impacted by consumers cutting back on portion sizes and purchasing one cereal for the whole family rather than purchasing several “special request” brands for different members of the household.


Growth in the category remains a challenge. Cereal has a high household penetration. About 93% of consumers purchase cold cereal, according to Mintel. The trick for manufacturers is to increase sales without cannibalizing existing products.


New products still fuel the category. General Mills’ new chocolate Cheerios should deliver first-year sales of $65 million to $70 million, and Wheaties Fuel, the first cereal created for men, looks successful.


Kellogg’s is adding a fruit-filled Frosted 
Mini Wheats product to its lineup and bringing its Crunchy Nut cereal to the United States. More new products are likely in the Kellogg’s pipeline; Kellogg’s president and CEO John Bryant has said the company needs to “ramp up innovation in 
the cereal aisle.”

The article above is part of the DSN Category Review Series. For the complete Cereal Buy-In Report, including extensive charts, data and more analysis, click here.