From Childhood Favorites to Healthier Options, How the $13B Cereal Market Hangs On
I was one of those lucky kids whose mom bought Frosted Flakes and Cocoa Puffs. I didn’t eat them on school mornings. But on Saturday morning, with its over-the-top cartoon action of Wile E. Coyote chasing the Roadrunner, sugary cereal seemed the least of the day’s excesses. The story of ready-to-eat cereal is one of nostalgia, innovation and precise category management.
I still enjoy an occasional bowl of Frosted Flakes over the more “adult” cereals like Fiber One Honey Clusters. I am not alone. A study from Mintel shows that 58% of consumers report that the cereal flavors they enjoyed as children are still their favorites.
And, I continue to enjoy a stroll down the cereal aisle to see the smiling faces of iconic mascots like Lucky the Leprechaun and new product features like protein-rich/gluten-poor, larger cereal size/ smaller package size and additions including chocolate chips, marshmallows and fruit.
Careful Category Management Keeps Hold of the Cereal Aisle
Unlike so many categories in the grocery store, ready-to-eat cereal (RTE) has held onto both sides of its long aisle. Sure, pancake mixes and table syrups have a small section, but Mrs. Butterworth could never duke it out with Tony the Tiger successfully. Consumer needs for flavors, convenience, better-for-you and more are clearly being met with cereals that range from sweetened (overly sweetened?) to “so healthy” it has the texture of cardboard. This seems to be a classic example of well-executed category management.
On closer look, the category is dominated by three players who control almost 80% of the nearly $13B US breakfast cereal market. Private label is another 7.5% and Quaker Oats holds onto its heritage with a 6.5% market share.
- 30% Kellogg’s
- 30% General Mills
- 19% Post Holdings
Category Management of Cereal
While I shudder to call a category “mature” whose mainstays are characters like Fred Flintstone, Snap, Crackle and Pop and Tony the Tiger, so it is. Prior to the pandemic, RTE cereals experienced sales declines but have rebounded, in part from the stay-at-home influence of the pandemic, and are expected to grow about 3% annually through 2030. Managing this mature category requires providing the right benefits to meet consumer needs, and that is what I see on the shelves:
- Better-for-you: more nutrient dense, less sugar, added protein, added fiber, no artificial colors or flavors
- Indulgence: sweetened, marshmallows, chocolate coating
- Novelty: mash-ups, seasonal, product collaboration
- Convenience: smaller package sizes, larger cereal size
- As an ingredient: adding texture and flavor to sweet and savory recipes
Research shows that the better-for-you segment is the greatest hope of improving sales in the category:
“Consumers are more motivated to try a new cereal with claims of reduced sugar, added protein or added fiber than by products boasting indulgent mix-ins, co-branded flavors or limited time flavors.”
Another segment supported by research are snackers. Data shows:
“35% of cereal consumers eat cereal as a morning snack and 33% consume it as an evening snack.”
So, which players should retailers use to meet consumer needs?
Category Management Player #1: Kellogg’s
For those who want a healthy cereal, brands like Special K, Kashi, Mueslix, All-Bran, Smart Start and Cracklin’ OatBran deliver the goods. Special K is very special as it stands for usually opposing consumer needs. Its original “healthy for dieting” image has grown with products like Special K Protein and Special K 100% Vitamins & Minerals. This austere perspective is balanced with indulgence from Special K Yogurty Clusters, Special K Chocolatey Dipped Flakes and flavors like Cinnamon Pecan, Brown Sugar Cinnamon and Vanilla Almond.
For more traditional taste but not too indulgent, Rice Krispies, Raisin Bran, Corn Flakes and Crispix fit the bill. If you want to please the kids, Frosted Flakes, Froot Loops, Corn Pops, Apple Jacks and Honey Smacks will win you kudos. And, if you need a best-of-both-worlds approach, you are covered with Frosted Mini Wheats.
Kellogg’s category management approach is to have an offering for every consumer.
Category Management Player #2: General Mills
General Mills also has a generalized approach to category management.
Healthy brands are definitely on the menu with Cascadian Farms – Organic, Chex, Total, Wheaties, Original Cheerios and Multigrain Cheerios. Like Special K, Cheerios has a “pleaser personality” and wants to be all things to all people. While Original Cheerios markets its heart health connection, other Cheerios varieties become more indulgent: Strawberry Banana, Chocolate Peanut Butter and Frosted just to name a few.
Kix, Golden Grahams and Raisin Nut brands take a more balanced approach while Lucky Charms, Reese’s Puffs, Cookie Crisp, Cocoa Puffs, Trix and Cinnamon Toast Crunch are all in for indulgence.
Category Management Player #3: Post
Post Holdings is the only one of the big players whose business is 100% cereal. They have a full array of better-for-you products, including Bran Flakes, Grape-Nuts, Great Grains, Premier Protein and Shredded Wheat. They offer more flavor-oriented choices with Honey Bunches of Oats and Raisin Bran. For those whose tastebuds prefer sweet, Dunkin’ Caramel Macchiato, Golden Crisp, Honey Maid S’Mores, Oreo O’s, and Pebbles are available.
Post adds lower-priced options into their category management, covering more ground with their MOM brand (formerly Malt-O-Meal) of lower-priced bagged cereals. And, in 2021 they acquired the private label RTE cereal business of TreeHouse Foods.
Which RTE cereal manufacturers are best in meeting the needs of consumers? The answer is all of them. Each has turned the issue of category management into a similar portfolio strategy. Kudos to them all!