Cereal Makers Aim To Move From Sweet Tooth To Healthy Profit

You better eat your Wheaties. At an average of $3.74 a box, even with Russell Wilson or Serena Williams on the cover, it has been a staple of the General Mills cereal business as it competes for shelf space along with Kelloggs Corn Flakes, Cheerios or Frosted Flakes. But things arent so grrrrrreat for the cereal business these days. So get ready for quirky marketing, quirkier products, retro strategies and decidedly futuristic pricing as the business contends with a downturn.

The $8 billion U.S. cereal market has lagged recently, with a slight uptick in 2019. The reason: Consumers are skipping breakfast entirely or picking non-cereal options.

Although indulgent flavors are on-trend, cereal companies are also working hard to appeal to consumers who are looking for products with healthier, less processed ingredients, said Sarah Schmidt, an analyst for Packaged Facts. Nutritional content is a primary concern for new product development in mature markets such as North America and Europe. Niche breakfast cereals cater to health trends such as gluten-free, Keto-friendly, Paleo and organic/non-GMO. To add value and give products a health halo, cereal brands incorporate ancient grains, superfoods, probiotics, or seeds and nuts.

The past few weeks have seen all of these trends and more manifest themselves. But at $13 a box? That was the announcement from General Mills as it sought to make up some ground on the revenue side by pricing its new Morning Summit cereal at almost five times the price of standard entries. The new cereal is more nut-based and probiotic.

Our strategy to drive continued cereal growth is centered on launching compelling innovation that offers taste, convenience and health benefits, while investing in brand-building, CEO Jeff Harmening said at the Consumer Analyst Group of New York (CAGNY) investor conference on Tuesday (Feb. 18), per a CNBC report. That engages consumers and gives them another reason to walk down the aisle.

General Mills has also debuted Blueberry Cheerios and GoodBelly Probiotic Cereal. Other less healthy entries to breathe some growth into the category include Lucky Charms and Cinnamon Toast Crunch (now extended into ice cream). And SpongeBob has been rescued from his 2004 Bikini Bottom home for a new cereal intro because one of the trends that has never faded in the category is nostalgia.

Nostalgia can play a key role in the marketing of cereals, according to an article by Lauren Piek of the Kerry Group. Mintel found that 51 percent of consumers aged 18 to 24 agreed that eating my favorite brands reminds me of childhood. For many, this is reason enough to consume cereal. Playing into the sense of nostalgia surrounding cereals can hook Gen Z and millennial consumers, many of whom developed a sense of brand loyalty in childhood.

However, we can expect higher prices and healthier products to rule 2020. Kelloggs stock price took a tumble after its most recent earnings report, most of which focused on a renewed effort in its snacks and fun cereal category. And theres no shortage of challenger brands looking to compete, including a subscription-based healthy product strategy from a new D2C company called Magic Spoon. Started by two Brown University students, the product is sold only online and distributed via monthly subscription boxes. It has no sugar, extra protein, is Keto-friendly and starts at $39 per box. Magic Spoon, which began selling its boxes direct-to-consumer in April, received $5.5 million in a seed funding round led by Lightspeed Venture Partners.

While the competition among Kelloggs and General Mills will be substantial, its the Magic Spoons and other boutique brands that will make cereal an exciting category in 2020.