Branded breakfast cereals have got a fight on their hands, with own-label products winning the hearts and stomachs of consumers through a combination of price, promotions and NPD. Rachel Barnes reports

With trials to laser etch its logo on to individual Corn Flakes, it is clear Kellogg's feels strongly about protecting the identity of its brand.

And it's probably not alone, as own-label cereals have had a storming 12 months with value sales rocketing 13.5% to £348m, while sales of brands are up a more modest 4.1% to £1.15bn [TNS 52w/e 1 November].

Even old favourites are taking a battering, with Weetabix volumes down 5.5% as own-label rivals Tesco Light Choices Wheat Biscuits and Sainsbury's Wheat Biscuits grew by 21% and 15% albeit from far lower bases [IRI 52w/e 5 December 2009].

Overall it has been a good year for the cereals market, with sales up 2.4% by volume and value sales rising 6.2% to more than £1.5bn [TNS]. And branded cereals, with a 76.8% share, still account for the bulk of the market. But they are having to fight back hard against the incursion of own label, with the volume of branded cereals sold on deal rising from 40% to 42% [IRI 52w/e 7 November 2009] and promotions switching from multibuys to price cuts. Brands are not alone in promoting heavily, however, with 21% of own-label cereal volume sold on deal in 2009, up from 17% in 2008.

The number of deals offered on own label has been key to its success, says IRI senior insight manager Katherine Roe. "Own-label volume gain is a long-term trend, and own-label share of cereal really accelerated during the recession, starting in summer 2008. The big increase this year can be explained by the recession, more promotional activity and NPD with more than 60 new own-label brands or sub-brands launched in the past two years."

Everyone has had to be more competitive, says Asda cereals buying manager Phil Hancock. "As own-label sales increase, brands have had to work harder and discount more to get back volumes."

Even premium brands such as Dorset Cereals have had to strengthen their promotional activity. "Kellogg's had round-pound price points, Jordans did half-price muesli promotions, and we did half-price on new lines to encourage consumer trial," says Dorset senior brand manager Kerry Fuller. "We didn't do more promotions but we did offer deeper cuts to drive trial."

The deals on brands are helping to protect cereals from the private-label onslaught, says Andrew Pyne, corporate affairs manager at Nestlé Cereal Partners. "Ready-to-eat cereals are an obvious choice for trading down as private label sits comfortably next to brands, but if we make our message strong enough, consumers will be willing to pay for it," he adds.

But while some retailers are continuing to promote own-label ranges actively at the expense of brands, the strategy was not for Asda, says Hancock: "We don't want to be telling customers that they shouldn't be buying brands."

Kellogg's believes it has held up well against own-label promotions. "[Sainsbury's] Switch & Save point of sale has been on branded products across all categories, including ours, for over a year now, but we have continued to grow in Sainsbury's," says Kellogg's marketing director Kevin Brennan.

And there are signs that the love affair with own label could be starting to wane, with recent data showing a slowdown in volume sales growth. The latest 12-week data from IRI reveals own-label is growing at just 0.2% while brands returned to volume growth with a 0.6% increase.

Yet TNS data shows how important value now is to shoppers. Overall, own-label economy cereals have risen a massive 28.5% while own-label standard cereals rose 13.4%. On the flipside, own-label premium and organic cereals have slumped 0.8% and 16.1%, respectively [52 w/e 1 November].

And IRI's Roe adds that price rises, due to cost increases, have helped own label grow value share. The average price per kg of branded cereals was up 3.6% year-on-year, while the price of own label has risen 5.8% [IRI, 12 w/e 7 November].

Families trade down
One of the sub-sectors where shoppers have been most keen to trade down is 'family favourites', which includes brands such as Weetabix and Cheerios, according to IRI. Some Kellogg's brands in the sub-sector suffered substantial volume slumps, with Corn Flakes down 11.2% as value edged up 0.2%. Volume sales of Rice Krispies fell 3.3%, although value rose 4%, while Frosties lost 7% of volume, but increased value by 2.2% [IRI 52 w/e 7 November].

Brennan says a reduction in the number of promotions on Corn Flakes prompted the brand's decline in volume.

The 'adult tasty' sub-category was, by contrast, a star performer of the cereals fixture during 2009, with volumes up 8.6% as sales rocketed 16.8% to £140.9m [IRI 52w/e 5 December]. Leading the field was Kellogg's Crunchy Nut, increasing volumes by 12.6% and value by 21.5% to £96.8m [IRI 52w/e 7 November].

"Crunchy Nut has been one of the big fmcg successes in the past year," says Brennan. "This has been driven by more effective ads, but taste and enjoyment have also been increasingly important decision drivers. The brand is now competing with Special K and Weetabix to be the UK's number one cereal."

The introduction of smaller packs to lower the price-point has also boosted sales. "Lots of people want to buy brands, but have less money available," says Brennan. "So, we came up with 375g packs to lower the price to £1 for Crunchy Nut."

Kellogg's also made larger packs of some of its brands available to offer better value, introducing 1kg boxes. "Bigger packs was one of the ways we lessened the effect of recession," says Brennan.

The sub-category is not without its problems, however. For example, value sales of Nestlé's biggest-selling adult brand, Shredded Wheat, have fallen 3.2% and volume has risen just 0.4% [IRI 52w/e 7 November].

Children's cereals
In contrast, Nestlé's kids brands are almost all growing ahead of the overall children's cereals sub-sector, which rose 5.3% by value [IRI 52 w/e 7 November].

Shreddies' 10.2% value and 9.1% volume growth made it Nestlé's biggest cereal brand, overtaking Shredded Wheat. Nestlé's Cheerios also leapfrogged Shredded Wheat to become Nestlé's second biggest seller.

The star performers in the sub-sector, however, were Cookie Crisp, which shot up 19.2% by value and 9.5% in volume, and Nesquik, up 22.2% in value and 9.8% in volume [IRI 52 w/e 7 November].

The growing popularity of treat cereals may be down to parents sharing their kids' breakfasts, believes Asda cereals buying manager Phil Hancock.

"The main trend we've seen in kids' cereals is that more of the family are eating them. There is a lot of kids' influence on what is chosen now." With that in mind, Nestlé aimed its December launch Cheerios Crunchers made up of multigrain Cheerios with crunchy mini clusters at the whole family.

Kellogg's struggled with its leading kids' brand, Coco Pops, as sales slipped 2% to £60.9m and volumes fell 5.5% [IRI]. One reason for the sales dip could be the brand becoming overstretched. As well as the core line it has six variants, including Rocks, Mega Muchers, Moons & Stars and Minis. Another two, Straws and Creations, have been axed after failing to hit targets. "There has been a lot of innovation around Coco Pops but we need to become more focused," Brennan admits.

Kellogg's is now targeting chocolate cereal at a slightly older market with the launch of Krave, aimed at 16 to 25-year-olds. It claims the new line, which launched in Tesco in January, is the first cereal to directly target young adults. Focused purely on "taste and enjoyment", the chocolate halzelnut-filled cereal shells were certainly not created with appeasing the FSA in mind, coming in at 17% fat content.

"There will be absolutely no focus on health," says Kellogg's sales director Mike Taylor. "The marketing will focus purely on great taste and enjoyment."

A £4m ad campaign, including TV, will go live in March, and Kellogg's believes the product can achieve sales of £7m in the UK, which would place it in the range of Golden Nuggets and Nestlé's Frosted Shreddies.

Kellogg's was not the only manufacturer to have dropped the focus on health in favour of taste, either.

Jordans Cereals, which describes itself as a pioneer of healthier foods, is focusing its attention on the 'everyday tasty' category. "There is a significant opportunity to grow the tasty sector by tapping into the consumer trend for adult indulgent products," says Jordans marketing and innovation director Carol Welch.

Although Jordans says wholesome nutrition, convenience and value for money are still vital factors, it is taste that is driving growth. As a result it launched Country Crisp with Dark Chocolate Curls last March in an effort to build its foothold in the indulgent market.

While the focus of some suppliers has shifted, the 'adult healthy' sub-category the second biggest segment of the market remains in growth overall, with sales up 3.2% to £363.2m and volume up by 1.1% [IRI 52w/e 5 December].

Kellogg's Bran Flakes performed particularly well in 2009, with sales up 10.5% to £32m. Kellogg's puts much of this success down to cyclist Sir Chris Hoy becoming the face of the brand at the start of 2009, with its reformulation reducing salt content by 20% going largely unnoticed.

Similar salt reduction drives by manufacturers were also unacknowledged by the FSA in an advertising campaign shown in October 2009 flagging up the hidden dangers of salt in cereal. The FDF rescinded its support for the campaign as a result of this.

Last February, Kellogg's healthy NPD brought the launch of a natural, baked muesli brand, Nature's Pleasure. It hoped to have full distribution by April and first-year sales of £6m. However, nine months after the launch it had only achieved £1.1m sales [IRI 52w/e 7 November].

"The economic climate threw a few surprises and our forecast for Nature's Pleasure was hit by key listings being pushed back until October," says Kellogg's Taylor. "We are now at full distribution and believe we will see a true reflection mid-2010."

The premium muesli segment continues to be dominated by Dorset Cereals, which grew sales 20% in the past 12 months to £26.5m, with volumes up 8% [IRI 52 w/e 7 November].

"Dorset Cereals has an advantage as it is perceived as being first to market with innovation and packaging," says Asda's Hancock. "It is also recognised as good value for what you get in an 800g box."

However, Dorset's kids' cereal brand Breakfast Projects is failing to make much of a mark in the 18 months since its launch. Sales rose 4.2% to just £170,000, while volumes fell 10%. Despite slow take-up, Dorset says it is happy to have a children's offer as part of its overall range and will continue to develop and improve recipes.

Smaller premium muesli brands, such as Mornflake, Alara and Rude Health, have reported strong performances in the past year, proving that some consumers are still happy to pay a bit more.

Alara's sales rose 38.4% on volume growth of 29.7% [IRI]. Despite the recession, it has kept up its growth plans, with a revamp scheduled for summer and plans for NPD later this year targeting adults and kids separately for the first time.

Commodity prices are an ongoing concern, however. "Multiples aren't willing to take on any price increases that have resulted from increased ingredient costs, which is frustrating," says Alara MD Alex Smith. "Although wheat costs have levelled off but are still up other commodity prices, such as raisins, hazelnuts, pumpkin seeds and sultanas, are still high. Margins are being further squeezed."

Weetabix-owned muesli brand Alpen remains the market leader in the category, with sales of £24.9m, up 0.5%, but volumes slipped 5% [IRI]. However, a redesign and new ad campaign featuring women doing aerobics in an Alpine setting has reignited the brand, claims marketing director Sally Abbott. "The ads helped reconnect with those consumers for whom Alpen had fallen off their radar, and appealed to new consumers," she says, adding that year-on-year sales of Alpen in the 12 weeks to 28 November rose 26% to £25.2m, with volumes up 21%.

"We will be stepping up our media investment again this year, spending more on advertising Alpen, as well as Weetabix and our Oatibix brand," adds Abbott.

Asda's Hancock believes Weetabix won't be the only company upping its ad spend in 2010. "For this year, I see opportunities in the category as very positive. It is still a very healthy fixture," he says. Like many in the industry he is predicting more NPD than was seen in 2009, with Dorset Cereals planning NPD for spring, new launches in the pipeline from Kellogg's and Jordans set to unveil plans that centre around the environment and British farmers.

"In 2010, we are likely to see more new products reach market," says Nestlé's Pyne. "This will further grow the category as long as we maintain value for money."

Focus On Cereals