Analysis by Sarah Hardcastle Just as breakfast is a pressured meal in most households, so the family cereal pack that sits on the table has been facing its own challenges. Cereal is one of the biggest and most important categories in grocery, with 90% household penetration. And recently it has faced fierce price competition among the multiples fighting for market share, the decline of breakfast as a meal and the rise of alternative breakfast foods. So where is it going and what is its future? The latest figures from IR are not reassuring. They show the £1bn market continuing to decline, falling 2.8% by value, 1.3 volume (52 w/e 31 December). Most affected are the two largest sectors: staples, which includes cornflakes, and children's, both of them big targets for price deflation activity. On the other hand, newer, smaller sectors such as organics and adult indulgence are doing well and look set for further growth. Without a doubt, the market's overall value drop owes much to the Asda/Tesco price war. Asda's everyday low pricing strategy has entailed cuts of up to 20%-30%, effectively turning some staples into commodity lines. Own label has been particularly targeted. Dailycer, which produces 30% of the UK's own label cereals, says the market has become very price driven. "We're under pressure to offer the lowest possible prices," says assistant product manager Louise McLintock. Ryvita, which does a large amount of own label economy cereal, says the consumer price has fallen dramatically in the last 18 months, putting pressure on the whole category. For the multiples, gaining market share has been the aim, rather than benefiting the category, for own label volumes are static, says Ryvita. Cereal Partners UK marketing director Dez Timmiss believes EDLP's biggest impact has been on the product repertoire consumers buy. "Cereals is a repertoire market. People like trying a lot of different products. EDLP has worked against this. Offering brands cheaper has restricted their choice." The market's tough trading conditions have led to a reduction in advertising, particularly by its biggest advertiser, Kellogg's. Timmiss believes this has hit the market's sales performance. "Advertising is critical in getting people to buy into the category. But it has fallen 14% in the last 12 months, on top of 10% the previous year. So this has certainly had an impact." Timmiss says CP has bucked the trend by increasing its spend by 7% over the last two years. But the biggest concern for the category is the erosion of the market by the increasing choice of breakfast alternatives available, including convenience snacks and cereal bars. "People aren't skipping breakfast, they're changing their menu and eating a wider variety of foods," says Timmiss. The manufacturers' response has been to try to reposition cereal as an anytime food, rather than something specific to breakfast, and they appear to be having some success. According to Weetabix, one in four consumers eat cereals in the evening, while Timmiss confirms that there's a growing trend to all day consumption. Another development has been the repositioning of brands to emphasise their healthy qualities to target the growing "healthy eating" audience. Since CP repositioned its Shredded Wheat as a cereal that can help maintain a healthy heart, supported by an advertising campaign with sports personality Ian Botham, volumes have grown 17%, says Timmiss. "For an old established brand, that's quite a performance." The big development in this area in the last year has been Kellogg's autumn launch of All-Bran Apricot Bites, a fruit flavoured variant of its classic cereal aimed at the 40-plus market who are increasingly seeking better tasting high fibre products. In going for a bite-size format, Kellogg's is also able to promote it as a snack ­ the direction in which it is now moving ­ although the product is primarily intended as a breakfast food. Weetabix is also pursuing the dual purpose snack/breakfast route with bite size, fruit filled Minibix ­ and with success. The company claims Minibix grew 25% last year and has just rejigged its packaging to sharpen brand identity. Its core Weetabix cereal has had a successful facelift and is now on course to become the biggest brand in the staples sector. Jordans' performance last year as the fastest growing cereal brand (ACNielsen) confirms the importance of the healthy trend. This year Jordans hopes to do even better, for the company has just repackaged its entire range of cereals, snacks and bars to create a fresh image that moves away from worthiness and emphasises the brand's taste, health and naturalness. "We've done it to make the brand more accessible to more people," says business development director Ed Olphin. The new look is supported by a £7m campaign that includes advertising with wine personality Oz Clarke. Other developments in this sector include Dailycer's relaunch of its calorie controlled Weight Watchers from Heinz Perfect Balance as a multi-grain flake with apple to create the "ultimate in healthy eating cereals". Children are massive consumers of cereal, hence volumes have been relatively stable, although value has fallen through downward pricing strategies. CP has led growth in this sector with the 1999 launch of Golden Nuggets, a revival of the 1970s brand, which Timmiss says has done well, achieving 0.6% share of the total ready-to-eat market. At the premium end of the market, adult indulgence cereals show signs that, with changing lifestyles, these products would be more suited to snack upon or consigned to weekends as a treat. The sector is worth £94m, with sales growing 3.2% by value and 3.8% by volume, according to Dailycer which is about to launch Spoil Yourself, a premium crisp cereal. Alpen Caribbean Crunch and Chocolate Crunch have significantly contributed to Weetabix's growth. The biggest launch in this area has been Kellogg's World Temptations last autumn. The range of three luxury cereals which come in a tub is aimed at ABC1 women, singles, post-family consumers and foodies. Kellogg's has seen sales climb steadily, particularly for Belgian Chocolate Dream, an extravagant mix of white and dark chocolate swirls with nuts and oat clusters. Though hot cereals overall are in decline, Hamlyn's Scottish oats range has bucked the trend, with a dramatic 32% sales rise over the year for Porridge Oats and an 8% uplift for Scottish Oatmeal. JFK, which markets the brand, says this has been achieved through strong promotions in Scotland where the brand has 100% distribution. From a tiny base in 1998, organic cereals have grown dramatically, particularly in the last year. Doves Farm says sales of its BioBiz multi-layer flake biscuits rose 50% in the last quarter of 2000. Jordans claims the brand leading position, with 51% sector share, but faces increased competition from the large number of launches from other brands and own label. These include Weetabix's debut with Nature's Own, a range of wheat biscuits and malted wheat squares, and RHM-backed Enjoy Organics which intends to become "the beacon brand" in the organics arena. Last June it launched five organic versions of mainstream cereals and says sales in its principal stockists Sainsbury's and Asda are doing well. Most manufacturers are trying to encourage retailers to site organic cereals in the mainstream fixture rather than in the organics section. "We've found sales are much stronger in the mainstream section because non-organic consumers will stop and buy," says Doves Farm marketing director Clare Marriage. Sainsbury's is moving to the Waitrose model and putting organics within the home categories. This move is designed to help grow the market because "organic dabblers" do not habitually shop the organic fixture and would be more likely to try a new cereal if they saw it alongside their usual brand. {{FOCUS SPECIALS }}