Dorset Cereals' move into the mainstream cereal aisle, including low-fat products and cereal bars, means it is up against larger players such as Kellogg's, Weetabix and Nestlé for the first time.

Kellogg's continues to be the biggest threat. It has expanded its portfolio and given its products a healthy makeover, introducing new lines such as a multigrain variant of its Corn Flakes. The company has also launched Special K Mini Breaks and says it intends to focus more on the snacking side of the business.

The challenge for Dorset Cereals is competing with the marketing budget of its bigger rivals, says MD Peter Farquhar. This month Kellogg's is giving out two million money-off vouchers and its Nutri-Grain range will be advertised on TV in September. Farquhar admits Dorset Cereals will have to adopt a similar approach, albeit on a smaller scale.

"When we started we decided not to advertise but we are becoming more conventional," he says. "We are looking at what we need to do to compete." The company is already running online competitions and Farquhar says that it will continue to exploit this method of promotion.

Dorset Cereals also faces stiff competition in the porridge side of its business. Last month Mornflake Oats linked up with Lyle's Golden Syrup to bring out the first co-branded porridge to make it more appealing to youngsters. The porridge comes in sachets, which Mornflake Oats claims is the most dynamic part of the cereal market.

The organic market is another area that is growing strongly. Pertwood Organic Farm says sales of its Delicious Fruit Muesli were 300% higher over the first four months of the year than the same period last year and sales of its organic porridge were 61% higher than in the same period in 2006. The organic ready-to-eat cereal market is growing in value 14.4% year-on-year, more than double that of the standard ready-to-eat cereal category.n