Cereals: perfect storm proves a real cereal killer

It’s crunch time for cereals. A perfect storm of deflation, changing consumer habits, the ongoing sugar debate and a lack of innovation has resulted in a 4.9% slump in sales to £1.5bn. Volumes are down 5.4%.

It makes grim reading for the biggest brands in the category. Of the top 10, only Quaker and Shredded Wheat have seen value increase. Even Quaker, which has been in strong growth in recent years, is cooling: its 1% value growth masks a 1.4% slip in volumes. The brand’s double digit value and volume growth of a year ago seems a long way away.

Still, Quaker senior marketing manager Duncan McKay is upbeat about the brand’s prospects. “Convenient products such as Quaker Pots and Cuppa have brought new, younger consumers into the category,” he says. “They want quick, easy and healthy solutions to fit into their hectic daily routine.”

Quaker’s slowdown was perhaps inevitable after the years of growth it’s had, and with an unseasonably warm and wet winter, although the launch of Special K Multigrain Porridge pots in August 2013 has also played a part. The product has enjoyed triple digit growth in the past year to £6.2m, bucking the brand’s overall decline of 11.5% on volumes down 12.6%.

It’s a familiar story at Kellogg’s. In fact, the 14 Kellogg’s brands in the top 50 have collectively seen value sales fall 5.9% (£29m); and volumes fell 2.6%. Kellogg’s customer director Al Wilson points out that of its top 10 brands, half gained or held share in a declining market [IRI]. and says changing breakfast habits are the biggest contributor: “People are mixing up their breakfasts with more foods than just cereal and are eating on the go.”

health has also played its part as consumers seek healthier and lower sugar breakfast options - with granolas and mueslis performing relatively well. Demonstrating this trend is Jordan’s Crunchy, which has seen sales increase 9.8% to £20.8m on volumes up 5.1%; Kellogg’s also reports a strong performance from its Crunchy Nut Granola.

The only other brand to achieve growth in the top 20 is Kellogg’s Frosties, which brings to an end several years of decline. The 3.3% value growth, which seems counter to the trend for healthier cereals (given the brand packs 112 calories per 30g serving), has been driven by a 6.7% fall in average price and Kellogg’s Rio Balls World Cup promotion.

Lower prices have played a major role in the category’s fortunes. Bestway senior category controller for grocery Haleem Sadiq points out that though sales of cereals have fallen 1% by volume at the wholesaler in the past year, value sales are down 9%. “This is in direct response to the proliferation of pricemarking strategies,” he says.

Tracy Richardson, wholesale trading controller for Today’s Group, adds: “Manufacturers are cost-engineering packs or reducing case sizes, which has the effect of hitting an appealing price point that remains attractive to our sector.”