Breakfast cereal firms set to diversify as US market declines, say analysts

shifting consumer preferences and demographics are the two major factors that contribute to the breakfast cereal sales decline

Cereal manufacturers will continue to diversify through acquisitions and by switching resources to other parts of the breakfast market, according to analysts Lux Research.

A new report from the Boston-based market research firm shows that – based on cereal sales of major manufactures General Mills, Kellogg and PepsiCo’s Quaker Foods – the US breakfast cereal market has been in decline for the past four years.

But although the cereal market is shrinking as consumers opt for healthier foods and convenient on-the-go products, newer options such as snacks bars and yogurts are growing the overall breakfast foods market, Lux research associate Joice Pranata told BakeryandSnacks.

This shift in consumer preferences and demographics are the two major factors contributing to the decline in breakfast cereals, according to the report.

Alternatives and on-the-go lifestyle

“The sheer number of alternatives to an on-the-go lifestyle, coupled with convenience and time compression are driving consumers away from a prepared and largely leisurely activity of consuming ready-to-eat cereals as a breakfast,” said Pranata.

The report says that, in the US and other western developed nations, declining birth rates and later marriages would contribute to the downward trend lasting several decades.

But Pranata does not feel cereals will be replaced by other forms of breakfast foods in the future.

 “It just won’t be the growth vehicle cereal companies need,” she added.

Diversifying into other foods

Pranata expects cereal manufactures to shift resources towards diversifying into other breakfast foods, with more acquisitions into alternative breakfast food categories by the big players.

“Incumbents in the cereals space are already tapping into these other food categories (such as yogurt and snack bars),” she said.

“These are becoming the new platforms for nutrition fortification and enhancement, such as pro and pre biotics, antioxidants and added protein – and so are seen as offering greater value and being more convenient and healthier.”

As breakfast continues to be redefined, Pranata suggested manufacturers move aggressively to diversify their portfolio, rather than defend existing product lines.

Positive view from majors

Despite the long-term decline in breakfast cereal sales, both General Mills and Kellogg have recently made positive comments about the category.

In February Kellogg said it expected its US cereal sales to return to growth in 2016, and General Mills last month told analysts it was feeling “bullish” about its own prospects for cereals growth in the coming months.

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