Sugary cereals are king at MELK Diner and Cereal Bar in Iowa City, reflecting manufacturers’ decision to double down on sweet, “indulgent” varieties to combat slumping sales. PHOTO KATHARINE CARLON

 

By Katharine Carlon
katharine@corridorbusiness.com

When MELK Diner and Cereal Bar opened in downtown Iowa City last year, about eight of its 40-some cereals on offer were of the healthy, good-for-you variety.

Just a few months later, that number has dwindled to two: Cheerios and Honey Bunches of Oats.

“And I’m not even sure Honey Bunches of Oats qualifies as healthy,” said MELK Managing Partner Jacob Pajunen, who had to change up his inventory after watching customers eschew granola and Shredded Wheat in favor of bestsellers Cap’n Crunch, Cinnamon Toast Crunch, Fruity Pebbles and Oreo O’s. “It’s definitely the sugary stuff that’s selling … the healthy cereal just sat on the shelf.”

Mr. Pajunen’s experience is hardly unique. After years of sliding sales and fruitless attempts to win consumers back with healthful, high-fiber options, cereal manufacturers have doubled down on sugar in a big way, rolling out bowlfuls of decadent candy-inspired brands like Post’s Sour Patch Kids, introduced late last year.

Quaker Oats, which produces Life and Cap’n Crunch Crunchberries, among others, at its sprawling Cedar Rapids facility, is reportedly planning to test Cap’n Crunch’s Cotton Candy Crunch in select markets. Not to be outdone, General Mills, which also makes cereals including Cheerios and Lucky Charms at its Cedar Rapids plant, recently introduced Dippin’ Dots, and last month announced a promotional giveaway of Lucky Charms Marshmallow Only for the third time in four years. The latest concoctions join General Mills stablemates like Chocolate Peanut Butter Cheerios, Blueberry Toast Crunch and Cinnamon Toast Crunch Churros.

The shift in strategy is a response to years of sliding cereal sales as consumers increasingly turned to nutritious, on-the-go options like yogurt and protein bars for breakfast. According to market research firm Mintel, sales of hot and cold cereal declined 9 percent between 2012-2017, with cold cereal – 87 percent of the market – declining 11 percent.

Cereal companies first tried to win back market share by going healthy, introducing new high fiber, protein-rich cereals, and cutting sugar and artificial ingredients. In 2015, General Mills replaced Trix cereal’s artificial colors and flavors with all-natural ingredients made from vegetables like radishes. But consumers revolted over the new taste and look, and the company reverted to the classic neon-colored Trix two years later.

Since then, there’s been no looking back, with cereal companies churning out new sugary sweet varieties appealing to nostalgia and indulgence – and, most of all, taste.

“In the last three years, we have launched a variety of great-tasting new products and flavors from several of our brands including Cheerios, Lucky Charms, Cinnamon Toast Crunch and Chex,” General Mills spokesman Mike Siemienas wrote in an email, noting the company now offers more than 100 cereal varieties. “Not everyone likes the same thing – and that’s perfectly OK. Our job is to make cereal people love.”

Indications are the strategy is working. Last month, General Mills beat Wall Street estimates for its third quarter, reporting $2.52 billion in net sales in its North American retail segment, thanks in part to strong domestic cereal sales it called its “best category performance” in years.

“The consumers are responding to innovation as well as our marketing,” CFO Donal Mulligan said on an earnings call, adding “we’re actually quite encouraged about the category.”

And cereal isn’t just for breakfast anymore. Helping to drive the market are younger consumers who view cereal as much as a snack food as a morning meal. According to the Mintel study, 56 percent of millennials say they have eaten cereal as a snack at home, compared to 32 percent of baby boomers.

“While breakfast is the most common occasion for eating cereal and nearly universal across age groups, snacking on cereal may offer greater potential for reinvigorating category growth, especially among younger adults,” said John Owen, Mintel senior food and drink analyst in a release. “Many consumers view cereal as a guilt-free treat, suggesting that a bowl of cereal could be positioned as just as satisfying as, but more sensible than, other more dessert-like options.”

Ramon Luis Laguarta, CEO of PepsiCo, Quaker Oats’ parent company, said in a February quarterly earnings call that the company plans to innovate in the “on-the-go” breakfast and snack space consumers are demanding.

“There is a huge opportunity for us to play with Quaker in that … higher value, new consumer demand moment of breakfast on-the-go,” he said. “I would see it as part of our broader strategic opportunity of capturing demand moments where we’re not very strong … right now.”

A March survey by Shopkick suggests that for the majority of cereal eaters, the most important factor is taste. Fifty percent of shoppers said they make their purchase decision based on flavor, versus just 18 percent for nutritional value, 17 percent for price and 15 percent for children’s preference. Unsurprisingly, sweet flavors reigned supreme, with 45 percent of respondents saying a sugary version of the breakfast staple most fits their “cereal personality.”

“We are seeing consumers looking for more indulgent cereal flavors,” said Katie Scupham, marketing director of Quaker Foods North America, adding the trend does not mean consumers are exclusively eating sweetened cereals.

“We believe this shift reflects that people are looking for more choice and variety throughout the week,” Ms. Scupham continued. “Cereal is also eaten as a snack or a sweet treat for many consumers and sweetened cereals are oftentimes a better alternative to candy or other treats. Additionally, many consumers care about nutrition but still allow themselves and their families some indulgence throughout the week.”

At MELK, Mr. Pajunen said eating cereal – in bowls and in shakes – is an all-day and, on Fridays and Saturdays, all-night affair.

“Our customers are eating cereal all throughout the day,” he said. “And we sell a ton past bar close.”   CBJ