From The Fall 2002 Issue of Natural Grocery Buyer

The Cold Cereal Wars

Steve Taormina

There are approximately 400 SKUs of natural and organic cold cereals on the market today, which means that supermarkets don't have much trouble filling the aisle dedicated to the category.

Cereal choices are also expanding because a growing number of North American shoppers are seeking specific health benefits from morning bowls of flakes, puffs, Os and grains.

Sales of natural cold cereals leapt 49.9 percent to $221.3 million in the food, drug and mass market channels for the 12-month period ending March 23, 2002, according to SPINS/ACNielson tracking research. In the naturals supermarket channel (stores with more than $2 million in annual sales), cold cereal sales grew 10.1 percent to $74.9 million for the same 12-month period.

"A lot of the growth is because of the introduction of soy-based, or what we would call 'health and wellness,' cereals," says Paddy Spence, CEO of SPINS in San Francisco. "We're also seeing a lot of development in the weight management or weight-loss area. These cereals tend to be high fiber, high protein and low calorie. Consumers really respond to that," he says.

Battle Of The Bulge
Self-reported obesity among U.S. adults has increased from 19.4 percent in 1997 to 22.4 percent in early 2001, according to the National Center for Health Statistics. Many natural foods companies making breakfast products would like to help their consumers reverse that trend.

Barbara's Bakery's SoyEssence, Nature's Path's Optimum Slim and Kashi's GoLEAN brands are just a few of the natural cereals being marketed to people looking to manage their weight while getting the added benefit of soy isoflavones in their diets.

Dollar growth for cold cereals containing soy jumped 140 percent in naturals supermarkets and 57 percent in mainstream markets for the 24-month period ending March 23, 2002, according to SPINS/ACNielson.

"One of the reasons for the success [of naturals supermarkets] is that they do offer variety and they do offer the products that meet special needs," explains Charles Verde, president of U.S. Mills, based in Needham, Mass.

Recently, U.S. Mills reformulated its New Morning line of cereals. Each SKU is low in fat and low in sodium, and several products are also rich in fiber because they are made with either oats or kamut.

A government-approved "heart healthy" claim that can be printed on package fronts has boosted sales of cereals made with oat bran and other high-fiber foods in recent years. Cereal boxes provide ample space for this claim, but it's become commonplace for marketers to build the health-and-wellness message directly into product names.

Kashi's newest product, Heart-to-Heart, is a low-cholesterol, low-saturated fat, oat-bran cereal. "We develop products that are reflections of the lifestyle needs and the health needs of the people in the company," according to Greg Fleishman, vice president of marketing for La Jolla, Calif.-based Kashi Co., a subsidiary of Kellogg Co.

"There are a couple of people around the office who have heart problems, so we looked at developing a heart-health product," Fleishman says. Retailers can expect more targeted, health-condition-specific cereals in the future as manufacturers try to stay ahead of their competition.

Category Killers
Competition is fierce in the cereal aisle. In fact, companies are waging war there if you believe the vice president of marketing for the category's No. 1 brand.

"We consider ourselves cereal killers," says David Neuman, vice president of sales and marketing at Nature's Path Foods Inc. in Delta, British Columbia."The category is one where if you want to survive, you have to be very aggressive. It's a battle."

Nature's Path wants to win the battle—and the war. Its flake cereals have ranked No. 1 in sales since SPINS started tracking the naturals category five years ago. "We focus 24-7 on the breakfast category, and I think that focus is what has kept us in that No. 1 position," says Neuman.

Health Valley is a powerful adversary. Part of the Hain Celestial Group, headquartered in Garden City, N.Y., the Health Valley brand is a close second to Nature's Path in total sales of packaged natural flake cereals, according to information posted on Nature's Path's Web site.

Flake cereals have annual sales totaling more than $120 million, making it the largest battlefield in the cold cereal category in both naturals and conventional channels. See the chart for a breakdown of cereal category sales figures.

Selling Cereal
Natural cereals sell the same way other cereals do: "Promotions sell and endcaps sell," says Neuman.

His mantra is the three Ps: price, placement and promotion. "If a cereal brand or product is missing any one of those three, it will not succeed. If you don't have an everyday good price, if you don't have decent placement and if you don't promote on a regular basis, that SKU or your brand won't make it. And that's a simple philosophy. It's not rocket science," he says.

If there is a science to marketing, then the methodology for managing the cereal category includes the following tips:

• Proper blocking
  
  
• Proper shelf-tag management
  
  
• Placing "category killers" in the middle of the section (the strike zone)
  
  
• Placing kids' cereals on low shelves
  
  
• Placing bagged products on the bottom shelf
  
  
• Placing esoteric products (the slower movers) on the top shelf

At Wild Oats Markets, Phil Bratty, the company's grocery category manager, says the 100-plus store chain divides the cereal category into three basic subcategories: kids, adults and general.

"The kids' segment has been the driver and is showing the most activity of the three over the last year," says Bratty. In his opinion, kids' cereals account for the largest portion of the category and are probably the most sensitive to price point, whereas the adult segment exhibits the most loyalty to brand, with less sensitivity to price or promotion.

"New entries in the kids' cereals and a heightened awareness of wellness and dietary benefits for adults are bringing consumers into the category," Bratty says.

"We want the cereal section to be successful overall, and that means not cannibalizing our competitors' better sellers," says Neuman. "Unfortunately, many retailers are stuck in their ways. [They're going to have] to trust the manufacturers who are committed to this category—committed to this industry—and [to] let us work with them."

Sidebars:
Cereal Category Sales Figures

Steve Taormina is freelance writer and Web designer.