The cereal market has benefited from consumers' increased health-consciousness, but has also attracted severe criticism over the high sugar and salt content of some products. With penetration high, value growth opportunities in the sector are limited, but there remains some room for manoeuvre for hot-cereal products, and those offering increased health benefits or organic ingredients. There are also opportunities for volume growth, and brands have begun to focus on this by promoting cereals as a food that need not be exclusive to breakfast time.
It might make Scots from a previous era turn in their graves, but the humble oat has been elevated to superfood status, and with it, porridge to the breakfast cereal of choice. Oats' healthy properties - from their high fibre and essential fatty acids content, to lowering cholesterol - and their ability to make those eating them feel fuller for longer, have made them a GI-diet staple.
Oats are no longer purely the preserve of the hot-cereal market, either. As RTE (ready to eat) manufacturers have cottoned on to the oat phenomenon, they have added the cereal to many of their products, through variants such as Oatibix, Cheerios Oats and Cereal Partners' Oats&More, to attract shoppers looking for healthier options.
This type of product development is essential in the breakfast cereals market. It is a mature sector, and achieving growth is difficult. Although many consumers skip breakfast, preferring to grab a snack on the go or wait until lunchtime, healthy-eating propaganda is beginning to take effect, increasing the number of people who consider a nutritious breakfast important, and cereals are benefiting. Almost half of all consumers eat cereal at least once a day, and penetration of cold cereals sits at 87% of UK households.
In 2007, the breakfast cereal market was worth £1.28bn, having grown by 17% over the past five years, according to Mintel. However, while the popularity of oats has boosted porridge sales, hot cereals still account for only 12% of the market. Indeed, the introduction of cold oat cereals has led many customers to switch from hot variants.
Manufacturers' enthusiasm for oats is a result of strong criticism about the high sugar and salt content of many breakfast cereals. Companies have reacted by reducing the levels of these two constituents in several leading brands, such as Shreddies and Coco Pops. The introduction of food labelling has provided an added incentive, as shoppers now have clear access to information about the proportions of salt, fat, sugar and calories contained in products.
With cereal eating already so entrenched, brands have been promoting the idea that consumption need not be confined to breakfast time. Initiatives such as Kellogg's 'Drop a jeans' size' campaign, for example, suggested eating a bowl of Special K both at breakfast and lunch to aid weight loss. Such strategies have helped to boost volume growth.
Breakfast abstainers are not the only challenge faced by cereal brands. While the traditional fry-up has become a rare treat, toast and fruit have assumed the mantle of everyday rivals to cereals.
Within the sector, many brands, such as Coco Pops, are aimed purely at the children's market, while classics such as Corn Flakes span all generations. As parents opt for healthier offerings, brands such as Cheerios have positioned themselves as both fun and wholesome. Surprisingly, the organic market has been slow to take off in this sector, accounting for just 2% of sales.
Kellogg is the market-leading manufacturer. Its flagship Special K brand's heritage of healthy positioning has served it well in today's market, and the company has invested heavily in supporting it. Meanwhile, it has been reformulating its other cereals against the Kellogg Global Nutrient Criteria, which sets out the firm's standards for ingredient levels in cereals aimed at children.
Weetabix is the second-placed brand, and has succeeded in maintaining its popularity over the years. It appeals to parents as an effective baby-weaning food, and its recent 'What's on Weetabix' ads have offered ideas for how the cereal might be eaten throughout the day.
In 2006, the brand launched oat-based variant Oatibix. Its popularity has led to additions such as Oatibix Bitesize.
Like many other raw ingredients, wheat has risen sharply in price due to land-use restrictions and increasingly erratic weather, which has affected crop yields. This is likely to hit cereal brands in due course, as the costs rise too high to be absorbed, and shoppers begin to see price hikes.
On the plus side, an ageing population with more time for breakfast has benefited the sector, and growth in ABs has driven the premium cereals market.
Mintel predicts that over the next four years, the cereal market will grow by 20% to reach £1.5bn by 2012. Yet when high food inflation is taken into account, the growth estimate drops below 10%. Value growth will be higher than volume as premium brands prosper.
Hot cereals are forecast to post the strongest growth - up 30% - in both value and volume terms. The category penetration is only 50%, so the room is certainly there.
TOP-SELLING CEREAL BRANDS BY VALUE AND SHARE
2007 2006 2006-07
pounds m % pounds m % % change
1 Weetabix 102.5 8 95.4 8 7.4
2 Kellogg's Special K 99.4 8 90.5 7 9.8
3 Kellogg's Corn Flakes 65.6 5 66.0 5 -0.6
4 Kellogg's Crunchy Nut 64.6 5 57.4 5 12.5
5 Kellogg's Coco Pops 43.0 3 39.9 3 7.8
6 Kellogg's Rice Krispies 43.0 3 35.0 3 22.9
7 Shreddies 33.8 3 34.0 3 -0.6
8 Oatso Simple 32.8 3 28.2 2 16.3
9 Cheerios 31.0 2 28.2 2 9.9
10 Kellogg's Frosties 29.7 2 27.3 2 8.8
11 Shredded Wheat 26.6 2 27.0 2 -1.5
12 Kellogg's All-Bran Bran Flakes 25.6 2 27.3 2 -6.2
13 Kellogg's Fruit 'n' Fibre 20.5 2 22.4 2 -8.5
14 Sugar Puffs 19.5 2 20.4 2 -4.4
15 Kellogg's Variety 18.4 1 16.6 1 10.8
16 Shredded Wheat Bitesize 16.4 1 14.6 1 12.3
17 Weetabix Minis 16.0 1 17.5 1 -8.6
18 Alpen 13.3 1 13.6 1 -2.2
19 Kellogg's Crunchy Nut Clusters 13.3 1 11.7 1 13.7
20 Country Crisp 13.0 1 14.0 1 -7.1
Own-label 243.0 20 237.6 20 2.3
Others 310.0 24 292.0 24 6.2
Total 1280.0 100 1216.0 100 5.3
Data may not equal totals due to roundings
TOP 10 CEREAL BRANDS BY ADSPEND (pounds)
2007 2006 2005
expenditure expenditure expenditure
1 Kellogg 58,324,549 52,577,516 49,215,258
2 Nestle 24,770,475 21,239,472 19,859,558
3 Weetabix 11,641,301 12,318,839 10,538,914
4 Quaker Oats 4,078,682 4,296,100 2,686,829
5 W Jordan Cereals 1,712,421 1,809,155 1,092,910
6 Asda Stores 319,452 169,867 1424
7 Morning Foods 140,878 47,103 34,468
8 Honey Monster Foods 136,313 0 0
9 Brand Power 89,837 390,753 0
10 Weight Watchers 16,269 0 0
Source: Nielsen Media Research.
Figures refer to TV, direct mail and online spend.
ANALYST COMMENT - VICKY MCCRORIE, MANAGING EDITOR, DATAMONITOR
The £1.3bn UK breakfast cereal market is fairly stagnant, and posted a drop of nearly 1% between 2002 and 2007. However, manufacturers are capitalising on healthy-eating trends in an attempt to add value.
A 2006 survey by Which? found that many breakfast cereals, including those promoted as healthy, contained high levels of sugar and salt, rising to as much as 55g of sugar per 100g.
Since then, manufacturers have improved the health profiles of their products, introduced front-of-pack nutritional labels and begun launching healthier variants.
Organic products have been particularly popular with manufacturers. According to Productscan, 15 organic breakfast cereals launched in the UK in 2007. Organic off-shoots of established brands such as Jordans and Shredded Wheat have also emerged, capitalising on growing consumer interest in organic foods.
Another health term piquing manufacturers' interests is 'antioxidant'. Many of last year's launches contained fruits known for their strong antioxidant properties. One such fruit, cranberry, was the fourth-leading flavour in breakfast cereals during the period.
As well as having antioxidant benefits, the inclusion of berries and fruits represents a way for manufacturers to add sugar to their cereals, while maintaining a strong health profile.
Natural fruit sugars are a more accepted source of sugar than that derived from sugar cane, mainly because fruit has high nutritional value. So, with health remaining high on the consumer agenda, it can be expected that fruit-rich cereals will continue to be popular with shoppers.