Consumers counting on cereal

by Eric Schroeder
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Sales stay strong despite reined in budgetsAs consumers continue to battle budgets during a tough economic time, ready-to-eat cereal is finding its way into a growing number of shopping carts at supermarkets, drugstores and mass merchandisers. Cereal’s reputation as an affordable and convenient, yet healthy, food option has served it well over the past year.

In the 52 weeks ended March 22, dollar sales of ready-to-eat (R.-T.-E.) cereal totaled $6,598,820,000, according to Information Resources, Inc., a Chicago-based market research firm. That total was up 3% from the same period a year earlier, in part reflecting price hikes undertaken by many of the nation’s top cereal manufacturers to offset rising input costs. More encouraging for the cereal industry, though, was the fact I.R.I. data also showed R.-T.-E. cereal unit sales have risen year over year, climbing a shade less than 1% to 2,197,647,000.

Driving the overall category growth has been an excellent performance from Minneapolis-based General Mills, Inc., the nation’s No. 2 R.-T.-E. cereal maker. According to I.R.I., General Mills dollar and unit sales rose 8% and 7%, respectively, in the 52 weeks ended March 22. That growth has been spurred by outstanding results for the company’s Honey Nut Cheerios brand (up 20% in dollar sales, up 16% in unit sales), Cinnamon Toast Crunch (up 16% in dollar sales, up 15% in unit sales) and Lucky Charms (up 22% in dollar sales, up 25% in unit sales).

In a March 18 conference call to discuss earnings results, Ken Powell, chief executive officer of General Mills, spoke glowingly about the company’s Big G cereal division.

"Big G is having a terrific year, and the driver of that performance is baseline growth," Mr. Powell said. "Nonpromoted sales of Cheerios, Fiber One, Honey Nut and Multi-Grain Cheerios are growing at double-digit rates, as we promote their health benefits. Our Total brand is also posting baseline growth and so are kid-oriented brands such as Cinnamon Toast Crunch and Lucky Charms."

Mr. Powell said strong initiatives behind the Multi-Grain and Banana Nut varieties within the Cheerios brand have made the largest franchise in the R.-T.-E. cereal category even stronger.

General Mills also continues to roll out new products, and Mr. Powell has high hopes for a shredded version of Fiber One, one of the most successful brand platforms going for General Mills right now.

At Battle Creek, Mich.-based Kellogg Co., year-over-year dollar and unit sales declines tracked by I.R.I. in the 52 weeks ended March 22 haven’t dampened the nation’s largest R.-T.-E. cereal player’s outlook for its business. In fact, quite the opposite.

"Sales growth was broad based with solid performance from our core nine brands as well as innovations like Jumbo Rice Krispies, Special K Blueberry and Frosted Mini-Wheats Little Bites," said David Mackay, president and c.e.o. of Kellogg, during an April 30 conference call regarding first-quarter results. "We are also reviewing our power brands for efficiency opportunities."

Mr. Mackay noted that the upswing in the overall R.-T.-E. cereal category is not surprising, nor is it limited to just U.S. operations.

"We saw the category start to accelerate in the back half of last year and I think this is really related to the fact that cereal remains a great value," he said. "It’s versatile, convenient and nutritious. So the category is growing strongly."

He added that the company’s cereal sales are showing resilience in growth throughout Mexico, Australia, Canada and the United Kingdom.

No stranger to the R.-T.-E. cereal category through its extensive line of private label products that rank it as the nation’s largest, Ralcorp Holdings, Inc., St. Louis, has dramatically upped its presence in the overall sector during the past six months. Following the acquisition of the Post brand from Kraft Foods Inc., Northfield, Ill., in August 2008, Ralcorp now is focused on both store brand and branded food products. In acquiring Post Foods, Ralcorp staked claim to Post Honey Bunches of Oats, the third largest R.-T.-E. cereal brand with sales of $318,779,200 in the 52 weeks ended March 22, according to I.R.I.

Ralcorp has identified its primary objective for fiscal 2009 as the successful transition and integration of the Post Foods operations. Currently, Post is operating under a 12-month transition services agreement with Kraft in which sales to the grocery, mass merchant, club, supercenter, food service channel and drugstore trade are made through Kraft’s direct sales force for resale to consumers. Once the agreement expires, Ralcorp said it expects Post Foods’ sales to be conducted through an internal sales staff and an independent food broker.

This article can also be found in the digital edition of Milling and Baking News, May 5, 2009, starting on Page 24. Click here to search that archive.

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