Mr. Friendly cited two reasons for the volume decline. First, cumulative news and innovation from branded cereal competitors has been below par for the past couple of years. Second, price increases, some in the form of package size reductions, which contributed to the pound volume decline.
Despite the challenges, Mr. Friendly expressed confidence the R.-T.-E. cereal category is getting back on the right track.
“We see both of these issues as cyclical, not structural,” he said. “Remember that category dollar volume grew in 2012 and we expect category pound volume will resume its historical growth trend.
“Here is what gives us confidence. First, the cereal category is very important to food retailers with over 90% U.S. household penetration and a purchase frequency of 24 times per year. Cereal is a key traffic driver for our customers. Cereal trails only fresh bread and snacks in dry grocery purchase frequency.
“Cereal was the most heavily advertised category in dry grocery in 2012 with nearly $800 million in U.S. measured media. Cereal generates higher retail profit per square foot than the average center of the store category.
“Ultimately, cereal is important to retailers because it’s important to consumers. Cereal delivers the key attributes of taste, health, and convenience, all at a good value. Cereal beats most other breakfast on price. It’s just 50c per serving. That’s including the milk. At an average of 150 calories per serving, cereal is one of the lowest calorie options for breakfast too and cereal is nutrient-rich. Fortified cereals provide more iron, folic acid, zinc, and B vitamins than any other conventional breakfast food.”
Another reason for optimism is the fact cereal is well-positioned with the consumer groups that are projected to drive U.S. population growth in the years ahead, including millennial households forming new families, baby boomers, African-American households, and Hispanic households, Mr. Friendly said.
Cereal’s position as a breakfast staple also is important.
“Cereal continues to be the most popular food at home breakfast option by a mile,” Mr. Friendly said. “For example, it is interesting to note that despite strong growth of the U.S. yogurt category for more than 30 years, yogurt is still part of only a small fraction of at-home breakfast occasions.
“And breakfast is a growth market. The number of breakfast occasions increases as the U.S. population expands. Today, fewer people are skipping breakfast than before the recession hit. Breakfast consumed away from home has declined slightly but breakfast at home is thriving, representing over 80% of all breakfast occasions in 2012.”
Finally, demographic trends, particularly the aging of the population, bode well for at-home breakfast and the cereal category in the years ahead, he said.
“Our U.S. cereal business has delivered strong performance through the recession,” Mr. Friendly said. “Since 2006, our net sales have increased at a 4% compound rate and we have added more than 1 point of market share. We are working to keep the momentum going in 2013.”
Mr. Friendly pointed to several ways in which General Mills is looking to maintain that momentum, including expanding its Chex cereal franchise with more gluten-free varieties.
“In 2013, we are adding a new flavor, Apple Cinnamon Chex,” he said. “We are also reaching consumers through our glutenfreely.com web site. It offers recipes, tips about living a gluten-free lifestyle and the opportunity to purchase gluten-free products from a number of different manufacturers.”
The company is driving growth for Cinnamon Toast Crunch by widening its advertising target to include both children and adults.
“We expanded this franchise with the launch of Frosted Toast Crunch in January and so we expect good growth for this business again in 2013,” he said.
Finally, General Mills has experienced double-digit sales growth in its Cascadian Farm line of organic cereals in recent years.
“Today, Cascadian Farm is the No. 1 granola brand in America, organic or otherwise,” Mr. Friendly said. “In 2013, we have expanded this terrific line with an ancient grains variety and increased marketing support.”
He concluded, “To sum it up, our outlook for the cereal category remains quite positive. As fiscal 2013 unfolds, we expect that categories pricing and volume dynamics to improve. We don’t expect Big G to post net sales growth in the first quarter due to year-over-year differences in merchandising. We do expect sales and earnings growth for Big G in 2013 in total. And beyond 2013, growth prospects for U.S. cereal remain excellent, fueled by cereal’s broad-based popularity and health profile.”