The past year was a difficult one for the ready-to-eat cereal sector. In the 52 weeks ended Sept. 9, dollar sales totaled $6,369,608,000, down about 1% from the same period a year ago. Unit sales fell more than 4% to 2,037,592,000, according to SymphonyIRI Group, a Chicago-based market research firm.

The struggles were most pronounced among the sector’s largest companies, as each of the top five R.-T.-E. cereal companies sustained a unit sales decline, and four of the five sustained a drop of more than 6% during the past year. Four of the top five also experienced a decline in dollar sales during the period, with the exception being the niche manufacturer MOM Brands, where dollar sales increased 5% even as unit sales fell 7%.

With dollar sales of more than $255 million in the 52 weeks ended Sept. 9, MOM Brands, Lakeville, Minn., is the fifth largest R.-T.-E. cereal company in the United States, according to SymphonyIRI. The company was founded in 1919 as Campbell Cereal Co. and until earlier this year was known as Malt-O-Meal Co.

“Our new corporate identity is a better fit for the wide range of products that we now offer,” said Chris Neugent, chairman and chief executive officer of MOM Brands. As a sign of its optimistic perspective, MOM Brands in late August added more than 350,000 square feet of production space and will add 50 jobs to its cereal facility in Asheboro, N.C., as part of a $140 million expansion.

As part of the expansion, MOM Brands said it has added more production lines and an on-site, 80,000-square-foot warehouse. The expansion doubles the facility’s size.

Mr. Neugent cited increased demand for the company’s Malt-O-Meal product line, which includes the company’s Frosted Mini Spooners and Frosted Flakes, as well as the company’s Better Oats instant oatmeal line.

General Mills: Outlook ‘positive’

Dollar and unit sales fell 2% and 3%, respectively, at General Mills, Inc., the nation’s largest R.-T.-E. cereal maker with dollar sales of $1.9 billion. Despite the declines, Ian Friendly, executive vice-president and chief operating officer of U.S. Retail Operations at Minneapolis-based General Mills, said in early September that the outlook for the segment remains “quite positive.”

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.

“We see both of these issues as cyclical, not structural,” Mr. Friendly said.

He said that, ultimately, cereal is important because it delivers the key attributes of taste, health, and convenience, all at a good value.

“As fiscal 2013 unfolds, we expect that categories pricing and volume dynamics to improve,” he said. “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.”

Kellogg also expects slide to stop

A similar sentiment was expressed by management at Kellogg Co., Battle Creek, Mich. Kellogg sustained dollar and unit sales declines of 2% and 6%, respectively, in the 52 weeks ended Sept. 9, according to SymphonyIRI. But, like General Mills, Kellogg is upbeat about the future.

“We remain excited about the long-term potential of cereal in the U.S.,” John Bryant, president and chief executive officer of Kellogg, said when second-quarter results were announced on Aug. 2. “We see it as a low single-digit growth category. And in the second quarter it was flat to up 1%.”

Mr. Bryant said innovation and brand building will be the key drivers longer term, and with that in mind the company has plans for much heavier brand-building investment in the back half of 2012.

“We have new innovation like Special K Protein coming out in the back half,” he said. “And if there is one thing we are seeing in general, there is a little bit of protein seeking going on, whether it be Greek yogurt or eggs or similar sort of items. And so we believe that we can play into that even through cereal.”
Volumes down sharply at Post

In February, St. Louis-based Post Holdings, Inc., the nation’s third-largest R.-T.-E. cereal maker, completed its separation from Ralcorp Holdings, Inc. The company has spent the past seven months dealing with the same challenges as the other top cereal manufacturers, including a sharp drop in unit sales.

In a Sept. 14 filing with the Securities and Exchange Commission, Post said volumes in the nine months ended June 30 were down across most of its branded portfolio with the exception of Great Grains, which experienced a 9% increase supported by a national advertising campaign to re-launch the brand.

Post introduced a new line of value-priced cereals under the Good Morenings brand in June, and plans to launch a number of line extensions and product improvements over the next 6 to 12 months.