BOSTON — While “a lot of noise” exists in the ready-to-eat cereal category right now, top executives in the segment remain optimistic that the category can grow.
“Last year at this time, we were executing a pack-price initiative across 70% of our line,” said Jonathon J. Nudi, group president of North America Retail at General Mills, Inc. “This summer, our major competitor was doing the same thing. So again, if you look at Nielsen (data), it gets a bit muddy. But I can tell you that we feel real good about our cereal business.”
Speaking Sept. 4 at the Barclays Global Consumer Staples Conference in Boston, Mr. Nudi said General Mills grew its cereal business in fiscal 2019, and through the first quarter of fiscal 2020 the company has seen another 1% growth. He attributed the increase to strong fundamentals and on-point marketing.
“We’re very clear on who our consumers are for each of our brands and have relevant marketing,” he said. “And that ranges from heart healthy messaging on Honey Nut Cheerios to Travis Scott promotions on Reese’s Puffs and, again, really meeting the consumers where they are.”
Innovation also has been strong for the Minneapolis-based cereal giant. Mr. Nudi said in fiscal 2019 General Mills had five of the top six new products launched in the R.-T.-E. cereal category. Innovation this year has been quite strong as well, he noted.
Moving forward, Mr. Nudi said he expects the R.-T.-E. cereal category to grow.
“We don’t think it’s going to be in mid-single digit, but just grow a little bit,” he said. “And we feel confident about our plans to be able to perform well, and it can … drive the category as well. In terms of inventory, I mean, we’ve been pretty clear over the last year for sure. We’ve seen, as our retailers focus on reducing working capital, they have drawn down their inventories. And for us, in fiscal ‘19, it was about a point gap between Nielsen and what we reported from a net sales standpoint. We expect that to continue into the coming year. We hope it’s not quite as big of a gap. But clearly, our retailers are still focused on working capital as well.”
Meanwhile, Steven A. Cahillane, chairman, president and chief executive officer of Battle Creek, Mich.-based Kellogg Co., sees R.-T.-E. cereal as one of the areas where the company has the most work in front of it.
“It’s a highly penetrated category,” Mr. Cahillane said. “It’s a profitable category for us. And by no means do we think that this category’s best days are behind us. But it’s going through a challenging time right now. As a category, it’s only declining by about 1%. So it’s not falling off the cliff as if you read some reports you might think.”
Also speaking Sept. 4 at the Barclays conference, Mr. Cahillane said Kellogg is not doing as well as the category overall. A major challenge at Kellogg over the first half of the year has been the implementation of an entire price-pack architecture redesign.
“It’s been very significant,” he said. “We’ve taken dozens of cube sizes out of our portfolio. That simplified our manufacturing quite substantially. It’s improved the look that we have in the grocery stores. It made us much more shoppable. It’s made us much more merchandisable but has led to a really significant pullback in promotions in the first half of the year, and it led to a position that we don’t like to be in where we were losing share. And we have every intention of maintaining our competitiveness as we get into the back half of the year and even making investments that we believe will revitalize some of our story brands.”
One brand that will be gaining a marketing boost is Kellogg’s Frosted Flakes. Through a new program called “Mission Tiger” Kellogg plans to take the Tony the Tiger mascot into schools that have lost their sports programs. A key component of the new program will be Kellogg’s sponsorship of the 2020 Tony the Tiger Sun Bowl that coincides with the college football bowl season.
At its core, though, the ups and downs of the U.S. R.-T.-E. cereal business may be isolated to the health and wellness segment, Mr. Cahillane said.
“Historically, if you go back in time, every time that category has struggled, it’s primarily been because food beliefs change,” he said.
Over the past 15 years the category has experienced highs and lows as different diets — Atkins and paleo, to name a few — have led consumers to shift consumption habits. Mr. Cahillane said it is the cereal industry’s responsibility to do a better job at innovating and renovating to make foods more relevant for today’s food beliefs.
“(We need to remind) people that cereal can be very important and a great addition to a healthy diet,” he said.