There have been signs of sogginess pooling around big cereal brands for a while now, and this week brought another wave of bad tidings for makers of the breakfast staple.
Kellogg (K), owner of Special K, Frosted Flakes, Raisin Bran, and other varieties, reported a 3.3 percent drop in “morning foods” revenue during the recent quarter, and the company recently moved to close its Kashi brand headquarters outside San Diego and lay off at least 70 workers at a Tennessee cereal plant. General Mills (GIS), maker of Cheerios, Wheaties, and Lucky Charms, saw similar results as its cereal revenue slumped by almost 2 percent in the 12-month period that ended in May. The appetite for Honey Bunches of Oats, a Post Holdings (POST) brand, has dropped by 9 percent in the past year, and the company is in the process of closing a 140-worker cereal plant in Modesto, Calif.
Improving cereal sales will be “an uphill battle,” according to a report this week by Credit Suisse analysts. “While we are not ready to declare that cereal is facing a structural decline,” they wrote, “we do recognize that consumer behavior is changing.” Goldman Sachs analysts pointed out that cereal sales declines have come even as the big food companies have cut prices and squeezed margins.
So why aren’t we eating our Wheaties? More Americans are too busy for regular morning meals, for one thing, and an increasing number of us aren’t keen on carbs or gluten—to say nothing of a Fruit Loops-style sugar bomb. A recent study by Goldman Sachs of the three months ended in July found sales of traditional breakfast foods off by 1.3 percent from a year earlier, while sales of portable-breakfast offerings meant to appeal to on-the-move Americans increased by 2.6 percent.
A note of infrequency has even crept into the marketing messages from some cereal makers. Breakfast is no longer a meal, Kellogg insists, it’s “an occasion”—and that makes the morning meal sound like a cocktail party or a piece of performance art, something you don’t experience every day.
The packaged-food giants are responding with a flurry of new breakfast drinks, bars, and healthier cereal options. Kellogg now has Special K Protein and just launched a line of hot cereals that feature quinoa and packets of cranberries. It is also working on Special K “cracker crisps,” which seem like a cross between a bran flake and a potato chip. “We recognize that sometimes consumers don’t have time for a bowl of cereal and milk,” Kellogg Senior Vice President Paul Norman told investors this week. His company’s more portable Pop-Tarts, meanwhile, remain in high demand.
Of course, there are other ways to revive interest in the breakfast bowl, and they’re options Wall Street worries about: deeper price cuts and more lavish advertising campaigns.