Americans have been turning away from cereal for some time. Yet General Mills (GIS), maker of Cheerios and other crunchy products served in pools of milk, is persuaded that it’s where the future of breakfast lies.
General Mills Chief Operating Officer Jeff Harmening, speaking at an investor conference on Tuesday, described part of the plan for next year as “investing in cereal for growth.” That optimism comes despite overall cereal sales having slumped by 3.5 percent in Nielsen’s (NLSN) most recent 12-month-period measure.
While General Mills is launching dozens of new products this summer—150 if you count all flavors and sizes—cereal will remain its biggest business. U.S. sales of its major “Big G” cereal brands, which includes everything from Chex to Trix and and Lucky Charms, were flat in the last fiscal year after falling 2 percent the previous year. The company announced in June that it would cut costs for pretax savings of $40 million in fiscal 2015 after disappointing fourth quarter earnings, although details about the plan were not available.
Here’s how Harmening explained the company’s optimism about cereal:
General Mills. Source: NPD, two years ended February 2014
Cereal is still the most common breakfast food. Eighty percent of American breakfasts are eaten at home, up 2 percentage points from five years ago. “When it comes to breakfast at home,” he said, “cereal is consumers’ top choice—and by far.” The next most popular choices are fruit, eggs, and bread. Also encouraging for General Mills is that the share of consumers who skip breakfast has dropped.
Demographically speaking, things look good for cereal. Fast-growing consumer groups in the U.S.—children, older adults, and Hispanic—eat more cereal than average, said Harmening.
General Mills. Source: NPD, U.S. Census
So how does General Mills plan to pull off a cereal revival?
Harness such food trends as protein, gluten-free, and fiber. General Mills has a protein lineup that now includes Cheerios Protein, Nature Valley Protein Granola, and Fiber One Protein. As for gluten, most people don’t need to cut it out of their diets but many are trying. Chex went gluten-free six years ago, which the company believes contributed to the brand’s 10 percent compound growth rate since 2010. Building on that success, General Mills is extending its gluten-free cereal lineup with new varieties like Vanilla Chex.
General Mills. Source: Nielsen
More flavor. Consumers have been into bold flavors, and bolder tasting cereal is on the way: “More cinnamon taste on Cinnamon Toast Crunch,” Harmening promised, ”and fruitier taste on Trix.”
Bank on adult nostalgia. Advertising to adults prompted a 3 percent retail sales increase for Lucky Charms in fiscal 2014, according to Harmening. General Mills also credits the “Must Be the Honey” ad campaign for a sales bump in Honey Nut Cheerios; apparently we still have a soft spot for Nelly.
Further advertising online. Cereal isn’t getting enough advertising support compared to other breakfast foods, Harmening said. As consumers spend more time online, General Mills is joining them: The company will spend more than one-fifth of its U.S. media budget on digital initiatives in fiscal 2015, compared to 3 percent a decade ago. Expect to see additional marketing around Chex products, in particular.