NAICS: 31-1230 Breakfast Cereal Manufacturing
SIC: 2043 Cereal Breakfast Foods
NAICS-Based Product Codes: 31-123011, 31-123012, 31-123013, 31-123014, 31-123015, 31-12304, and 31-1230W
Breakfast cereals are corn, wheat, oats, rice, and other grains processed, cooked, and shaped by flaking, puffing, or shredding. Flaked products are usually also toasted; shredded products are baked into biscuits. The typical single unit in a cereal bowl, the atom of the industry, you might say—the flake, kernel, or one shred of a shredded biscuit—is actually a single grain of corn, wheat, oat, or kernel of rice. In some varieties of cereals, however, the individual item may be produced as dough. The dough is then extruded into shape by pressure through a die. Additional toasting or puffing may follow. These ready-to-eat food products are the dominant segment of the breakfast foods industry. The more traditional and less processed cereals require cooking. Steamed rolled oats can be eaten raw with milk. Most traditional breakfast cereals are based on oats while corn holds the largest share of the ready-to-eat market.
An outer membrane known as the bran protects the genetic code inside each grain. The bran itself is protected by the hull, a relatively hard and fibrous structure. The inner mass of each grain is mostly carbohydrate, a type of sugar (chemically carbon, hydrogen, and oxygen), and a smaller amount of protein. This part is the kernel, also called the endosperm. The endosperm surrounds the germ. The germ holds the DNA of the species. DNA is protein. The germ also holds vitamins and a small amount of carbohydrates.
In the process of making cereals, producers first employ cleaning and sorting screens to remove dust and debris. They also screen out defective grains. Doubled grains in which two grains have fused together are undesired; they have too much hull and not enough endosperm. Very small grains are also screened out for the same reason. Grains are de-hulled by propelling them at high velocity against hard surfaces. The impact fractures the hull. The lighter hull is separated from the heavier remaining mass of the grain by gravity and air suction. At this phase the industry refers to the grain as the groat. Grains that resist de-hulling are screened out and recycled for another round.
In processing grains of corn, the bran and germ are separated from the groat by a process called degerming. It leaves behind one-half to three-quarters of the original grain—most of the endosperm and little else. Wheat is processed further to prepare it for easy flaking. Producers use rollers that lightly crush the grains in a process known as bumping. Polished rice used in cereals does not need any additional processing. Grains reaching this stage are once again renamed, referred to as grits in the trade. Grits are next placed into a flavoring solution in which sugar, malt, and salt have been dissolved. Most grains have very little taste and need this enhancement to taste good. Then the grits are cooked. Cooking times vary with the grain; corn grits require two hours, rice around one hour, and wheat around one-half hour. The grits clump together during cooking into sometimes quite large (soccer-ball-sized) formations and undergo a delumping process next until the grits are once more separated and uniformly distributed on a moving belt. The belts next pass through drying chambers in which heat and humidity are carefully controlled. The last step before the serious business of making cereal begins is tempering. The dried grits are held for several hours until the moisture levels between individual grits and also within the grits reach equilibrium.
The serious business is the creation of flakes or shreds of cereal; puffing is done while the grits are still moist. Producers flake grains by using cooled rollers that simply flatten out the grits. Knives mounted over the surface of the rollers peel off the flattened items. Corn grits are moistened with a flow of steam to cause them to stick to the rollers first. In modern practice flakes are then toasted while suspended in very hot air rather than being brought into contact with hot surfaces. Packaging follows.
Shredded wheat involves compressing individual grits between a smooth drum and another which has grooves. In the shredding process the grits are pressed by the first drum into the grooves of the second and the grits are elongated in the process. Sequences of drums, arranged at right angles to each other, produce layer after layer of shreds which overlay each other like a network. Biscuit-forming machinery is fed these layers or mats of shreds. The machines employ relatively dull knives to separate out biscuits by pressure (which seals their edges) and cutting (which separates one biscuit from another). All grains can be shredded, but shredded wheat is the dominant form of this cereal.
In making puffed cereals, puffing immediately follows cooking, the grits still moist and hot. The process inserts them into vessels; the vessels are sealed and heated from the outside to increase the temperature and pressure in the chamber. Then, suddenly, the vessels are popped open. The rapid change in pressure causes the moisture inside the grits to expand, puffing them up. If the process is controlled precisely, most of the grits will puff and will not burst. The resulting objects are dried in fluid beds of hot air so that the weight of the grains will not cause individual puffed particles to collapse again. Producers then use sorting beds to remove un-puffed grains and the detritus left behind by those that burst.
Producers use very similar methods to flake or puff individual items initially made from dough that has been forced through dies. By using dough products, manufacturers can combine different grains and achieve unusual forms—tiny doughnuts, letters of the alphabet, shaped flakes, and so on. Coating the products with sugar and flavoring them with spices is optional and often used.
All of these processes are characterized by high precision and careful control of temperature, moisture, and dwell times. High engineering skill is required to make machines able to deal effectively with very small and delicate particles. Breakfast cereals, thus, are high-tech products made by advanced technological means—a fact easily missed or forgotten. The public experiences cereals primarily as a bewildering jungle of competing products or as advertising messages aimed at childish instincts or memories of pleasant tastes.
An Interwoven History
It is ironic, in a way, that a food product today appealing to our more hedonistic impulses originated as a health food embraced by religious pioneers. The inventor of the category was James Caleb Jackson, head of a vegetarian sanatorium in Dansville, New York. He served his patrons bran nuggets for breakfast. These hard grains had to be soaked overnight to soften them enough to eat. He called the product Granula. The year was 1863. Elen G. White was one of the patrons of the Dansville Sanatorium. She became the founder of the Seventh Day Adventist denomination. A member of the church she founded was John Harvey Kellogg, himself the head of another sanatorium in Battle Creek, Michigan.
John Kellogg formulated a health biscuit for the clients of his sanatorium. He also called his biscuit Granula, but, when sued by Jackson for using the name, Kellogg renamed his biscuit Granola. Further experiments conducted by John with his brother, Will Keith Kellogg, eventually, and by accident, produced the industry. One of their products was a cooked wheat meal they rolled into sheets to make a cracker-like food. A pot of the cooked wheat, left unprocessed overnight, was the accident in question. The following morning they rolled out the product, as usually. This time it did not turn into a sheet. Instead, every grain in the mixture separated as a single flake. These flakes, roasted and served to the sanatorium's customers, were an immediate hit. In 1906 W.K. Kellogg bought his brother's portion of patents. They had obtained these patents jointly. W.K. formed a company, and began to sell cereal on the open market. Kellogg Company has been in continuous existence ever since and is the dominant producer of breakfast cereals still.
Charles William Post was a customer of the very same Battle Creek Sanatorium where the Kelloggs' held sway. He came to the place in 1893 in order to recover from a nervous breakdown. In 1894 he formed his own sanatorium. There Post began to experiment with hickory coffee and his own cereals. The coffee, Postum, became a success. Post's attempts to make an easier-to-chew version of Jackson's Granula became Grape Nuts (1897). His own corn flakes, initially called Elijah's Manna, took off when he renamed the product Post Toasties (1908). The C.W. Post Company eventually diversified and renamed itself General Foods in 1922; it became part of Philip Morris (which itself renamed itself Altria by way of gaining distance from tobacco). Philip Morris acquired Kraft in 1988 and merged the two acquisition into Kraft Foods. Kraft became independent in 2007 and, as an inheritor of Post, ranks third in the breakfast cereals business.
The year before Post introduced Elijah's Manna, thus in 1921, the breakfast of champions, Wheaties, was born in Minnesota. A health clinician accidentally spilled some bran gruel on a hot stove and produced some very crisp and nice-tasting flakes. By that time, of course, thanks to Kellogg's success in the market, the environment was more than ready for such accidents. The clinician took the idea to a milling company in the area called Washburn Crosby Company. Washburn Crosby was operating mills in what later became Minneapolis. It used the falling waters at St. Anthony Falls on the Mississippi for power. In 1928 Washburn Crosby became General Mills through a merger of several area millers. Wheaties, in the long run, turned General Mills into the second-ranking cereals company, a position it still held early in the twenty-first century.
Categories, Brands, and Trends
Americans consume more wheat than any other grain, but in the breakfast cereals category the leading grain is corn. It accounts for approximately 28 percent of all cereals as measured in dollar sales. Corn is followed by oats, the grain used in 17 percent of products. Wheat, with 16.5 percent of share, is a close third; rice, with 8.4 percent, is a more distant fourth. These data come from the 2002 Economic Census which reports on major categories by grain. The Census Bureau classifies the remaining 30 percent of shipments without showing the grain used in the product. Thus the Census Bureau reports an additional 18 percent of shipments as breakfast preparations made of other or mixed grains, 8 percent as other breakfast foods, including infant and instant formulations and cereals intended to be cooked before consumption (the traditional categories); and the remainder were labeled as not specified by kind (nsk) because those reporting the shipments failed to provide a description. Virtually all serious growth in the breakfast cereals category between 1997 and 2002 was in this somewhat mysterious nsk category, a subject we shall look at more closely under the Market heading below.
Organizations such as Information Resources Inc. (IRI) and ACNielsen also produce reports on the cereals industry. These market research firms focus on brands of cereals (and many other products) collected as a service to manufacturers and retailers. Their data occasionally appear in trade and general circulation magazines. Based on IRI data cited in Market Share Reporter, the top brands in 2004 in rank order were Cheerios (General Mills, made of oats), Frosted Flakes (Kellogg, made of corn), Honey Nut Cheerios (GM, oats), Honey Bunches of Oats (Post, owned by Kraft), Cinnamon Toast Crunch (GM, wheat and rice), Frosted Mini Wheats (Kellogg), Froot Loops (Kellogg, made of corn, oats, and wheat), Lucky Charms (GM, oats), Kellogg Corn Flakes, and Special K (Kellogg, rice).
The leading brands accounted for less than 40 percent of all cereals sold in 2004, the rest of sales were shared by some 250 other varieties, at least as estimated by Progressive Grocer magazine. The impression of an overwhelming number of brands is, of course, confirmed by any visit to a decently sized supermarket. Cereal.com, an Internet site specializing in cereals, provides nutritional details on 135 brands. A look at the Kellogg's Web site showed 28 brands, and perusal of General Mills' site revealed 65 brands for these two leading producers in early 2007. All told, in 2006, the industry was using 2,235 unique Universal Product Codes (UPCs) according to ACNielsen—UPCs are read by the scanning machines built into grocery store checkout counters. The large number of UPCs is explained by the fact that each size category has its own code and any change in product merits requesting and using new codes.
Data from ACNielsen for 2006, cited by Progressive Grocer, indicated decline in the sales of branded and boxed breakfast cereals through most of the first decade of the twenty-first century. The survey was based on the sales of food, drug, and mass merchandising stores—but excluding Wal-Mart. This category (branded and boxed) accounted for 87 percent of all such sales. Bagged granola and granola-based and other natural breakfast bars, by contrast, showed energetic growth. Increasing awareness of health issues, combined with changes in life styles on the part of at least a portion of the U.S. population, appear to be the factors behind a slow but ever more visible transformation of this industry.
Issues of Measurement
Measuring the breakfast cereals market is complicated by the fact that federal industry data are sometimes significantly different from federal product data. The U.S. Census Bureau conducts an Economic Census every five years (in years ending in 2 or 7) principally to support national measurement of Gross Domestic Product (GDP). Thus it measures all transactions taking place within an industry, not just final output. The GDP is a record of all economic exchanges. Duplication in the data is sometimes a consequence, the degree of it influenced by industry structure. Thus the Bureau also records transactions between manufacturers before products reach finished form. When Producer A sells Producer B a semi-finished product classified as a breakfast cereal (e.g., corn grits or corn meal), that transaction is added to total industry shipments. When Producer B sells the same product in finished form to a wholesaler, that transaction is also added to the industry total. In the NAICS industry 31-1230, duplicate shipment counts have been high, about $1.8 billion in 1997 and $1.1 billion in 2002. Product shipments were lower than industry shipments by those two values in those two years, with the paradoxical consequence that industry shipments declined but product shipments increased.
In building a multi-year pattern, difficulties also arise because the Economic Census is a 100 percent survey of all producers, but only every five years. Producers are mandated under federal statute to provide information. In all other years, however, the Census Bureau conducts the Annual Survey of Manufactures (ASM). ASM data are obtained from a sampling of participants only and pro-jected to the industry as a whole. ASM results are thus influenced by the sample—and more so in an industry like breakfast cereals where fewer than 50 companies make up the total. Furthermore, no product level data are acquired in the course of an annual survey.
Private sector measurements in this industry are usually built from the bottom up, thus from check-out counter scanning data using UPC definitions. These are not directly comparable to the government's NAICS product codes. Data from private sources have tended to be lower—and sometimes significantly lower—than Census Bureau estimates. These issues are always present in market size measurements, but more visibly in this industry.
The casual reader on this subject will encounter published values ranging from $6 on up to $11-plus billion per year for the breakfast cereals industry in the early 2000s. The lower value reflects private surveys that typically report on sales taking place in a subset of all merchandising channels, thus in grocery stores, supermarkets, and convenience stores, for instance. The highest values are based on the ASM. Figure 37 provides an illustration.
The data show Census Bureau estimates based on two Economic Census years, 1997 and 2002, and ASM data in the intervening years, 1998–2001 and 2003–2005. The two lowest points in this sequence were Economic Census years, all the higher estimates took place in ASM years. The industry appears to have declined from 1997 ($9.1 billion) to 2002 ($8.7 billion). The very sharp decline from 2001 ($11.4 billion) to 2002, a 21.7 percent drop, was not noted anywhere in the trade literature in 2002 or the year after, although weakness in the market has been noted by many observers from 2000 forward, albeit for the well-established branded-and-boxed ready-to-eat cereals sector only.
Shown on the same chart is a time-series developed by Mintel International Group, a market research firm. Mintel used data from Information Resources Inc. and its own estimates. These figures were reported by Prepared Foods magazine in two separate articles. Data for 2004 and 2005 represent Mintel's projections. Worth noting is the fact that federal and private figures for 2002 (an Economic Census year) correspond quite closely; the federal estimate is just $261 million above the Mintel estimate. If Mintel's data for 1999 and 1998 are projected backwards to 1997, the resulting value for 1997 would be within about $200 million of the Census value as well. ASM data for 2005, however, place the private estimate nearly $2 billion under the result reported by the Census Bureau possibly reflecting duplications in the ASM data.
These figures suggest that the size of the breakfast cereal market at the product level and at retail pricing was at least $9.5 billion in 2005, possibly higher. Data from the 2007 census, which will be collected in 2008 but will not likely be available until 2010, will reveal if growth is sharply up, as the federal data suggest (growing at 8.6% per year since 2002) or just moving upward modestly (at an annual rate of 2.9%) as suggested by Mintel's estimate singled out here for purposes of illustration.
If we take the Economic Census years as providing the most accurate data on the details of this industry in the United States, a look at changes in components will highlight trends in the industry as a whole. As noted, product shipments increased between 1997 and 2002 as measured by the Census Bureau although industry sales declined. In the 1997–2002 period total product shipments grew at a rate of 1.1 percent per year. Looking more closely at broad categories, we get the results shown in Figure 38.
In the largest product categories the annual growth rate never exceeded 1.2 percent, achieved by corn-based products, and was actually negative in some categories (−3.7% for rice and −0.8% for specialties such as instant and infant cereals). At the same time, the industry's smallest category, comprising a mere 1.4 percent of total shipments in 2002, the growth was a rather spectacular 32.4 percent per year between 1997 and 2002. This is the category the Census Bureau labels, "Breakfast cereals and related products, not specified by kind." The latter part of this title—not specified by kind—calls attention to the evident difficulties that cereal producers have in classifying some of their products. It is under this category that they place all new products they have difficulty fitting into the NAICS classification scheme.
In this same period (1997–2002), the U.S. population increased at the rate of 1.3 percent annually. The obvious conclusion is that the industry as a whole was growing at a rate below that of the population, with only the most popular product category, the corn-based products, almost but not quite keeping up with population increase. The decline, however, has been slow. Most of the population still consumed a large amount of breakfast cereals in the middle of the first decade of the twenty-first century, but has changed what it buys. The growth within the industry itself appears to be in new product categories. A significant portion of that market consists of items nicely matched to growing segments of the food industry as a whole (e.g., snack foods, natural products, dieting, and health foods). Demographics, particularly fewer children as a percent of total people, play a role as well.
In 1997 the industry had 48 companies operating 71 establishments; of these 47 had twenty employees or more. Five years later two companies had disappeared in a process of industry consolidation. Establishment counts had declined to 66 all told. In 2002 the large establishments (20 or more employees) still numbered 47. Employment in the industry had decreased from 14,700 to 13,000 people. Six companies dominated the market in the middle of the first decade of the twenty-first century.
The top producer of breakfast cereals, with a 34 percent share of the total market and sales of $10.9 billion (2006) was Kellogg Company, the original inventor of the category, still headquartered in Battle Creek, Michigan. The company operates in seventeen countries around the world and sells its products in 180 countries. Five of its brands in the United States rank in the top ten, its leading brand being Kellogg's Frosted Flakes (ranked second overall).
A close second in the industry is General Mills, a diversified food company with roots in flour milling going back to the 1860s. The company had sales in 2006 of $11.6 billion, $8 billion in retail products of which breakfast cereals represented approximately one-quarter. The company has a 29 percent share of the market. General Mills' Cheerios is the top brand; three other brands are in the top ten as well. The company has a joint venture with the global food giant, Nestlé S.A., under which Nestlé sells GM products in 80 countries excluding North America.
The third ranked producer of breakfast cereal, Kraft Foods, is best known as a producer of cheese but ranks among the leading diversified food companies in the United States. Its two major brands of cereals are the Post family of brands and Nabisco's Shredded Wheat. Post Honey Bunches of Oats is the fourth-ranked cereal brand in the country. Kraft dates back to 1916 when its founder, J.L. Kraft invented the process for making processed cheese. As already mentioned earlier, Kraft was owned by Philip Morris for a period of years but has become independent (in 2007). While still under Philip Morris, Kraft acquired RJR Nabisco (in 1993).
Begun in 1901 when several leading oat millers formed the company, Quaker Oats developed into the fourth-largest breakfast cereal producer. The company holds the leading share in the traditional oat cereal market. It operated as an independent producer for one hundred years before merging with PepsiCo, Inc. in 2001. At the time of the merger the company's sales were $5 billion. Quaker Oats offers twenty brands of cereals of which the best known is Quaker Oatmeal. The company holds approximately 6.5 percent of the total cereals market.
Malt-O-Meal is a privately held producer, based in Minneapolis, Minnesota. The company, originally called Campbell Cereal Company, began in 1919 as a producer of wheat-based cooked cereals, operated as a private label producer, and then entered the cold cereals market, renaming itself Malt-O-Meal in 1953. The company makes three hot and eleven cold cereals brands and has a market share of approximately 3.5 percent.
An important European producer of breakfast cereals is Weetabix of the United Kingdom, operating in the United States as Weetabix USA in Clinton, Massachusetts. The company's best-known brands are Weetabix and Alpen.
The most important producer of private label breakfast cereals in the United States is Ralston Foods, one of the operating elements of Ralcorp Holdings Inc., a $1.85 billion private label producer. The organization is one part of the former Ralston Purina Company which had two components, one produced pet food and animal feeds and the other food products for humans. Ralcorp was the food element spun off in 1994. Nestlé acquired the pet food business in 2001.
In a historical footnote it may be useful to note that Ralston Purina once more illustrates the linkage between breakfast cereals, health, and new religious or reformist movements. The name Ralston in Ralston Purina was originally an acronym built of the words Regime, Activity, Light, Strength, Temperation, Oxygen, and Nature. These were the seven principles of Ralstonism, a nineteenth century utopian movement founded by Albert Webster Edgerly. This controversial and charismatic figure appeared to like noms de plume; he was known among his followers as Dr. Everett Ralston and wrote many books under the pseudonym, Edmund Shaftesbury. He was also a popular promoter of diet foods. According to Ralston Purina's company history, William Danforth, founder of the Purina Wholefood Company, invited Edgerly to endorse a cracked wheat product that Danforth had introduced in 1898. Edgerly agreed but required that the food be named Ralston Wheat Cereal. So popular was the product that Purina renamed itself Ralston Purina in 1902.
MATERIALS & SUPPLY CHAIN LOGISTICS
Breakfast cereals are made all across the United States but with concentrations in the Upper Midwest, the Midwest, California, and the North East. These clusterings are largely due to historical patterns in that this industry is still largely dominated by companies that invented the category. The leading companies began operations in Michigan and Minnesota; oatmeal producers began in Iowa and Ohio. The industry established additional operations in major centers of population.
Collectively, and measured in dollars of costs, whole grains (wheat, oats, corn, barley, and rice), partially processed grains (corn grits, flakes, and meal), and flour are the dominant input category, but most production plants do not use all of the grains that are turned into cereals. Although not intuitively obvious, the second major cost category is paperboard containers and corrugated paperboard, the paperboard typically originating in northern and corrugated in southern paper and board mills. Sugar is the largest single category of input (in contrast to any one of multiple types of grain) and is used by virtually all production plants. Fruits and nuts used as additives are the last major grouping. The bulk of these—raisins—originate in California.
The value added in manufacturing breakfast cereals is high. Value added is the difference between incoming cost and outgoing shipments. Value added was nearly 75 percent of total shipments for breakfast foods in 2002, compared to 48 percent for all manufacturing activities in that year—suggesting that this product category can readily sustain high transportation costs if necessary. Most of the product is destined for major population centers.
Cereals are distributed through independent grocery stores, grocery chains, and mass merchandising outlets. Data on distribution by channel, unfortunately, exclude data from Wal-Mart because this giant does not contribute information to the common pool of scanned data, as other retailers do, that market research firms mine to provide broad reports on retail product sales. For all practical purposes, however, Wal-Mart, in relation to this industry (indeed to all grocery products) can simply be seen as the nation's largest grocery store, representing approximately 17 percent of all grocery sales. Some of the product also moves through convenience and drug stores, but for purposes of looking at the distribution channel, these are also supplied using the same methods.
Grocery stores face the major problem of maintaining adequate stocks of many hundreds of items at all times, to avoid out-of-stock situations, and yet to minimize inventories, especially of perishable items. For this reason the industry relies on two forms of distribution of which the most important is the DC, an acronym for distribution center. DCs supply multiple stores usually within a radius of approximately 150 miles maximally. In modern practice computerized systems track levels of product in the stores a DC serves and of inventory within the DC itself. Orders flow out to suppliers when triggering levels are reached. Suppliers then replenish the DC. The second method used is the DSD; the letters stand for direct store delivery, namely routes maintained by suppliers or wholesalers. DSD routes are used for products that are replenished routinely and often daily, including fruits, vegetables, dairy products, meat, and bread. DCs and DSDs may specialize in refrigerated products. Large chains typically maintain their wholly-owned DCs and also use independent wholesalers. Wholesalers supply most independent grocers. Two examples of such wholesalers are Supervalu Inc. and McLane Company. Supervalu is itself a grocery chain but also operates 35 DCs from which it supplies 5,000 independent grocery stores. McLane operates 10 centers for groceries and supplies 19,000 convenience and grocery stores.
Given the very large number of brands maintained by cereals producers, these companies operate distribution centers of their own from which they supply other DCs or deliver directly using routes.
Virtually everyone consumes breakfast cereals—or has done so in the past. The product is associated with childhood eating habits, and the industry's advertising and promotional effort aims to influence children and their parents.
A significant demographic trend in the twenty-first century, already visible in 1990, is the aging of the U.S. population, meaning that children and youngsters (19 and younger) will represent a smaller proportion of the public in 2010 than they did in 2000 or in 1990. The population aged 19-and-under was 28.6 percent of the population in 2000 and is projected to be 26.9 percent of the population in 2010. The total population increase between those two years is projected to be 9.5 percent while the increase for those 19 years old or younger is projected to grow only 3.3 percent. In part for this reason, the industry is engaged in product development and advertising to reposition breakfast cereals as a convenience and a snack food.
The chief alternatives to breakfast cereals are other foods typically consumed for breakfast, the traditional bacon-and-eggs with toast, bagels and cream cheese, or pastry products. Cereal breakfast bars, as opposed to cereal in bowls mixed with milk, are increasingly con-sumed but cannot be considered adjacent because their products are classified with cereals; they are made of the same components that go into the bowl. Also emerging are energy drinks specifically formulated for consumption in lieu of breakfast. Such flavored beverages contain cereal products but in liquid forms rather than as flakes or shapes. Also different from standard breakfast cereals are waffles and toasted products of which two examples come from Kellogg—Eggo waffles and Pop Tarts. These products, in effect, represent second-order processed foods thus incorporating greater convenience and more complex combinations of different components than the traditional cereal.
RESEARCH & DEVELOPMENT
The chief thrust of all R&D activity in this industry may be characterized as new product development. Considerable work is also underway on changing existing products to make them more appealing to a more demanding market. The leading companies all maintain substantial R&D facilities in which they develop products in test kitchens and prototype them in experimentally-sized miniature production facilities.
The chief thrusts aimed at traditional products include creating healthier cereals based on whole grains and their mixtures. Cereal breakfast foods contain considerable amounts of salt and sugar to give them flavor. Replacing all or some of these ingredients with newly formulated flavor enhancers, replacing carbohydrates with fiber, and adding additional vitamins to the product are strategies pursued by all the companies.
The industry is experiencing sluggish growth in its standard product despite what seem to be strenuous attempts to introduce modified products by dozens each year. Real growth, however, is associated with new products that may be classified as breakfast or as snacking foods but are well off the traditional reservation, the breakfast cereal. It is in these areas where most of the emphasis is being placed, at least as indicated by the companies' communications directed at their stockholders.
Among the many trends influencing the breakfast cereals product category the most important is probably a growing public awareness that eating habits in the United States need correction. Data began to emerge as far back as 1963 with the first National Health and Nutrition Examination Survey (NHANES), conducted by the Centers for Disease Control and Prevention (CDC), showing that Americans are overweight, and high percentages overweight enough to be called obese. Since that time other NHANES have not only confirmed the early findings but have shown deteriorating trends. Excess weight is closely correlated with the milder Type II diabetes. Obesity in children is increasing as well. This phenomenon has put a sharp flood-light on the food industry, not least breakfast cereals. These grain products have large amounts of carbohydrate (nature's natural sugar) as well as added cane and beet sugar and corn syrup. A segment of the population has responded to the warnings offered with more and more emphasis by the nation's health authorities. The consequences have been declining or flattening sales patterns in traditional processed foods.
Demographic shifts, already noted above, have produced lower growth in precisely those segments of the population that consume the largest amounts of packaged cereals, the young. Pressures on time have mounted as dual-earner couples have increased and, even more sharply, the number of single-parent households with children. This phenomenon has put pressure on available time and has caused the fraying of old habits. Fewer and fewer families have sit-down breakfasts. Mornings in families, with both parents and children all heading out, are most affected by vanishing time.
Another trend is cost pressures that began to plague the industry in the middle and end of the first decade of the twenty-first century. Hostilities in Afghanistan and Iraq and tensions mounting with Iran have put the issue of oil supplies in the future on the front page again. These events, remote from breakfast, in a way, have affected it by changing the view of corn. As a source of ethanol it loomed so large in the latter half of the first decade of the 2000s that virtually all corn-processing associations made ethanol the center-piece of their speculations about the future.
The industry's response was still in process of unfolding as the first decade of the new century was nearing its end. Participants in the industry have been transforming their products to make them more healthy in response to the public's heath concerns. Reacting to demographic changes, the industry has presented traditional cereals as snack foods to be eaten between meals and has introduced a substantial number of new products that can serve both the purposes of breakfast and the midday or afternoon snack. In response to rising costs, the industry has raised prices, albeit carefully. It has reduced package sizes. General Mills, which initially resisted industry-wide price increases raised them in 2007 in the wake of seeing its sales decline 1.2 percent in 2006. Up-trending prices had in the past resulted in shifts to private label brands and may further slow sales of traditional products. The new product categories, however, many of which have less or no corn content, may not be affected as much.
TARGET MARKETS & SEGMENTATION
At the dawn of the industry breakfast cereals were targeted at healthy-minded adults and vegetarians, but the industry rapidly evolved a strategy of aiming its marketing at children by appealing to them directly and persuading their parents to buy the product. These two modes of targeting the product coexist into the twenty-first century, the health-appeal returning again. Most products are aimed at children and are high in sugar content to reinforce that appeal. A growing subset of products continues to be marketed to the health-conscious. The most recently emergent trend has been, as already noted, to make all cereals more healthy by increasing fiber, reducing carbohydrates, lowering sugar levels, and using whole grains. The provision of this product in the form of ready-to-eat breakfast bars is aimed at a life-style segment of adults and youngsters on the move, in a hurry, with no time but to munch on the go.
RELATED ASSOCIATIONS & ORGANIZATIONS
American Corn Growers Association, http://www.acga.org
American Institute of Baking, http://www.aibonline.org
Grains for Life, http://www.grainpower.org/index.asp
National Corn Growers Association, http://www.ncga.com
North American Millers' Association, http://www.namamillers.org
Wheat Foods Council, http://www.wheatfoods.org
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Lazich, Robert S. Market Share Reporter 2007. Thomson Gale, 2006, Volume 1, 138.
Lempert, Phil. "Super Bowl: The New 'Snap, Crackle, and Pop' of Product Diversity in the Cereal Aisle Seem to be Working." Progressive Grocer. 1 March 2007.
Phillips, Bob. "Breaking with Tradition: Single-Serve Cereals and Breakfast Bars Provide Morning Fuel for On-the-go Consumers." Convenience Store News. 8 May 2006.
Roberts, William A., Jr. "Breakfast Cereals: A Vulnerable Position." Prepared Foods. 20 November 2003.
――――――. "A Soggy Cereal Market." Prepared Foods. August 2004.
Six, Janet. "Hidden History of Ralston Heights." Archaeology. May/June 2004.
Thompson, Stephanie. "Big G Yields on Cereal-price Cuts: Joins Rivals in Downsizing Boxes to Effectively Lower Consumer's Checkout Bill." Advertising Age. 19 March 2007.
see also Snack Foods