Retailers are finding that high price tags on ready-to-eat cereal are pushing more shoppers into the all-family category.
Consumers are looking for value-priced alternatives and, as a result, they are turning either to private-label cereals, bagged cereals, or to all-family cereals, which allow them to save money by buying one product that can satisfy both kids and adults equally, according to buyers polled by SN.
Traditionally a very competitive and efficient category for supermarkets, RTE cereal growth has slowed recently, retailers note.
New-product introductions are also down from past years, indicating that the category may be flattening out. Additionally, dollar and unit sales are down for many of the manufacturers, according to scan data from Information Resources Inc., Chicago.
"The fastest growing segment is the all-family sweetened segment," said Barbara Oberhammer, grocery buyer for Smart & Final, Vernon, Calif.
"With family cereals, the purchaser can choose one box and everyone in the family can eat it," observed David Taylor, category manager for grocery at Ukrop's Super Markets, Richmond, Va.
Scott Rauch, grocery buyer/merchandiser for Foodland Distributors, Livonia, Mich., a division of Supervalu, Minneapolis, agreed that all-family cereal sales have picked up recently, adding that he believed it was due to overall high prices in the category.
Of the Top 10 selling RTE cereal brands for the 52-week period ended March 1998, General Mills' Cheerios and Kellogg's Raisin Bran were the only varieties to see increased sales (both in dollars and units), according to IRI. Both items are considered to be all-family cereals, according to Jack Ryder, a consultant and president of Cannondale Associates, Wilton, Conn.
Total sales for RTE cereals were $7.1 billion, still a very impressive number, even if it was down 2.4% from the previous year. Total unit sales were 2.5 billion, down 1.7%.
Cheerios, the No. 1 brand, had a 4.3% dollar increase, to $302 million, and a 1.5% unit increase, to 99 million, while Raisin Bran, the No. 5 brand, increased 7.2%, to $185 million. Raisin Bran saw a large jump in unit sales -- 14.5% to 68 million.
The No. 2 brand, Kellogg's Frosted Flakes, had sales of $252 million, falling 10.5% from last year. Kellogg's Corn Flakes sales were $202 million, declining 4.7%, while General Mills' Honey Nut Cheerios had $193 million in sales, declining 5.6%.
"Because cereals are so expensive, people are trying to buy brands and flavors that appeal to the whole family," said Rauch. This move toward the all-family segment has also helped expose the market need for better-tasting cereals in the "healthy" category. Consumers are no longer contented with nutritious cereals; they want something that tastes good too, according to Kevin Dale, buyer at H.G. Hill, Nashville, Tenn. Thus, manufacturers are trying to meet these demands with new products like Kellogg's heavily marketed "Smart Start" cereal.
The relatively sluggish performance of national brands is good news for private-label cereals. "Sales [in RTE cereals] have been transferred over to private label," Rauch said. "[Private-label] sales are up over 20% and they are really taking it out of brands." The 1998 compendium of private-label statistics, compiled by IRI and published by the Private Label Manufacturers Association, New York, estimated that consumers saved $226 million in 1997 by buying private-label rather than national-brand cereals.
And private-label statistics were also impressive in terms of sales. Vendor comparisons from IRI, for the 52-week period ended March 22, 1998, showed that store brands ranked fifth in sales, at $546 million, up 4.5% and accounting for a 7.7% share of the market. Unit sales were 260 million, up 5.4%.
"We are selling more and more private label." said Charles Jones, senior buyer at Scolari's Food & Drug, Sparks, Nev., confirming that consumers are gravitating toward value-priced items. "[Private labels] are up, partly because of price, and partly because the quality is good," said Dale of H.G. Hill.
But not all those interviewed by SN agreed with this assessment. Amil Oles, category manager at Genuardi's Family Markets, Norristown, Pa., said he has not seen notable increases in private-label or any cereal category over the past year.
"I've been doing well week-in, week-out," he said, "but I always do well." Oles additionally commented that no one week significantly outperforms any other.
Smart & Final is another retailer that has not seen significant increases in private-label cereal sales over the past year, according to Oberhammer. Moreover, she said, her stores were expecting losses due to the introduction of bagged cereals, although, indeed, private-label sales have remained fairly constant.
Still, Oberhammer did say bagged cereals are doing extremely well, another indication that consumers are looking for value.
Bagged cereals are one of a number of strategies that brand manufacturers have used to win back sales. Both Quaker and Malt- O-Meal have put bagged cereals on the market, with a fair amount of success, according to Ryder of Cannondale Associates.
"There seems to be a trend toward the bagged cereals, which of course are a lot cheaper," agreed Dale of H.G. Hill.
Of the Top 6 brand manufacturers, only Quaker and Malt-O-Meal have experienced dollar and unit increases over last year, according to IRI. While they have a small dollar share of market (9% and 3%, respectively), Quaker saw an increase in dollar sales of 5%, to $610 million, while Malt-O-Meal saw an increase of 5.6%, to $191 million.
Other strategies brand manufacturers use to battle private label have included taking price cuts and promoting and advertising heavily. But Ryder told SN that the price cuts national brands took a few years ago to better compete did not increase volume sales.
It is also doubtful whether temporary price cuts via special promotions and programs will be effective in increasing sales over the long term, according to Dale. "Brand manufacturers have all kinds of promotions and programs that get some good prices. It increases the volume, but when it goes back to regular price they are back to square one," he said.
Although Taylor of Ukrop's noted that major cereal vendors have been very aggressive with promotions, he agreed with Dale. "When [major] manufacturers are not promoting, the private label is still the best value by a lot," he said. "Deep discounts are good, but consumers like the opportunity to make the purchase multiple times."
Jones of Scolari added that although manufacturers continue to give deeper discounts, neither national-brand boxed nor bagged cereals have been able to cut into private-label sales.
Oles of Genuardi's, on the other hand, said that heavy advertising on the part of vendors has been very successful in driving RTE cereal sales.
Ryder observed that national brands should not try to compete with private-label brands on price, but rather should concentrate on increasing portability of the products, possibly through packaging changes, and emphasizing their nutritional elements, especially when compared with other non-breakfast snacks.
Retailers expressed similar opinions. "Kellogg and General Mills are looking for ways to increase snacking," said Taylor of Ukrop's.
June Tesdall, a spokeswoman for Kellogg, Battle Creek, Mich., said that the company is trying to push cereal as a snack food by way of its "Snack-Pack" products -- small boxes of sweetened cereals that include such varieties as Fruit Loops, Corn Pops and Apple Jacks.
Another new cereal product from Kellogg, called "Breakfast Mates," also aims to push the cereal category beyond its traditional limits. The all-in-one product offers a single serving of cereal, milk and a spoon in one package.
Breakfast Mates is the first cereal product to be sold in the refrigerated section of the supermarket. Kellogg is partnering with Dannon Co., Tarrytown, N.Y., which will handle sales, distribution and merchandising.