INTO THE MOUTHS OF BABES 2000

KAREN DeMASTERS

Despite the recent warm weather across much of the country, sales of good-for-you hot cereals have increased due to new advertising campaigns directed at children and overall sales increases across all private-label food categories.

Hot cereals traditionally were a stable but relatively unexciting category from a sales perspective for supermarkets until about four years ago when the category got a shot in the arm from the U.S. Food and Drug Administration and the American Heart Association. In January 1997, the FDA ruled that manufacturers of any whole-oat product with at least 0.75 grams of soluble fiber per serving could put a claim on the package saying, "Diets low in saturated fat and cholesterol that include soluble fiber from oatmeal may reduce the risk of heart disease." The American Heart Association had issued a similar endorsement before that.

These rulings played into the growing desire of many Americans to start leading a healthier lifestyle by eating better. After posting declines of between 2% and 4% in supermarkets for several years, hot-cereal sales increased by 5.1% for the 52-week period ended Nov. 30, 1996, and another 5.2% increase was posted by the end of November 1997, according to market research firm ACNielsen, Schaumburg, Ill.

Now, the FDA has said cereals and other foods that contain 51% or more of whole grains can state on the product labels: "Diets rich in whole-grain foods and other plant foods and low in total fat, saturated fat and cholesterol may help reduce the risk of heart disease and certain cancers."

Most recently, hot-cereal sales were driven up by 9.3% to nearly $782 million during the 52-week period ended Nov. 27, 1999, compared with the prior year, when sales peaked at $715 million, according to ACNielsen.

"What we do for cold cereals all year long, we do for hot cereals in the winter and that gives them a boost," said Rick Hagan, sales manager for Camellia Food Stores, Norfolk, Va.

"It hasn't been as cold this year, but we had the ads ready to go, so we got a jump on the season anyway," he added. "The big boost hot cereals got a couple of years ago had disappeared and sales were leveling off. It's a steady growth category now. The manufacturers are now using dinosaurs and adventure stories to try to attract kids, and that has given the category a bump."

Three years ago, Martin's Super Markets, South Bend, Ind., increased shelf space for hot cereals by about 2 feet, said Doug Murphy, director of grocery merchandising for the 16-store company. That extra space was retained and the category is still growing, he said.

"Private labels -- ours is Roundy's -- are increasing faster than brand names because people are gaining confidence in all the products produced under private labels, hot cereals included," said Murphy. "Private-label manufacturers have worked diligently in recent years on the quality of the products and retailers have done a good job of promoting private labels in advertising. This has reaped benefits in increased sales."

Standard price reductions, such as one-third off promotions, are used on hot cereals by Giant Food, based in Landover, Md., said Odonna Mathews, vice president of consumer affairs.

"All the promotions are done on the shelf," she said. "We take the same promotions that are used for cold cereals and extend them to hot cereals in the winter time."

Acme Markets, based in North Tazewell, Va., will begin a new line of promotions for all cereals, hot and cold, within the next few months, with promotions for the hot cereals not being implemented until next fall, said Steven Mitchell, vice president of marketing.

The subcategory within hot cereals that is getting the biggest boost includes the organic and all-natural hot cereals marketed by natural-food companies in both health-food stores and in supermarkets.

Dr. McDougall's Right Foods, based in San Francisco, this winter season doubled the number of hot cereals it produces by adding two new lines. Bob's Red Mill Natural Foods, Portland, Ore., added seven new hot cereals to its line this winter, three regular lines and four instant. The company works with retailers, providing in-store advertising and shelf displays to help promote the products, said Robert C. Agnew, sales and marketing manager for Bob's Red Mill.

Country Choice Naturals, started in 1991 in Eden Prairie, Minn., is also riding the consumers' desire for good-for-you foods. Its line of hot oatmeal, cookies and cocoas, all of which are at least 95% organic and sold in both supermarkets and health-food stores, has grown in sales each year, and was up by 30% last year, said Dan Hazen, director of sales and marketing.

At the same time, supermarket buyers and retail food consultants feel hot cereals in general are not being promoted as much as they could be.

"Hot cereals are underperforming as a category," said Steve Love, a partner in Senn-Delaney, a unit of retail food consultant Arthur Andersen, Chicago. "Some select retailers are doing well, but others could be doing more. Private-label sales are growing faster than brand names. There are also more flavors being produced, so that the growth in the category is in the number of SKUs."

Promotions from retailers and manufacturers in hot cereals are behind those routinely used in cold cereals, although it is improving, said Llew Smith, president of Solutions Marketing, consultants specializing in medium-size brands and companies, based in Stamford, Conn.

But, marketing is improving, according to Bob Hilarides, partner in Cannondale Associates, an Evanston, Ill.-based sales and marketing consulting firm. "The new adventure packages are a way to get fun into hot cereal," he said. "Then with the health claims on top of that, it makes for very nice growth in the category."