Thursday, December 18, 2008

Cereal and the economy

The recent downturn in the economy seems to be affecting almost every industry, not just banks and auto companies. Although food in general is a staple, a prolonged recession will have an impact on consumers' choices and buying habits. This will include cereal.

Recently the big three cereal companies (Kellogg, General Mills, and Ralcorp [Post]) have shown positive financial results. But this reflects the past, not necessarily the present or the future. The question is: Will consumers continue to purchase cereal as in the past when their personal finances are squeezed?

It appears that even the big companies question this. For example, Kellogg recently launched a campaign on their website promoting the "value of a Kellogg breakfast", which costs less than 50 cents a bowl, including the milk. Obviously they wan to prevent any changes in perception.

Nevertheless, the big winners in the coming months could be low-cost manufacturers like Malt-O-Meal, whose sales continue to rise. In the end people will likely to continue eating cereal, but will find their satisfaction in bulk sizes, knock-off recipes, or generic brands. This will also be an opportunity for innovators, but not on the high-end. Companies that can bring new value to the cereal aisle have much to gain.

We'll keep watching these developments.

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1 comment:

Mike said...

Very nice post. Its interesting how the current economic environment affects all industries. I agree that the food industry (including the cereal industry) has and will be taken hits from the current state of economy. I was stunned when I was recently reading in a European paper that this is the first time ever that food sales have declined.

That being said, I believe that consumers will still be willing to pay a premium for cutting edge, high quality products and customization features that are being offered by new websites such as www.MixMyGranola.com. These services are brand-new and offer a different spin on things. And after all, compared to what a normal meal cost, top-notch quality cereal is still a cost-effective and healthy alternative to many other options out there.