Cracks in the cereal bowl

Just a few weeks ago there were some reports, at least from General Mills, that these were good times for cereal. But, new reports this week suggest that the picture is far from bright.

Kellogg's announced that sales are down 4% and cuts its earnings outlook. A UBS Securities analyst suggests that overall cereal is a sluggish performer right now, possibly due to fewer innovations, the effects of the current economic conditions, and even Kellogg's recall this year.

Also announced this week are upcoming price increases from General Mills and Kraft, largely due to higher grain prices. These increases are likely to further impact cereal sales as consumers look to alternatives.

All these developments suggest that we could be in for some dramatic changes in the cereal aisle in the next year. The question is, will the big cereal companies continue to lose ground as consumers shift their allegiances and preferences to more focused brands that offer perceive value?

I'll be watching.

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Digestion niche

Starting with the Kellogg Sanitarium over 140 years ago, cereal has been considered a health food. Certainly the highly sugared and artificial flavored versions of recent decades seems to contradict that, there has always been a strong contingent of cereals designed to promote health. High fiber cereals (such as All-Bran) and the recent marketing of cereals for weight loss (e.g. Special K) are but two examples.

Consistent with the popularity of yogurt, a relatively new twist in the cereal aisle has been the introduction of pre- and pro-biotic cereals.

In 2006, Kashi introduced Vive, the first pro-biotic cereal. "Pro" biotics are live lactobacillus bacteria that naturally assist digestion in the intestinal tract.

Within the last month Kraft has introduced a line of pre-biotic foods, including a cereal, under the Live-Active brand name. "Pre-biotics" are special fibers that enhance the proliferation of friendly probiotics.

The key point in all this is that focusing on health niches is a good strategy for cereal companies, especially when they can be innovators in the industry.

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Technorati Tags: cereal, bacteria, Kashi, Kraft, Post, nutrition, BreakfastBowl