Breakfast Cereal Makers Grapple With Declining Sales And Obesity Crisis

Cereal makers have seen their revenues take a hit as grown-up Millennial consumers shy away from feeding their kids the breakfast of their childhoods. Last year, total breakfast cereal volumes decline 2%, according to Euromonitor.

The world’s leading cereal maker, Kellogg Co. has reportedly spent millions on research to counter growing claims that its sugary products help to fuel the international obesity crisis. On the other hand, health-conscious Millennial consumers are increasingly worried that just one bowl of cereal can have over half the recommended sugar intake for a 6-year-old child.

Also read, Coca Cola restructures for future growth as profits fall.

Battle Creek, Mich.-based Kellogg is said to have helped fund a report published in a medical journal in December attacking the British government’s recommendations to cut sugar intake, along with supporting various British studies concluding that “regular consumption of breakfast cereal” could help children stay slimmer, reports The Sunday Times. The report, published in the journal Obesity Facts, pulled evidence from 14 studies, in which seven were backed by Kellogg and five were funded by rival General Mills Inc. Such studies have been futile in shooting down attacks, as consumers accuse food giants of adding more sugar in cereals than found in some cakes, donuts and ice creams.

In backlash to the news, many including Simon Capewell, founder of Action on Sugar have called on Kellogg’s to present a list of all of the scientists and research organization in which it pays fees and research grants, similar to the one that global beverage giant The Coca-Cola Co. was finally pressured to release in 2015.

Cereal Sales Decline 2% in 2016
Similar rebuttal efforts by global food companies against larger, more powerful and longer-term consumer trends have backfired in the past, as major food makers are now taking actual steps to revamp their portfolios and change their recipes as they lose out to newer startups and premium labels.

In particular, cereal makers have seen their revenues take a hit as grown-up Millennial consumers shy away from feeding their kids the breakfast of their childhoods, instead looking to eco-friendly and health-conscious alternatives. Last year, total breakfast cereal volumes decline 2%, according to Euromonitor.

Despite efforts to paper over up sugar consumption’s negative effect on health, the world’s leading cereal companies, including Kellogg’s, General Mills and Post Holdings Inc. have committed to slowly reducing sugar and following high standards for transparency and disclosure.

General Mills has ramped up a new venture capital and business incubator arm, called 301 Inc., in which it has invested millions in alternative, premium products such as probiotics startups and organic, gluten-free, non-GMO vegan brands that sell mushroom bars. Along with plans to move away from “outdated” breakfast cereals, cereal giants have desperately tried to revive interest in older favorites. Earlier this year, General Mills hoped to start a buzz and tap into the growing “conscious consumer” mentality with its new Honey Nut Cheerios campaign to help preserve the world’s bee population.

St. Louis-based Post Holdings has attempted to go the acquisition route in hedging against a traditional cereal decline, with efforts to consolidate parts of the cereals and booming snacks market. The company recently closed its 1.4 billion pound ($1.76 billion) deal with China’s Bright Food Group to acquire whole-wheat cereal maker Weetabix, a long time U.K. favorite. The U.S. cereal leader says the addition will help Post sell more of its brands in Britain, while Weetabix has struggled with flat sales and profits in its home market amid changing consumer habits. In 2015, Post bought out Cereal Malt-O-Meal, after acquiring protein bar maker PowerBar from Nestle in 2014.

Investors remain confident in Post’s ability to weather the industry storm, lifting its shares about 20% over the recent 12-month period. Over the same period, Kellogg and General Mills shares have declined 0.7% and 1.1% respectively.

SOURCE Shoshanna Delventhal, Investopedia