Take two hot food trends — gluten-free and granola — and voilà, a new Chex cereal is born.
Due on grocery shelves next month, gluten-free Chex granola mix is one of General Mills Inc.’s latest volleys in the battle for breakfast. A new “ancient grains” version of Cheerios is also on the way.
The Golden Valley-based packaged food giant is emphasizing new products to counter the rise of cereal alternatives like Greek yogurt and frozen breakfast sandwiches — as well as the popularity of protein-rich food in general.
Cereal is still king of the morning meal, but it’s losing ground. Consumers have more choices, both at the grocery store and a growing number of fast-food chains like Taco Bell that are pursuing morning customers.
“As everyone focuses on going after the breakfast occasion, cereal consumption has steadily eroded over the past decade, with an acceleration of the decline over the past few years,” said James Russo, senior vice president for global consumer insights at Nielsen, a market researcher.
To help reverse the trend, cerealmakers need to improve innovation — no easy task in an old, varied category. New products like ancient grain Cheerios and gluten-free Chex granola may be hits or flops, but they are at least attempts to capitalize on health trends rippling through the food business.
In cereal, “competition is increasing and marketing spending and the rate of new product innovation is decreasing — that’s not going to work out well,” said Jeff Harmening, chief operating officer of General Mills U.S. retail business. “The way to return to growth is innovation.”
Cereal is General Mills’ largest U.S. retail business, generating $2.3 billion in revenue in the company’s most recent fiscal year. Soft cereal sales have been contributing to anemic financial results generally at General Mills.
General Mills and Kellogg rule the cereal business each with about a 30 percent market share. General Mills gained a bit of share in the past year, making it the leader, according to IRI, a Chicago-based researcher that tracks sales at food retailers. But cold cereal generally saw a 4.15 percent drop in sales for the year ending Nov. 2.
Flagship brands have been hit hard. Honey Nut Cheerios, the nation’s top-selling cereal, experienced a 5 percent sales decline, while sales of Kellogg’s Frosted Flakes, the No. 2 U.S. cereal, fell 4 percent.
Still, Harmening said Cheerios’ “base” business — cereal not being sold on promotions — has been improving as the company has focused its marketing more on oats’ healthiness. And Cheerios Protein, which is fortified with soy protein, has had strong sales since its June launch.
“Cheerios is a good-for-you brand,” Harmening said. “It’s one that we need to make sure we renovate in a meaningful way for consumers.”
According to Nielsen, while U.S. cereal sales have stagnated, sales have boomed for such morning fare as packaged breakfast meals, sausage and in-store bakery goods. Those three categories in particular have sported five-year, compound annual growth rates of 4 percent to 6 percent, a Nielsen report concluded.
Convenience is one issue for cereal. Sure, it doesn’t take much effort to pour milk into a bowl of Lucky Charms, but it takes even less to microwave a Jimmy Dean breakfast sandwich and eat it on the run. Fruit is a quickie, too, and it plays well to the growing ranks of freshness-minded consumers.
The rising demand for protein — at the expense of carbohydrates — is another problem facing cereal.
Eggs, once seen as a cholesterol scourge, are regarded these days as a good, cheap source of protein, particularly at breakfast. Bacon sales have been buzzing — just ask Austin, Minn.-based pork producer Hormel Foods. And sales of protein-rich Greek yogurt have boomed over the past five years.
“While carb-heavy categories have been the most challenged in these latest sales trends — not only for General Mills but across food — protein-based categories have performed well,’’ according to a recent report by RBC Capital Markets’ analyst David Palmer.
The protein craze has spread partly due to protein’s high satiety effect. “Consumers are looking for harder working breakfast options, things that fill them up,” said Priscilla Zee, marketing manager for new products in General Mills’ cereal division. “They don’t want to feel hungry two hours later.” Hence, Cheerios Protein.
“Wellness” is another big buzzword in the packaged food industry these days, and Cheerios Protein and Cheerios + Ancient Grains both play into it.
Wheat, corn and rice, of course, are themselves ancient grains, but they’ve been bred by farmers over the centuries, their tastes and appearances changing. Grains like Kamut and spelt — and quinoa, a seed — are pretty much the same as they ever were. Those three are ingredients in Cheerios + Ancient Grains.
Despite the health aura around ancient grains, the new Cheerios iteration won’t be any healthier than plain, yellow-box Cheerios. In fact, Cheerios + Ancient Grains contains more sugar than regular Cheerios, one of the least sugary cereals on the market.
Another big wellness trend is “gluten-free,” and General Mills has capitalized on it in cereal.
Sufferers of celiac disease can’t eat gluten, a protein found in wheat, barley and rye. Other people find their digestive systems are sensitive to gluten. The celiac and gluten-sensitive crowd make up 10 percent or less of the population. But many consumers see other health benefits — most not proven — in gluten.
“About one-third of consumers are eliminating gluten, and we see this as a trend that will continue,” Zee said.
General Mills in 2008 reformulated much of its Chex cereal line to be gluten-free. Since then, Chex has been one of General Mills’ most successful cereal brands in terms of sales growth.
General Mills is plumbing the Chex well with gluten-free Chex granola mix, a sort of a super-trend cereal. Granola sales are strong, and Nature Valley and Cascadian Farms cereals — both heavy on the crunch stuff — have done well. Snack sales are booming, too, and granola doubles as a snack, and a healthier one at that.
For all the health themes in new cereals, old-fashioned flavor improvements can be just as important.
Earlier this year, General Mills added more cinnamon to Cinnamon Toast Crunch, its bestselling cereal after Honey Nut Cheerios and regular Cheerios. It proved a good move. Cinnamon Toast Crunch sales were up almost 8 percent during the 52-week period ending Nov. 2, according to IRI.
General Mills is also playing the nostalgia card, saying last week that it’s reviving Cinnamon Toast Crunch’s sister cereal French Toast Crunch. The latter of the toast twins was yanked from stores in 2006, after an 11-year run.
But French Toast Crunch has a lot of avid fans. An Internet petition — a Facebook page, too — had called for the cereal’s restoration, and General Mills finally obliged.