General Mills Inc.’s global cereal partnership with Nestlé, Cereal Partners Worldwide, turns 25 years old this year, and is as important as ever.
Boosting sales of cereal and other packaged food products internationally is particularly important these days as big food companies face stagnant U.S. growth. In fact, the U.S. cereal market — Golden Valley-based General Mills’ largest business — has been notably weak in recent years.
But a bowl full of milk and flaked grains can be a hard sell in some emerging markets where the typical morning meal is steamed rice or bread and cheese.
And in countries where cereal is ensconced, consumers are increasingly forsaking the breakfast classic for yogurt, breakfast bars or other more convenient items. It’s a familiar trend for both General Mills and Kellogg.
“In developed markets, some of the same challenges as in the U.S. are playing out there,” said Dave Homer, the Switzerland-based CEO of Cereal Partners Worldwide. “You’ve just got more alternatives at breakfast. But people are not eating less breakfast.”
Globally, ready-to-eat cereal is a $27.7 billion business, which has seen sales grow about 1 percent over the past three years, according to Euromonitor International. That’s no great shakes, but it’s better than the 5 percent decline during the same period in the United States, where cereal is a $9.7 billion market.
Cereal Partners Worldwide — a partnership that results in Cheerios being sold under the Nestlé brand in Europe — is a solid contributor to General Mills’ bottom line.
Here in the United States, Kellogg and Golden Valley-based General Mills dominate the industry, each with about 30 percent of the market. But globally, Kellogg has a 30 percent share, and General Mills — through Cereal Partners Worldwide or by itself — has 18 percent.
In other words, there is an opportunity for Cereal Partners Worldwide to increase its market share, both in traditional markets and emerging ones.
Kellogg, of course, was a cereal company from its inception over 100 years ago and has long sold cereal overseas. General Mills didn’t get serious about international cereal markets until it teamed up with Swiss giant Nestlé in 1990 to create Cereal Partners Worldwide.
The 50-50 joint venture took advantage of Nestlé’s brand presence in Europe and General Mills’ advanced cereal-making technology. Cereal Partners Worldwide, which has 17 factories around the globe, has grown steadily over the years — including through acquisitions — and now does business in 130 countries.
“For the most part, it’s been a pretty good relationship, particularly for General Mills,” said Jack Russo, a stock analyst at Edward Jones. “These two companies share a lot in how they run their businesses.”
Indeed, speculation has long circulated that Nestlé might make a bid on the venerable Minnesota company.
“There have been rumors these two might make it more of a relationship,” Russo said.
Still, while Nestlé has the balance sheet to do such a deal, its major acquisitions have been outside of packaged food in recent years.
The Cereal Partners Worldwide joint venture, in its most recent fiscal year, had $2.1 billion in sales, down 1 percent from the prior year. That downward trend has accelerated this year.
“Around the world, competitive pressures are intense,” said Erin Lash, a stock analyst at Morningstar.
The United Kingdom is home to the world’s most voracious cereal eaters, with annual consumption of 7.2 kilograms, or about 16 pounds, per person, according to Euromonitor. Cereal Partners Worldwide is also strong in continental Europe, where it is well represented there by such brands as Chocapic, a chocolate-flavored flake, and Nesquik, which is akin to General Mills’ Cocoa Puffs in the U.S.
Australia, where Cereal Partners Worldwide owns the big brand Uncle Toby’s, and Canada, a big market for Cheerios, tie for second in per capita consumption with 10.1 pounds. The United States is fourth at 8.8 pounds.
“These are very strong markets that have been in cereal for a long time, ” said Cereal Partners Worldwide’s Homer.
In such developed markets, consumers are leaning toward cereals — and all packaged foods for that matter — that are perceived as more healthy.
“People want things a little more natural, a little less processed,” Homer said.
So in Great Britain, Cereal Partners Worldwide beefed up its marketing for an old standard, Shredded Wheat, playing the health card. Shredded Wheat has no salt or sugar, and a low level of saturated fat.
“Some brands have attributes people care about that you just haven’t told them about for a while,” Homer said.
The result has been almost double-digit sales growth in Shredded Wheat over the past year.
The partnership also has reduced sugar in kids’ cereals over the past few years, as General Mills has done in the United States. This spring, Cereal Partners Worldwide trumpeted a 30 percent sugar reduction in Fitness, a popular wheat and rice flake cereal aimed at adults.
Tough markets to crack
Developing cereal markets offer more potential for growth than mainstays like Europe, but they’re trickier to crack.
In Malaysia, a traditional breakfast might include puffed bread with curry or steamed rice mixed with an egg and cucumber-onion relish. In Indonesia, the morning meal might be coconut rice or soy cakes. None sound much like a bowl of Cheerios.
Homer said the key to gaining acceptance is educating consumers.
“You have to explain to people what [cereal] is and what it does,” he said. That means marketing to moms that cereal “gives kids a good, strong start to the day.”
Cereal Partners Worldwide has been quite successful in Indonesia and Malaysia, where it has large and leading cereal market shares.
But Cereal Partners Worldwide and other cereal makers have struggled in the ever alluring China market.
Consumers there “eat a lot of savory foods, not sweet, and breakfast cereal is sweet,” Homer said. “It’s very different by country.”