Recently Kellogg’s, a world leader in the Breakfast Cereal Industry announced that by the end of 2017, they plan to eliminate 7 percent of their global work force to compensate for declining breakfast cereal sales.
In a press release, John Bryant, Kellogg Company’s president and CEO said, “We are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth. These actions will set a foundation for our Sustainable Growth operating principle.”
Contrary to Kellogg’s earning, the Breakfast Cereals Market in the US is expected to grow at a CAGR of 2.14 percent for the 2012-2016 period.
So why is Kellogg’s cutting jobs?
Well, there are a few factors causing problems for breakfast cereal vendors. The first is that the Breakfast Cereals market in the US is a fairly concentrated market, which contains a few major multinational players and a few other international and local players. However, the competition in the market is becoming intense with the increasing number of private labels being introduced in the market.
There also exists competition among the market vendors in terms of product differentiation, portfolio, and pricing. Companies are also expanding their businesses to various regions of the country to tap the increasing demand from other ethnic groups in the country.
Furthermore, there are an increasing number of substitute breakfast options available which pose a major challenge for the cereal vendors. The Fast Food Industry Service sector in the US is one of the major substitute options available to consumers. This sector includes restaurants and fast food joints, such as Starbucks and McDonald’s, where consumers eat breakfast at least once or twice a week.
Apart from the fast food industry evolving, the market is also facing competition from on-the-go or more convenient food products, such as snack bars and whole grain biscuits, which are convenient to eat when travelling or commuting.
With stiff market competition, how can breakfast cereal vendors gain the upper hand?
The introduction of innovative fast food industry products in the market are enabling vendors to offer more “ready-to-eat” and “to-go” products to cater to the changing lifestyle of consumers. In 2011, breakfast cereals manufacturers like General Mills, Kellogg’s, PepsiCo and Ralcorp Holdings launched approximately 500 new cold cereal products and 100 hot cereals products in the US. Almost 20 percent of these new products were also claimed to have high protein levels.
For instance, Kellogg launched Kellogg’s To-Go cereal in a beverage format for adults who eat breakfast on the go. Kellogg also launched Frosted Mini-Wheat’s Touch of Fruit with Mixed Berry, a product which is rich in fiber and is comprised of lightly sweetened, whole grain biscuits and real fruits in the filling of each piece.
Numerous companies are also launching gluten-free and organic breakfast cereals to meet health-conscious consumer demand. Hence, companies such as Kellogg are investing heavily in the R&D of organic food products and innovative breakfast cereal products that have been approved and certified by the USDA. Such new innovations will further boost the sale of organic food and breakfast cereals in the US during the forecast period.
In addition, the increasing awareness about the health benefits provided by natural and organic breakfast cereals has propelled their demand in the US. Consumers in the US have become cautious when they shop due to the increasing number of food products available in the market.
They also perceive organic products to provide better nutritional benefits and perceive them to be healthier than non-organic foods as chemicals, hormones, and pesticides are not present in them. Consumer awareness about the harmful effects of pesticide residues in breakfast cereals and the harmful impact on health is encouraging them to switch to organic breakfast products which is causing a shift in the fast food industry. Hence, the change in consumer perception towards healthy and environment safety food product consumption has led to an increasing number of companies focusing on manufacturing natural and organic breakfast cereals.
There were more than 230 natural or organic products introduced by various companies in the fast food industry specifically targetting the US market in 2011. For instance, Nature’s Path Foods launched Hemp Granola, a certified kosher and organic cereal that is high in fiber and does not contain any synthetic preservatives, additives, or genetically modified ingredients. Thus, the demand for natural and organic breakfast cereals is expected to drive the growth of the market during the forecast period.
For a more comprehensive Fast Food Industry analysis look at our 2012-2016 report on the Breakfast Cereals Market in the US.
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