Businessweek Archives

Mmm! Cereal For Dinner


Marketing: FOOD

MMM! CEREAL FOR DINNER

New pitches to adults are reenergizing the industry

Cold cereal is getting cooler every day. TV comic Jerry Seinfeld has a penchant for flakes, and not just for breakfast. Sharp-eyed TV viewers can glimpse a phalanx of cereal boxes whenever Seinfeld opens up his kitchen cabinets on the television set. And if you listen carefully, you can almost hear the cereal makers cheering. "I'm a fan of the show, and I'm always looking to see if I can spot the K," says Anthony Hebron, Kellogg's director of corporate communications. "Jerry's great for all of us."

Seinfeld represents more than a good plug for the industry. Cereal makers say he's helping feed a trend: adults who eat cereal in the morning, and at noon and night as well. And such all-day Cheerios chompers appear to be reviving the industry. Although cereal sales have slumped since 1994, new products and marketing campaigns aimed at grownups are helping to give new snap, crackle, and pop to cereal giants such as Kellogg, General Mills, and Quaker Oats. The question now: Will the trend hold--or wilt in the milk?

LOOKING FOR "MIKEY." So far, early results look promising. After a period in which store-brand flakes and O's were about the industry's biggest innovations, new products are sparking consumer interest. They now make up about 11% of the $7 billion cereal market, up from 4.6% last year, says Jeffrey Kantor, analyst at Salomon Brothers Inc. And many are sweet cereals pitched to the entire family, not just to kids.

Take Kellogg's Honey Crunch Corn Flakes. Launched last year as the sponsor of a NASCAR auto race, it's now a $72 million brand with a respectable 1% market share. Meanwhile, instead of plastic toys and other kiddie gizmos, Kellogg's holiday promotion will feature Microsoft Corp. software for kids and adults. And General Mills' Cinnamon Grahams had its first marketing moment last month, paired with Gap's Old Navy stores. Boxes of cereal graced Old Navy store windows; coupons for Old Navy clothing appeared on the back of boxes. "We want to surprise the consumer by being places we have not been before," says Debbie Scott, marketing manager for Cinnamon Grahams.

Some campaigns are clearly targeted at those well past school age. Quaker's Life cereal ran a talent search for the new "Mikey"--the young boy featured in ads a generation ago who "hates everything" but liked Life. "Adults will remember Mikey and remember how they loved the brand," says marketing manager Keith Neumann. Indeed, although ads with the new Mikey won't air until 1998, the search has already helped boost '97 sales by "double digits," Neumann says.

Cereal makers had little choice but to try something new. Throughout the 1980s, growth came largely from price hikes, at a rate of 7% a year. By 1994, when prices topped $5 a box, shoppers balked. Ire rose from consumer advocates and Congress, and sales slipped. The ensuing price war ate into profits, but consumers didn't return to the big-name brands. Bagels, muffins, and other alternatives were making big inroads at the breakfast table, while generic store brands offered a cheap fix for cereal fans. The cereal giants realized they had to get more creative. "The old way of launching a new product, through promotions and coupons, is not sufficient anymore," says General Mills' Scott.

"LIKE PRETZELS." The new mix of sweet stuff and nostalgia is paying off. In October, Kellogg surprised Wall Street by reporting that third-quarter earnings were up 18%--the second quarter in a row the world's No.1 cereal maker surpassed expectations. Quaker Oats Co. reported year-to-date volume that was up 23% over 1996. And General Mills' sales for the quarter ended in August jumped 10%.

Add it all up, and it may be the start of a revival. Wall Street analysts predict that total cereal sales will rise about 2% for the year. While below the 3%-to-3.5% gains the industry used to boast, it's the best showing in three years.

Moreover, what these numbers do not show is the migration of cereal from the breakfast table to later meals. Catherine Hoffmann, 36, of Huntington Station, N.Y., makes cereal an option for any meal, from breakfast to a late-night snack, and she keeps at least four brands in the house. "There really isn't a time of day for me when cereal is off limits," she says. Cereal is even showing up in desk drawers. "The young people in my office keep boxes in their desks and eat it like pretzels," says Michael Wahl, chairman of HMG Worldwide, a marketing consulting firm.

ZERO PREP TIME. Why? Seeing Seinfeld scarf it down is one reason. Speed is another: Eaten dry out of the box, prep time for a cereal meal is zero. Even getting the stuff into a bowl with milk is faster than making a sandwich. "Consumers want food no more than five minutes from their right arm. Cereal makes that deadline," says Chris Hoyt, a marketing consultant based in Stamford, Conn.

If cereal makers are pleased with the turnaround, however, retailers remain cautious. They say the strong third-quarter sales were at least partly due to early shipment of holiday cereals, a factor that will fade come the New Year. And retailers say price, not marketing, remains most important for consumers. Although cereal sales are up at the Food Lion chain, based in Salisbury, N.C., the category manager for cereal credits a buy-one-get-one-free promotion rather than new products.

But Scott and others dismiss such worries. "We are pretty positive here," she says. General Mills was confident enough to inch its prices up 2.6% last summer, trusting consumers to follow. And to keep the trend rolling along, Kellogg has launched an umbrella ad campaign aimed at adults called "Cereal. Eat it for life." For now, they appear to have plenty of takers. After watching a TV commercial for honey-flavored Shredded Wheat, Hoffmann says she recently tried a box. "I like Shredded Wheat, but it can taste like hay. The idea that it was sweeter caught my attention," she says. And that may sweeten the pot for the entire industry.By Ellen Neuborne in New YorkReturn to top


Reviving Keynes
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus