FDBusiness.com

The UK breakfast cereals industry grew by 3.4% in value terms in 2012, according to ‘Breakfast Cereals’, a new market report from market intelligence provider Key Note. This marks a slowdown in growth due to promotional activity and a fall in volume sales.

Breakfast cereals have traditionally been the UK’s favourite breakfast option. The market is divided into two main sectors: ready-to-eat (RTE) and hot cereals. The former makes up the bulk of the market. However, growth in 2012 was driven by sales in the latter category. Consumers want healthy and nutritious cereals that will keep them full until lunchtime. In addition to the hot cereals sector, several subcategories in the RTE cereals segment are performing well, particularly children’s, health and muesli.

Innovation is centred on the development of premium flavours and manufacturers are differentiating themselves from competitors through this type of development. Value is also a major concern as cash-strapped consumers are opting for the best deals and limiting their spending to the essentials.

Despite a focus on value, Britons want variety. They do not like eating the same thing every day, including breakfast cereals. Other popular items include bagels, croissants and muffins. On-the-go products are also increasingly important. This is evidenced by the surge in demand for breakfast biscuits in the UK, as well as cereal bars. These factors have weakened value and volume sales in the breakfast cereals market, especially the RTE cereal category, which contains products that are designed to be eaten in a bowl with a spoon. Manufacturers have responded by launching hot cereals in pots and instant formats as a convenient solution instead.

Brands in the breakfast cereals market are either successful or struggling. Own labels are becoming increasingly important as supermarkets invest in their ranges and develop breakfast cereals of equal quality as brands with better value. Quaker Oats is doing particularly well due to its focus on the hot cereals category and new product development (NPD). In contrast, core staple brands are falling behind. Consumers have become wary of the excessive sugar content in many of these products, such as Frosties and Coco Pops. Although manufacturers in the RTE breakfast cereals sector continue to introduce new products within in-demand subsectors, many are investing their resources in developing entirely new products, such as breakfast biscuits, instead of RTE cereals. This trend does not bode well for boxed cereals. Key Note expects that they are entering a period of decline as they lose relevance in consumers’ day-to-day lives in the UK.

Between 2013 and 2017, the breakfast cereals market is forecast to rise in value by 10.6%. However, only brands with effective marketing and innovation strategies will be profitable. Furthermore, the growth rate will decelerate as a result of the economic crisis. Consumers will tighten their belts and competition in the food and drinks sector will intensify as manufacturers compete for a limited number of sales. Companies’ profit margins are expected to be squeezed by promotions and rising production costs. Overall, hot cereals will continue to outperform their RTE counterparts.