Breakfast cereal revival – a pandemic boost?

2o20 has been a very interesting year for breakfast cereals.

The breakfast cereal aisle is the one aisle I skip when I do my weekly grocery shopping. Not because I don’t eat breakfast, but because this segment had too much and too little choice all at the same time. That may sound contradictory.

The choice this aisle offered was purely contained to flavour. You had the usual suspects – vanilla, strawberry & chocolate and then other flavours like coconut, banana & berry. Consumers had too much choice (a minimum of 60 options at the average large format supermarket) and the paradox of choice struck.

People started eating less cereal for breakfast. They were also eating more breakfast bars and picking up breakfast to go from cafes. This was a double whammy for the industry as consumers wanted healthier choices as well – less added (natural or otherwise) sugar in their cereals, more fibre, more proteins etc – which the industry was not prepared for and this impacted breakfast cereal perception & consumption and resultantly, sales. According to a Forbes article in Aug 2019, the average US consumer has eaten 14 fewer bowls of cereal over the last 28 years and according to an article by Kerry in October 2019, US retail sales of cereal was expected to decline by 6% between 2017 & 2022.

In February 2020, before the pandemic brought the world to its knees, CNBC ran an article on the breakfast cereal sector and General Mills’ plan to revitalise this category in the US, the current largest breakfast cereal market . The article started off with a summary of key takeaways and the first was:

‘U.S. cereal sales have gone stale in recent years as consumer tastes change.’

Sales volume was in decline for the at-home breakfast cereal sector when the pandemic hit. But then, people started working from home, children started schooling from home and breakfast at home became a regular routine. With professionals still working (albeit from home; so, no time for a hot breakfast!), cafes still under lockdowns and takeaway breakfast joints competing for who has the longest queue, breakfast cereals saved the day for all the moms, dads and working professionals out there.

So the pandemic saved the breakfast cereal industry. It was almost as if the pandemic compelled this industry to listen to what their consumers were asking for (clue: no more flavour variations!) This last year saw an almost unprecedented pace of innovation in this sector. Instead of offering a plethora of yet more flavours, brands instead focussed on creating options along the ‘health spectrum’ spanning from indulgent to healthy.

While the new normal may see a drop in at home cereal consumption compared to that in 2020/early ’21, with kids going back to school, the drop may not be as steep as working from home is here to stay… and breakfast cereal also makes a great snack!

So what prompted this blog today? Weetabix just announced indulgent variants of their fibre rich cereal with Chocolate Melts Duo.

The rise and rise of the values/purpose driven consumer

This post talks about the importance of using data to create brands that consumers want. The post also includes a video summarising the content.

For more details, read on!

A basic tenet of branding is that consumers will not buy brands that do not align with their values. Millennials and Gen Z have given new meaning to this.

A study by IBM found that 40% of all consumers, are purpose driven consumers. These consumers have a global presence with the majority, in Europe, South East Asia and Latin America. To this group, the values represented by brands drive their purchasing decision and they are more willing to change their habits to reduce environmental impact than are value (not to be confused with values) driven and product driven consumers.

Then there is the brand driven consumer (majority in India, parts of the Middle East & Latin America) which makes up 13% of all consumers globally. This group stands out in that while the brand is key, this group is even more willing to change habits to ensure sustainability and reduce environmental impact than are values driven consumers. So 53% of consumers are sustainability & values focussed than 10 years ago when value & product driven brands were predominant.

Leading FMCG brands that were also Certified B-Corp, grew by 21% on average in 2017 compared to a national average of 3% across their respective sectors. (B Corp 2018)

It is clear that to drive growth and gain share, FMCG companies need to adopt AND live values that reflect those of their target consumers.

This makes data paramount for FMCG brands. Data on what consumers want, on consumer values, on the channels they frequent and on the boundaries of operation. Brands need to be developed in line with what customers want, like tech companies do with users, rather than how FMCG companies of old developed brands and then told their customers that the brands were what they wanted.

Fast moving consumer goods/consumer packaged goods, Covid 19 and lockdowns

There are several conflicting opinions on which consumer packaged goods (CPG) brands will emerge stronger after this pandemic – those that are start-ups or those backed by large companies. While direct to consumer (DTC) brands are thriving, large brands, especially those in the personal care, home care and hygiene sector, are indeed seeing a spike in demand due to their credibility. This has led to empty shelves at supermarkets, where some of these brands have run out of stock. 

As most large companies rely on just in time manufacturing (or as close to it as possible) to keep their working capital efficient, they are currently working on alternative plans to source and manufacture their products. And this will delay them, more than this will delay start-ups.

While start-ups are also facing the same problem, they do not need to adhere to the same processes for approval of new suppliers as do the large corporates behind large brands. This pandemic will be a true test for large CPG companies who have been focussing on driving agility in their organisations.

So, on the supply side, start-ups are likely to have their suppliers lined up vs the large companies.

On the sales side, CPG companies seem to have furloughed most of their sales teams during the epidemic, regardless of whether they are start-ups or well-established large companies. However, we have noted that these companies have retained a skeletal sales team, usually senior commercial/sales directors.

At start-ups, these senior salespeople have as strong a relationship with buyers as do their teams. However, at large companies, senior directors have evolved into more people managers than active salespeople. This, combined with a start-up’s natural agility, has resulted in most start-ups maintaining their relationships with buyers at supermarkets while remaining relevant to consumers through social media. 

Large companies, however, have less contact with buyers and their social media strategy has not changed significantly from before lockdowns.

Once lockdown lifts, there will be a race to the finish line with brands in fierce competition with each other to make their annual targets, or finish as close to annual targets as possible. It will be critical to ensure that all orders are captured and that there are no disruptions in supply chain. Any and all feedback on brands from buyers will need to be acted on according to consumer priority and communication between sales, marketing, supply and finance will be key. 

You may be thinking that it sounds like large companies will need to start operating like start-ups and you’d be right in thinking that!

Much like the brands that won after wartime (the ones that remained relevant and available to consumers during those times), the brands that win after lockdowns end will be those that maintain a presence at stores, maintain their relationships with buyers, and maintain or even increase their presence on social media. 

So what does the future look like?

So what is the future of retail as it pertains to groceries?

We believe that brick & mortar stores, whether they are supermarkets, convenience stores or even open air markets, are here to stay. Online grocery stores will take more share from brick & mortar stores. However, they will co-exist. 

Total grocery revenues will be almost evenly split between online and brick & mortar stores. Customers will use grocery stores to explore and discover new brands, and buy fresh groceries and meat. 

Companies will use brick and mortar presence to signal brand credibility to customers and to encourage trial. Just like D2C brands are now building their brand identity selling directly to consumers, there will come a time, when brand identity is built at brick & mortar retailers and consumers will look to establish brand credibility at stores.

Deliveries are becoming less of a pain point as an increasing number of stores offer delivery service to customers once they buy their groceries at stores. There will be fewer brick and mortar grocery stores in the future as their revenues will not justify the rent on the space. 

Additionally, there will be fewer stores in prime locations, further lowering the rent paid annually by these retailers. The reason they currently have stores in prime locations is for convenience (of their customers). But online shopping is likely to be the more convenient choice of the future, whether it gets delivered or whether it is picked up from a convenient location. This would leave a higher margin for retailers than they currently have.

The winners in this space will be:

  • the ones who can get delivery of fresh produce right. The greatest concern/barrier for customers buying online is fresh produce. Online grocery stores and brick & mortar stores that have an online presence should build a reputation for delivering high quality produce consistently to encourage repeat purchases and new customer sign ups
  • the stores that can offer a ‘pick-up at store’ option for those who shopped online or the online stores (like Amazon fresh) that offer deliveries within an hour
  • the brick & mortar stores that can offer busy households a painless shopping experience without queues, like Amazon Go. This combines the convenience of buying online with the experience of buying at stores
  • the ones who have an online presence combined with brick & mortar stores

Watch out for this space next week to understand what led us to these conclusions!