The breakfast cereals are literally made of cereals. The encyclopedia defines cereals as the dry seeds of certain members of the grass family. They are by far the most widely consumed plant foods. The major cereals are wheat, corn, rice, and oats.
All cereals are rich is carbohydrates and also contain some proteins, fats, vitamins, and minerals.
A leading business information company specializing in industry analysis called
“Datamonitor” provides online a thorough profile of breakfast cereal industry.
Students of certain universities, e.g. here it was available through student identification from University of Hawaii, possess access to Datamonitor through campus information system. The breakfast cereal market consists of hot breakfast cereals and ready-to-eat (RTE) breakfast cereals. In 2004, the global breakfast cereal market generated total revenue of $27.6 billion wherein RTE cereals dominate, accounting for almost 90% of the market’s value.
Table 2-2
Global breakfast cereals market segmentation: % share by value, 2004
Category % Share
RTE breakfast Cereal 89.00%
Hot Breakfast Cereal 11.00%
Total 100.00%
Source: Datamonitor
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Figure 2-6
Global breakfast cereals market segmentation: % share by value, 2004 Global breakfast cereals market segmentation
RTE Breakfast Cereal, 89.00%
Hot Breakfast Cereal, 11.00%
Although this research focuses on RTE cereal market, most figures and tables mentioned below are in the whole market scale, that is, hot breakfast cereal market is also included. Since RTE breakfast cereals predominate over hot breakfast cereals by nine to one, the difference between the whole market and RTE cereal market can simply be neglected.
According to their different ingredients, RTE cereals can be categorized into five types:
1. Corn flakes- first introduced by Kellogg brothers in 1989 and mainly made of corn flaked into chips.
2. Shredded wheat- first introduced by Henry Perky in 1984, formed in different shapes such as squares, and sometimes combined with frosting, sugar, honey, nuts, etc. With the rise of health notion, 100% whole shredded wheat is getting more and more popular since it is announced to be heart-healthy.
3. Bran- usually blended with fruits, raisins, nuts, etc, containing much fiber, vitamins and minerals.
4. Oats- the main product type of Quaker Company, which has its origin in manufacturing hot oatmeal.
5. Hybrid- mostly for children, mixed with corns, wheat, oats, bran and other sweeteners such as honey, marshmallows, chocolate, etc.
History and Background
By the turn of twentieth century, the main producers of RTE cereals had showed up, and the competition became fierce henceforth. Most companies began spending
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money on marketing, such as advertising, discounts, and taste tests to increase sales.
1863 The first RTE cereal product “Granula” was introduced by James Caleb Jackson in, at his own sanatorium in Dansville, New York.
1884 Henry Perky in Massachusetts presented his discovery called “shredded wheat”.
1889 Kellogg brothers, Dr. John Harvey Kellogg and Will Keith Kellogg, developed the first corn flakes.
1892 Charles William Post started to produce his own cereals, and his first success was Grape Nuts cereal.
1902 Quaker Oats, in the midst of the hot oatmeal market in the first place, began to support a research that successfully introduced puffed wheat and puffed rice cereals.
1924 General Mills, a milling company, kicked off experimental ventures in a new product line of RTE cereals.
The Industry Today
There are five fundamental processes of producing RTE cereals (Nevo, 1998):
granulation, flaking, shredding, puffing and extrusion. Quite different from common belief, RTE cereals are very complicated to manufacture, which means the production requires so much accumulated experience that lifts entry barrier. That is the reason why all the major producers were present early, and so far the top three firms, Kellogg, General Mills and Post, dominate the market, and the top six firms almost share the whole market. With the exception of Nestle, all the major producers have their origins from the United States, and thus forming one of the most concentrated US industries today. Since the 1980s, the Federal Trade Commission has been investigating and prosecuting the largest three cereals makers on the charge of shared monopoly (Wall Street Journal, 1980.).
Advertising is the major means of competition in this industry, especially by television advertising (Ippolito & Mathios, 1990). The television advertising expenditure is second only to automobile producers. Advertising ratio to sales is about 13 percent, while the average in food industry is only 2-4 percent.
Born with the convenience trend, the industry today, however, has undergone changes in customers’ concern. Diet nutrition gradually replaces convenience as one of customers’ most concerned factor when purchasing RTE cereals. More than half of men and women are reported to consider nutritional factors such as fiber, vitamins, and sugar content when purchasing RTE cereals. Women express the most concern about the amount of sugar and fat, while men are more interested in vitamin content
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(Connor, 1999).
Market Analysis
The global breakfast cereal market generated total revenue of $27.6 billion in 2004. Sales of breakfast cereals increased faster from 1998 and peaked in 2003.
Table 2-3
Global breakfast cereal market value: $ billion, 2000-2004
Year $ billion %Growth
Global breakfast cereals market value: $ billion, 2000-2004 Global Breakfast Cereals Market Value: $ billion, 2000-2004
0 Belgium, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovenia, Spain, Sweden, Switzerland, Turkey, the UK and the Ukraine. The Asia-Pacific market consists of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan and Thailand.
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The top regional market is in US, which generated total revenue of $13.6 billion in 2004.
Table 2-4
Global breakfast cereals market segmentation: % share by value, 2004
Geography % Share
US 49.20%
Europe 25.40%
Asia- Pacific 14.70%
Rest of the World 10.70%
Total 100.00%
Source: Datamonitor Figure 2-8
Global breakfast cereals market segmentation: % share by value, 2004 Glo b a l Brea k fa st Cere a ls Mark e t Se g m e n ta tio n : %
Sh a re b y Va lu e, 2 0 0 4
US, 49.20%
Europe, 25.40%
Rest of the World, 10.70%
Asia- Pacific, 14.70%
Falling US Market
The US market is by far the largest market for RTE cereal, generating almost 50% of the global market’s value. Although the US market is extremely large, the maturity of the market means that growth rate is minimal and entry for new comers is difficult. The CAGR of US market is 0.7% during the period 1999-2003, much weaker than that of the global market, which is 5.0%, thus allowing the US market’s share in the global market to decline by 5.3% between 1999 and 2003.
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Table 2-5
US breakfast cereals market value: $ million, 1999-2003
Year $ million %Growth
1999 9,140.6
2000 9,109.3 -0.30%
2001 9,100.3 -0.10%
2002 9,328.3 2.50%
2003 9,384.7 0.60%
CAGR, 1999-2003 0.7%
Source: Datamonitor Figure 2-9
US breakfast cereals market value: $ million, 1999-2003 US Breakfast Cereals Market Value: $ million, 1999-2003
8,900.00 9,000.00 9,100.00 9,200.00 9,300.00 9,400.00 9,500.00
1999 2000 2001 2002 2003
$ million
-1.00%
0.00%
1.00%
2.00%
3.00%
%Growth
$ million % Growth
Fast growing Asia-Pacific Market
In terms of value, Asia-Pacific accounts for 14.7% of the global RTE cereal market. The fastest growing country markets are those of India and Indonesia, and the most lucrative country markets are those of Japan and Australia.
The Asia-Pacific market generated total revenue of $4.1 billion in 2004, representing a CAGR of 3.2% during the period 2000-2004. In comparison, the Japanese market generated $2.2 billion in total revenue in 2004, with a CAGR of 1.2%.
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Table 2-6
Asia-Pacific breakfast cereals market value: $ billion, 2000-2004
Year $ billion %Growth
2000 3.6
2001 3.6 1.00%
2002 3.7 2.30%
2003 3.8 3.50%
2004 4.1 6.10%
CAGR, 2000-2004 3.2%
Source: Datamonitor Figure 2-10
Asia-Pacific breakfast cereals market value: $ billion, 2000-2004 Asia-Pacific Breakfast Cereals Market Value: $ billion,
2000-2004
3.2 3.4 3.6 3.8 4 4.2
2000 2001 2002 2003 2004
$ billion
0.00%
2.00%
4.00%
6.00%
8.00%
%Growth
$ billion %Growth
Looking forward, the Asia-Pacific market is forecast to accelerate its current performance, which an anticipated CAGR of 4% for the five-year period 2004-2009 expected to drive the market to a value of $4.9 billion by the end of 2009.
Competitive Landscape
Kellogg Company is the leading firm in all three regional markets, generating total revenues of $1.8 billion in 2004 in Asia-Pacific, $4.4 billion in the US market, and $3 billion in European market. In the Asia-Pacific breakfast cereals market, the company. The second largest companies in all three markets are Calbee, General Mills, Inc., and Nestle/General Mills, respectively.
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Table 2-7 Leading firms in three of the principle regional markets
US Europe Asia-Pacific
Firm %Share Firm %Share Firm %Share
1st Kellogg 32.2% Kellogg 43.2% Kellogg 45.1%
2nd General Mills
31.2% Nestle/
General Mills
14.6% Calbee 12.4%
Source: Datamonitor Private label, also called store brand, always features low price. To stave off these rivals sharing 9.7% of the market, major cereal manufacturer has invested in innovation in shapes, flavors, and endorsements.
Market Forecast
In 2009, the global breakfast cereals market is forecast to have a value of $37.1 billion, an increase of 34.4% since 2004. The compound annually growth rate during the period of 2004-2009 is predicted to be 6.1%.
U.S. has always been the main source of breakfast cereal market’s revenue. As the population of US young people is predicted to grow slowly over the next several years, however, manufacturers will soon face a shrinking consumer base.
Table 2-8
Global breakfast cereals market value forecast: $ billion, 2004-2009
Year $ billion % Growth
2004 27.6 5.90%
2005 29.3 6.10%
2006 30.8 5.20%
2007 33.2 7.70%
2008 34.9 5.20%
2009 37.1 6.20%
CAGR, 2004-2009 6.1%
Source: Datamonitor
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Figure 2-11
Global breakfast cereals market value forecast: $ billion, 2004-2009 Global Breakfast Cereals Market Value Forecast: $ billion,
2004-2009
Forecasts of US sales of breakfast cereals: $ million, 2004-2008
Sales in constant 2003 prices % Growth
2008 $8,102 -1.9%
2007 $8,259 -2.1%
2006 $8,434 -2.2%
2005 $8,621 -2.1%
2004 $8,806 -1.8%
Source: www.preparedfoods.com A Soggy Cereal Market. August 2004 Figure 2-12
Forecasts of US sales of breakfast cereals: $ million, 2004-2008 Forecasts of US sales of breakfast cereals: $ million,
2004-2008
$ million (Sales in constant 2003 prices) % Growth
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