bread fast cereals

7/28/2019 Bread Fast Cereals

1/122

This Report is the property of Mintel International Group Limited.

Mintel International Group Limited

Breakfast Cereals - UK - February 2004

Contents

Introduction and AbbreviationsDefinitionsConsumer research

ACORNAbbreviations

Executive SummaryDemographic influencesValue recovery continuesThe corn sector strugglesTop three manufacturers dominateHeavily promoted categoryDistributionConsumer behaviourFuture trendsMarket DriversShifting demographicsFigure 1: Trends and projections in total UK population, by age group, 1998-2007

Fewer children a concernAn ageing market a positive signYoung adults as snackers?More people living aloneFigure 2: Number of households, by household size, 1998-2007

Skipping breakfastHealth concerns and trendsNutrition focus - a double-edged sword?

Advertising to children - the debate continues

OrganicMarket Size and TrendsSlow, steady growth characterises marketFigure 3: UK retail volume and value sales of breakfast cereal, 1998-2003

Market has found growth avenue in hot cerealFigure 4: UK retail volume and value sales of breakfast cereal, by type, 2001 and 2003

Hot eating leaps forwardMarket SegmentationValue growth for RTEFigure 5: UK retail volume and value sales of RTE cereal, 1998-2003Figure 6: UK retail value sales of RTE cereal, by type and value, 2001 and 2003

Children's goes from strength to strengthWheat is still strong


2/122


Corn is strugglingBran and health cereals - differing successMuesli - small but strongStrong growth in hot eating cerealsFigure 7: UK retail volume and value sales of hot cereal, 1998-2003Figure 8: UK retail volume sales of hot cereal, by type, 2001 and 2003

The Supply StructureMarket supplyFigure 9: Total breakfast cereal market, by manufacturer shares, 2001 and 2003

The top four continue to growA mixed fortune for smaller manufacturersRTE top-selling brandsFigure 10: The top-selling ready-to-eat breakfast cereals in the UK, by estimated brand shares, 2003Weetabix is number oneKellogg has six in the top tenNestl' strong in the children's sector

Hot cereal brandsFigure 11: Hot breakfast cereal, brand shares, 2001 and 2003

Companies and brands

Figure 12: Brand map of the UK breakfast cereal market, by major companies, January 2004Cereal PartnersNPDJordansNPDKelloggNPDQuakerNPDWeetabixNPDRetailer brand (own-label)

DailycerMorning FoodsNPDOther companies and smaller brandsOrganicNew product briefsFebruary 2004January 2004November 2003October 2003September 2003

August 2003

Advertising and PromotionAbove the lineAdvertising presents a barrier to entryExpenditure reflects size and scale of the marketFigure 13: Main monitored media advertising expenditure on breakfast cereals, 1998-2003Figure 14: Annual percentage change - total media spending and total sales, 1999-2003

Spend on hot eating produced resultsFigure 15: Main monitored media advertising expenditure on breakfast cereals, by breakfast type, 1998-2003

RTE cerealsFigure 16: Main monitored media advertising expenditure on RTE breakfast cereals, by selected brands, 2001


3/122


and 2003

KelloggCereal PartnersWeetabixQuakerOther

Hot cerealFigure 17: Main monitored media advertising expenditure on hot breakfast cereals, by manufacturer and brand,2001 and 2003

QuakerWeetabixBelow-the-line activityPrice-related promotions boost volumesFigure 18: Price-related promotions in the breakfast cereal market, February 2002-January 2004

In-pack promotions generate appealFigure 19: In-pack promotions in the breakfast cereal market, February 2002-January 2004

On-pack promotions dominateFigure 20: On-pack promotions in the breakfast cereal market, February 2002-January 2004

Distribution

Multiple grocers span into convenienceFigure 21: UK retail distribution of breakfast cereal, 2001 and 2003

A change of focusOther channels pose no threat to multiple dominanceThe ConsumerPan-European comparisonFigure 22: Consumption of breakfast cereals, by country, 2003

Overall cereal consumption in GBFigure 23: Consumption of breakfast cereals in GB, by age and gender, 2003Figure 24: Consumption of breakfast cereals in GB, by income and working status, 2003Figure 25: Consumption of breakfast cereals in GB, by region, 2003

Children's market makes impactFigure 26: Consumption of breakfast cereals in GB, by presence of children and household size, 2003

Weight of usageFrequency of consumption of cold breakfast cerealFigure 27: Frequency of consuming cold breakfast cereals, 2003Figure 28: Frequency of consuming cold breakfast cereals, by age and gender, 2003Figure 29: Frequency of consuming cold breakfast cereals, by yearly income group and working status, 2003Urbanites skip on breakfast cerealFigure 30: Frequency of consuming cold breakfast cereals, by region, 2003Figure 31: Frequency of consuming cold breakfast cereals, by presence of children and household size, 2003

Frequency of consuming hot breakfast cerealsFigure 32: Frequency of consuming hot breakfast cereals, by gender and age, 2003

Age weighs in heavily across other groupsFigure 33: Frequency of consuming hot breakfast cereals, by yearly income group and working status, 2003Figure 34: Frequency of consuming hot breakfast cereal, by region, 2003

A market polarisation in household typesFigure 35: Frequency of consuming hot breakfast cereals, by presence of children and household size, 2003

Children - breakfast habits and breakfast cerealCompetition from other breakfast foodsFigure 36: Food regularly eaten for breakfast amongst children aged 7-10, 2003Figure 37: Food regularly eaten for breakfast amongst youths aged 11-14, 2003Trending away from cereal

A wider repertoireHow much cereal for kids?Figure 38: Cereal helpings in a normal week amongst youths aged 7-14, 2003


4/122


The FutureChildren will dominateHealthy older adultsSnacking needs more developmentRedefinition of 'health'

Carbohydrate and Atkins?Lobbying groups will make themselves heardIndulgence will continueSmaller packagesForecastReaching a mature marketFigure 64: Forecast of UK volume and value sales of cereal, at current prices, 2003-07Figure 65: Forecast of UK retail sales of cereal, at constant 2003 prices, 2003-07

Value-adding the name of the gameSlowdown in evidence even in value termsConvenience products a mustThe bad news - falling numbers of children

The good news - growing affluence helps trading up

EUCG, EUFD, MF, MS February 2004


5/122


This report is supplied in accordance with Mintel's terms & conditions.


Breakfast Cereals - UK - February 2004February 2004

Introduction and Abbreviations

The UK retail market for breakfast cereals was last reviewed by Mintel in February 2002. At thattime, value recovery had returned to the market, while volume was still static. In the relativelymature market, promotional activity and competition have remained fierce, with both above- andbelow-the-line promotion strong as manufacturers attempted to hold market share.

With the progression of changing consumer needs, towards portable, out-of-home formats,manufacturers had focused on new product launches into the snack and convenience markets, tocompensate for the deterioration of in-home breakfast meal occasions. New cereal bar sectorsappear to be booming (the cereal bar market trebled in size from 1998-2003 overall - see Mintel'sCereal Bars - UK, Market Intelligence, February 2004 ), while consumption of breakfast in thehome continues to fall.

Throughout 2003, the food industry faced some major nutritional criticism, as the salt, fat andsugar content of processed foods came under close scrutiny. As child obesity rates continue toincrease, concerns are being raised over the degree of advertising targeted towards children,especially where it concerns unhealthy or sweet products.

Mintel has chosen to examine the hypothesis that: the industry will need to focus more onadults, particularly to develop product repertoires and snack habits. In so doing, theindustry will realign with the changing demographic profile of the UK market.

Other Mintel reports of relevance include:

- Milk and Cream - UK, Market Intelligence, March 2004- Cereal Bars - UK, Market Intelligence, February 2004- Breakfast Cereals - US, Consumer Goods Intelligence, November 2003- Attitudes Towards Healthy Eating, Consumer Goods Intelligence, November 2003- Eating Habits - US, Consumer Goods Intelligence, May 2003- Bread, Cakes and Biscuits, Consumer Goods Intelligence, April 2003

- Morning Goods - UK, Market Intelligence, March 2003- Breakfast Foods - UK, Market Intelligence, June 2002.

While this report is part of the Market Intelligence series, it also forms part of the ConsumerGoods Intelligence series of reports. The countries covered by the Consumer Goods Intelligenceseries of reports are France, Germany, Italy, Spain and the UK.

Definitions


6/122


For the purposes of this report, breakfast cereals are segmented into cold ready-to-eat (RTE)cereals and hot cereal products. The former group comprises any cereals that are served withcold milk, such as cornflakes or muesli and include ready-to-serve snack packs such as Rumblersand Kellogg's To Go. The hot cereal group consists of porridge, oatmeal and instant hot oatproducts.

Cereal bars (eg Masterfoods' Tracker) and other breakfast products (such as Kellogg's Pop Tarts)are excluded from the scope of this report, but reference to them is made in the light of continueddevelopments in these areas.

Value figures throughout this report are at retail selling prices (rsp) unless stated otherwise .Market sizes at constant 1998 prices are devised using Mintel's food deflator.

Consumer research

In addition to the standard breaks, Mintel has analysed the consumer research in the following

manner.Lifestages are derived from analysis of the exclusive consumer research and are split into fourmain groups:

% of population

Pre-/nofamily

Aged under 45 who are not parents 28

Family Any age with at least one child agedunder 16 still at home

28

Third age Aged 45-64 with no children agedunder 16

25

Retired Aged over 65 with no children agedunder 16

20

As part of an ongoing policy to find new ways of analysing data, Mintel has created SpecialGroups of consumers to typify consumer habits in the early years of the 21st Century. Unlike thelifestage groups, these groups represent only sections of the population and do not account for alladults.

% of population

ABC1 socio-economic group 16


7/122


ABC1 pre-/no familyand in the pre-/no familylifestage

ABC1 families ABC1 socio-economic groupand in the family lifestage

13

ABC1 third age ABC1 socio-economic groupand in the third age lifestage

12

ABC1 retired ABC1 socio-economic groupand in the retired (65+)lifestage

9

Two full-time earners Couples where both partnerswork full-time

17

One-person households under65 Aged under 65 and livingalone 9

Internet users All Internet users at home,work or elsewhere

39

Broadsheet readers Read The Daily Telegraph,the Financial Times, theGuardian, The Independentor The Times

19

Mid-market tabloid readers Read the Daily Express or theDaily Mail

22

Popular tabloid readers Read The Mirror, The DailySport, The Daily Star or TheSun

33

Satellite/digital TV viewers Have satellite/cable/digital TV 45

ACORN

Some reports also use consumer research analysed by ACORN category . ACORN is a geo-demographic segmentation method, using census data to classify consumers according to thetype of residential area in which they live. Each postcode in the country can, therefore, beallocated an ACORN category.

The classification is a more powerful differentiator of consumer behaviour than traditional socio-economic and demographic indicators. The categories, and their components, are as follows:


8/122


ACORNCategory

ACORN Group % of

population

2002

A - Thriving

1 Wealthy achievers, suburban areas 15.0

2 Affluent greys, rural communities 2.1

3 Prosperous pensioners, retirementareas

2.6

B - Expanding

4 Affluent executives, family areas 4.1

5 Well off workers, family areas 8.0

C - Rising

6 Affluent urbanites, town and cityareas

2.5

7 Prosperous professionals,

metropolitan areas

2.3

8 Better-off executives, inner-cityareas

3.8

D - Settling

9 Comfortable middle agers, maturehomeowning areas

13.6

10 Skilled workers, homeowningareas

10.7

E - Aspiring

11 New homeowners, maturecommunities

9.6

12 White-collar workers, better-offmulti-ethnic areas

4.0


9/122


F - Striving

13 Older people, less prosperousareas

3.6

14 Council estate residents, better-offhomes 10.8

15 Council estate residents, highunemployment

2.8

16 Council estate residents, greatesthardship

2.3

17 People in multi-ethnic, low-incomeareas

2.0

For further details of the ACORN classification, including the ACORN profile of local areas pleasecontact CACI Limited 020 7602 6000 or see www.caci.co.uk.

Abbreviations

BMRB British Market Research Bureau

CEO Chief Executive Officer

CNCF Crunchy Nut Cornflakes

CTN Confectioners, Tobacconists and Newsagents

MD Managing Director

Nielsen Media Research For more information contact Mary Sneddon atNielsen Media Research on 01344 469100.

NPD New Product Development

R&D Research and Development

RTE Ready-to-eat

TGI Target Group Index. For further details concerning thisinformation, including data on readership patterns ofusers/purchasers and details of brands, pleasecontact Phil Greenslade at BMRB International on 020


10/122


8566 5000 or via email [email protected]

02/2004


11/122





Executive Summary

Demographic influences

The number of children, who tend to heavily influence whether and which cereal is purchased,has declined by half a million (1998-2003). This will continue by a further 400,000 (2003-07), andtheir influence on the breakfast cereal market will therefore diminish. From 1998-2007, there will

be an additional 1.8 million adults aged 55+. Those within this age group are shown to havetraditional mealtime eating habits, with a bias towards health. With one-person householdscontinuing to rise, and more 16-24-year-olds, there will be new consumer needs emerging.

Child obesity rates are on the increase, and the food industry is receiving widespread criticism foradvertising 'unhealthy' foods to children. Legislation is being threatened to ban the use ofadvertising directed at children. This will have an impact on one of the most heavily supportedcategories in packaged grocery.

Value recovery continues

Estimated at 409,000 tonnes in 2003, volume continues to grow slowly, at around 1% year onyear. A value recovery continues, with growth of some 2.5% in 2003, the market valued at justunder 1.12 billion (1.74 billion). Within the market, the ready-to-eat sector slipped from 95% to93% share of the total market, although it continued to increase on pace. Hot cereal, from itslower base, increased substantially over that time period, due in large part to the success ofQuaker's Oatso Simple.

The corn sector struggles

Within the RTE category, the children's sector continues to be the most important, accounting for37% of the category and showing sterling value growth of 22% from 2001-03, even in the face ofa reduction in the number of children in the population. As traditional family breakfast products

struggle, corn cereals continued to decline, down 16% in sterling terms across the period 2001-03, despite the success of Kellogg's Crunchy Nut Cornflakes.

Similarly, the health sector declined 17%, as 'hard core' bran brands struggled. Estimated at 8million (12 million) in 2003, organic as a sub-sector within health continues to demonstratestrong growth. Wheat biscuits have caught up with corn at an 18% share, valued at 187 million(292 million). This success is due to the biscuit brands of Weetabix and Shredded Wheat. Muesli(with 10% share) continues to show steady growth.


12/122


Top three manufacturers dominate

The leading manufacturers - Kellogg, Weetabix and Cereal Partners - continue to dominate themarket, with Kellogg holding onto its share estimated at 40% value. Weetabix experienced stronggrowth, advancing to the second-largest seller of cereals within the UK. Own-label fell back byroughly 9% from 2001-03, in part due to heavier price discounting.

Within the RTE sector, Weetabix overtook Kellogg's Cornflakes to be the top-selling RTE brand,although Kellogg holds six of the top ten brands. Within the hot eating sector, two brandsdominate. Oatso Simple grew substantially, to hold 24% of value share; the product targets adultswith single-serve sachets. Ready Brek, with a 20% share, targets parents.

Heavily promoted category

Although it continues to be a heavily promoted category, above-the-line advertising for breakfastcereal has become an increasingly smaller percentage of total sales from 1998-2003, down fromnearly 10% to under 6%. In 2003, above-the-line support was measured at 63.6 million,

continuing the 1% decline year on year. Kellogg accounted for more than 50% of advertisingspend.

High levels of below-the-line promotions have taken over much of the breakfast cereal advertisingmarket; on-pack and in-pack promotions have consistently been an important part of thechildren's segment. Most recently, price discounting for both branded and store label products hasoccurred, as well as multibuy offers.

Distribution

Multiple grocers dominate the cereal market, with 93% value share of the total, mainly due todisplay space; multiples have the available shelf space to offer a wide variety of products.Convenience and independent trade channels focused on alternative breakfast products, and thistrend will continue - sales of breakfast cereals through multiples increased 7% in sterling termsfrom 2001-03, while other channels decreased significantly. Independent channels include healthstores, and while the health and organic sector will still see growth in upcoming years, multiples'increased stock of health and other product variants at lower price points will continue to divertcereal sales.

Consumer behaviour

Penetration levels remain high within the UK, at nearly 90% for any type of breakfast cereal, andthe majority (53%) eat cereal once a day or more. The RTE sector is eaten by 87% of the

population, while hot cereal is at 42%.

The heaviest eaters are polarised by age and household type, with the youngest and oldest agegroups tending to eat the highest volumes of cereal. Cold cereal skews heavily toward over-65s,although not to the extent of hot cereal.

For children, who, as stated, are a core element of the market, cereal eating is a staple breakfast,but this declines significantly as the children age, although penetration is still high. They begin tomove towards a wider variety of foods as they have more autonomy in their choices, and children


13/122


therefore drive in-home product repertoire, with their need for variety.

Future trends

Children will continue to dominate the market, but older adults will receive more focus as their

numbers continue to swell. Considering the essential saturation of the market in terms ofpenetration, manufacturers will continue to promote snacking as a way to increase consumption.

One possible avenue is via healthy indulgence, potentially as a result of confectionery brandextensions. Functional health will be developed further to incorporate probiotics and other newhealth ingredients. The popularity of low-carbohydrate diets such as the Atkins Diet will impact inthe short term, as consumers stop eating foods high in carbohydrate. Government intervention willcause a rethink on the fat, sugar and salt levels of breakfast cereals and impact on the degree ofadvertising targeted towards children. More indulgent products will be launched, designed todevelop adult repertoires, and smaller pack sizes will be launched to meet the needs of smallerhouseholds.

02/2004


14/122





Market Drivers

Several factors have led to concerns within the breakfast cereal industry, as the market fights aslowly declining penetration level. Frequent reports appear in the press discussing the demise ofthe breakfast occasion. Among the medical profession, debates on childhood obesity fuelcontroversy in respect of food advertising. That said, per capita consumption of breakfast cerealsin the UK in 2000 stood at 143g per week, making the UK the largest cereal market in Europe.

There are many external factors shaping the breakfast cereal market.

Shifting demographics

Figure 1 shows the projected changes in the UK population to 2007.

Figure 1: Trends and projections in total UK population, by age group, 1998-2007

1998 2003(est)

2007(proj)

%chang

e

%chang

e

m % m % m % 1998-2003

2003-07

0-4

3.6 6.2 3.4 5.7 3.4 5.7 -5.6 -

5-14 7.7 13.2 7.5 12.7 7.1 11.9 -2.6 -5.3

15-19 3.6 6.2 3.8 6.4 4.0 6.7 +5.6 +5.3

20-24 3.4 5.8 3.7 6.2 3.9 6.5 +8.8 +5.4

25-34 8.9 15.3 7.9 13.3 7.5 12.5 -11.2 -5.1

35-44 8.3 14.2 9.0 15.2 9.0 15.0 +8.4 -


15/122


45-54 7.7 13.2 7.6 12.8 8.0 13.3 -1.3 +5.3

55-64 5.9 10.1 6.7 11.3 7.3 12.2 +13.6 +9.0

65+ 9.3 15.9 9.5 16.0 9.7 16.2 +2.2 +2.1

Total

58.3 100.0 59.2 100.0 59.9 100.0 +1.5 +1.2

Source: National Statistics/Mintel

Fewer children a concern

Between 1998 and 2003, the number of children under the age of 15 in the UK has fallen by400,000. Projections for 2007 suggest a further fall of 400,000. The children's sector is the largest

within the breakfast cereal market, and children influence the family cereal repertoire and drivevariety. With a large number of brands targeting children, manufacturers need to find ways todevelop loyalty beyond the on-pack offer.

An ageing market a positive sign

The 55+ market is burgeoning and will continue to grow. Between 1998 and 2003, there were anadditional 1 million adults aged 55+, with a further 800,000 anticipated between 2003 and 2007.With traditional eating habits, this sector of the population is the least likely to skip breakfast, andthe most likely to eat cereal. Although older consumers are attitudinally more adventurous than inthe past, conservative tastes still predominate. Manufacturers providing a good range of healthyproducts could look to target this audience more actively.

Young adults as snackers?

Breakfast cereal can readily be eaten as a snack outside the conventional mealtimes, and thishas been one avenue of growth the market which has attempted to pursue. Where it can besuccessful in particular is with the 15-24 age group, who can be considered to have the leastformal eating pattern of all adults. Between 1998 and 2003, the 15-24-year-old population grew by500,000, with further increases of 400,000 expected by 2007. This sector of the populationrepresents an opportunity for manufacturers who are looking to develop their products as ahealthy, budget at-home snack alternative to crisps and chocolate.

More people living alone

Figure 2 examines the number of households within the UK by household size, to understand thedynamic of families on the breakfast market.

Figure 2: Number of households, by household size, 1998-2007


16/122


Source: National Statistics/Mintel

With over 1 million more one-person households in the period 1998-2007, this group representsthe fastest-growing sector, and is polarised between older adults and younger adults. One-personflats and houses tend to be smaller, with limited storage space. The physical size of breakfast

cereal packets is a barrier to in-home stocking. While variety packs are available, they tend to betargeted towards children. TGI data has shown that non-users of breakfast cereal are more likelyto live in one-person households. This poses a problem for cereal manufacturers, as youngeradults age they are likely to take their habits into the family lifestage.

Skipping breakfast

Reports differ as to the scale of people skipping breakfast, with some estimating that as many as20% of under-11s regularly skip breakfast. There are likely to be several factors influencing thistrend. Increased commuting time limits the time available for breakfast in the home and has led tothe phenomenon of 'deskfast' at work and school. Increased leaning towards eating out of homeand snacking between meals have seen a deterioration in traditional eating occasions, especially

those when the family sits together. Cereal bars were developed to meet this trend and provide amore portable alternative, but nutritionists warn that they are higher in fat and sugar than theirbreakfast cereal counterparts. Despite warnings, the cereal bar market has grown exponentially,albeit from a small base. Cereal bars, in particular those based on cereal lines, experiencedpositive growth from 1998-2003; overall, the market grew 60% from 2001-03, and the chewysegment, which includes most cereal-based bars, grew nearly 78% over those two years.

Health concerns and trends


17/122


Nutrition focus - a double-edged sword?

For many people, breakfast is still considered the most important meal of the day. Advertisingfocuses on the need to provide children with complex carbohydrates to aid concentration andprovide long-lasting energy, reinforcing to parents the perils of allowing their child to skipbreakfast.

In a report in July 2002, the Food Commission criticised some luxury breakfast cereals for beinghigh in fat and sugar, comparable in quantity to chocolate and biscuits. The inherent healthynature of breakfast cereal, combined with the health messages from advertising, do have thepotential to mislead the consumer into believing that all breakfast cereal is healthy.

Advertising to children - the debate continues

Health professionals debating the increased frequency of child obesity in the UK have criticisedthe biggest food advertisers for actively targeting children by using popular celebrities, cartooncharacters, free toys and collectable gimmicks to help sell their products. Some lobby groups areeven campaigning to ban such advertising.

These mechanics are certainly popular amongst children. Manufacturers within the breakfastcereal market are adept at securing the latest fashionable endorsement. The debate continues asto the ethics of targeting children with advertising.

Organic

The organic sector across total grocery is still in growth, despite a slowdown in sales. Within thebreakfast cereal market, organic represents one of the fastest-growing sub-sectors and this looksset to continue as the UK Government gave clearance on the production of genetically modified

maize (January 2004). This is likely to spark further reaction from environmental campaigners.

Many organic products are fed to young children, particularly around the weaning stage, andorganic breakfast cereals are ideally placed to meet the needs of parents during this time.

02/2004


18/122





Market Size and Trends

Slow, steady growth characterises market

In the late 1990s, the breakfast cereal market experienced a downturn in volume as consumerscontinued to skip breakfast in increasing numbers. Since 2000, however, volumes have started torecover, coupled with stronger value growth, in part due to premium, luxury products building

value back into the category, while core products have also been able to sell at prices exceedingeffects of inflation.

Figure 3 shows the UK retail value and volume sales of all breakfast cereal for the period 1998-2003.

Figure 3: UK retail volume and value sales of breakfast cereal, 1998-2003

000tonne

s

Index m Index m at1998

prices

Index m Index

1998

380 100 997 100 997 100 1,485 100

1999 378 99 998 100 995 100 1,517 102

2000 378 99 1,005 101 1,005 101 1,648 111

2001 399 105 1,068 107 1,034 104 1,719 116

2002 404 106 1,090 109 1,040 104 1,711 115

2003 (est) 409 108 1,117 112 1,050 105 1,742 117

Source: Mintel

From 2001-03, value has been driven back into the category through the launch and success of


19/122


premium-priced products, at an estimated value of 1.1 billion (1.74 billion). This performance isstrong, with sterling value growth in the latest year of nearly 2.5%. While this is the equivalent ofnearly a 12% increase from 1998, in terms of 1998 value, it is slow growth of just 1-2% annually.Volume has continued to grow steadily year on year following a slight downturn in 1999-2000.

Market has found growth avenue in hot cereal

The major segments within the UK market for breakfast cereal are ready-to-eat (RTE) cereal(usually eaten cold and poured straight into a bowl), and hot eating, which requires preparation bymixing and heating, usually by microwave or boiling.

Figure 4 shows trends in retail sales, by volume and value, for each category within the market forbreakfast cereals.

Figure 4: UK retail volume and value sales of breakfast cereal, by type, 2001 and 2003

2001 2003(est)

%change

m m % m m % 2001-03*

RTE cereal

1,015 1,634 95 1,039 1,621 93 +2.4

Hot cereal 53 85 5 78 122 7 +47.2

Total

1,068 1,719 100 1,117 1,742 100 +4.6

000 tonnes 000 tonnes

RTE cereal

363 - 91 368 - 90 +1.4

Hot cereal 36 - 9 41 - 10 +13.9

Total

399 - 100 409 - 100 +2.5

*in sterling terms


20/122


Data may not equal totals due to rounding

Source: Mintel

Hot eating leaps forward

The market continues to be dominated by cold RTE cereal, accounting for 93% of value in 2003.While this represents a growth of 2.4% in sterling terms across the period 2001-03, as apercentage of the total market, share has fallen from 95% in 2001.

Volume for RTE cereal has been fairly stable at 386,000 tonnes, showing slight growth of 1.4%across the period 2001-03, although its share of the total market fell back by 1 percentage point.Value growth outstripping volume can be accounted for by the success of new premium lineswhich retail in smaller pack sizes at higher price points.

Hot eating has leapt forward in the last two years, showing volume growth of 14% across the

period 2001-03, accounting for 10% of the category volume in 2003. Sterling value gains show aneven stronger upturn, with an increase of 47% across the period 2001-03 to account for 7% ofcategory spend. This growth can largely be attributed to the activities of Quaker.

02/2004


21/122





Market Segmentation

Value growth for RTE

Across the period 1998-2003, the RTE sector has seen value growth return, albeit at a slow,steady rate. Price increases on core products, along with a number of indulgent, premium-pricedproduct launches have aided this growth, offsetting the gradual volume decline. Many of these

products show a high rate of churn, with delists and new launches observed in response toconsumers' needs for variety and new taste experiences.

Figure 5 details UK retail volume and value sales of RTE breakfast cereal for the period 1998-2003.

Figure 5: UK retail volume and value sales of RTE cereal, 1998-2003

000tonne

s

Index m Index m at1998

prices

Index m Index

1998

344 100 950 100 950 100 1,416 100

1999 343 100 951 100 948 100 1,446 102

2000 343 100 958 101 958 101 1,571 111

2001 363 106 1,015 107 983 103 1,634 115

2002 365 106 1,024 108 977 103 1,608 114

2003 (est) 368 107 1,039 109 977 103 1,621 115

Source: Mintel

The RTE sector was worth an estimated 1.04 billion (1.6 billion) in 2003, with volumes standing


22/122


at 368,000 tonnes. This gradual improvement in value and volume sales across the period buildsstability into this large market; however, in real terms, value has only held steady since 2001.

Looking at the individual segments within the RTE market, some sectors have fared particularlywell in just the last two years, while others (mainly corn-based and bran and health cereals) havedeclined significantly.

Figure 6 shows UK retail sales and share of RTE breakfast cereal, by type, for the period 2001-03.

Figure 6: UK retail value sales of RTE cereal, by type and value, 2001 and 2003

2001 2003(est)

%change

m m % m m % 2001-

03*

Children's cereals

315 507 31 384 599 37 +21.9

Wheat biscuits 173 279 17 187 292 18 +8.1

Corn-based cereals 223 359 22 187 292 18 -16.1

Bran & health

cereals

213 343 21 177 276 17 -16.9

Muesli 91 147 8 104 162 10 +14.3

Total

1,015 1,634 100 1,039 1,621 100 +2.4

* in sterling terms

Data may not equal totals due to rounding

Source: Mintel

Children's goes from strength to strength

Children's cereals continue to perform well through the strong use of popular licences linked withtelevision cartoon programmes and Disney films. Free inserts into the packs, with collectable toyshelp to drive repeat purchase, as has traditionally been the case.


23/122


Mintel estimates the children's category as the largest, worth 384 million (599 million) in 2003,accounting for 37% share of RTE cereals. The sector experienced 22% sterling value growthacross the period 2001-03. While many adults skip breakfast, manufacturers have stepped uptheir campaign to remind parents of the nutritional importance of breakfast.

Wheat is still strong

Wheat biscuits, such as Weetabix and Shredded Wheat, have shown relatively strong sterlinggrowth (8%) across the period 2001-03, against a backdrop of declining sales in other 'traditional'sectors. Mintel estimates the wheat sector to be valued at 187 million (292 million), accountingfor 18% of the category.

Corn is struggling

The traditional cornflake product format is struggling, while Crunchy Nut versions, including newindulgent launches are performing well and helping to offset the severity of decline across thesector. The sector is worth nearly an estimated 187 million, accounting for 18% share (equating

to a decline of around 16% across the period 2001-03).

Bran and health cereals - differing success

Valued at an estimated 17% share at 177 million (276 million) in 2003, this sector is alsodwindling in importance, declining at 17% in sterling terms across the period 2001-03. While brancereals (eg All-Bran, Bran Flakes) are declining, this is being offset by the growth in 'healthcereals' such as Special K.

Organic as a sub-set of health is continuing to perform well and is valued at an estimated 8million (12 million - not tabulated separately). Although the market for organic breads and cerealsis still relatively small, it grew at a healthy pace - more than 250% from 1998-2003 (see Mintel'sOrganic Foods - UK, Market Intelligence, November 2003 ).

Muesli - small but strong

Between 2001 and 2003, the muesli sector grew by 14% in sterling terms, with premium-pricedadult indulgent cereals with premium ingredients such as chocolate curls and caramelised nutslaunched, shifting the market away from more traditional muesli products. Mintel estimates thesector to be worth 104 million (162 million), a 10% share.

Dominated by Weetabix's Alpen brand, Jordan's and Quaker, this sector also features a numberof smaller manufacturer's with limited distribution. Retailer brand features strongly.

Strong growth in hot eating cereals

Figure 7 shows UK retail sales by value and volume of hot cereal for the period 1998-2003.

Figure 7: UK retail volume and value sales of hot cereal, 1998-2003


24/122


000tonne

s

Index m Index at1998

prices

Index m Index

1998

36 100 47 100 47 100 70 100

1999 35 97 47 100 47 100 71 102

2000 35 97 47 100 47 100 77 110

2001 36 100 53 113 51 109 85 122

2002 38 106 66 140 63 134 104 148

2003 (est) 41 114 78 166 73 156 122 174

Source: Mintel

The hot eating market was worth an estimated 78 million (122 million) in 2003, accounting for41,000 tonnes. Between 2001 and 2003, value increased by 47% in sterling terms, while volumewas up 14%, reversing the volume downturn seen in 1998-2000.

As a sector within the breakfast cereal market, hot eating demonstrated the strongestperformance. Microwave preparation has increased the accessibility of this product format into theweekly breakfast routine. With porridge featuring on popular TV programmes such as Big Brother, this traditional product is enjoying something of a revival.

Figure 8: UK retail volume sales of hot cereal, by type, 2001 and 2003

2001 2003 (est) % change

000 tonnes % 000 tonnes % 2001-03

Instant

17 47 21 51 +23.5

Traditional 19 53 20 49 +5.3

Total hot cereal

36 100 41 100 +13.9

Source: Mintel


25/122


The instant sector, such as Quaker Oatso Simple and Weetabix Ready Brek, accounts for 51% ofthe overall hot cereal market in volume terms. Strong growth of 23.5% between 2001 and 2003has primarily been driven by Quaker, targeting adults with premium-priced, single-serve sachets.

The traditional sector, dominated by porridge oats, has also continued to grow in value at 5%across the period. Used in cooking as well as in the making of porridge, positive health claimsmay have aided this sector to grow.

02/2004


26/122





The Supply Structure

Market supply

The breakfast cereal market is characterised by global manufacturers operating in an oligopoly. Inthe UK, Mintel estimates that the largest four manufacturers share 77% of the market in valueterms. However, there are a host of smaller manufacturers operating in niche sectors, with limited

distribution.

The breakfast cereal market has a range of technologies, with differing barriers to entry. Smallermanufacturers can readily supply muesli-type products, and to some degree hot eating oatproducts with minimal investment in machinery. Extruded and flaked cereals require specialistmanufacturing technology, with large initial capital outlay, representing a significant barrier toentry.

Figure 9 shows the main manufacturer shares within the breakfast cereal market for 2001 and2003.

Figure 9: Total breakfast cereal market, by manufacturer shares, 2001 and 2003

2001 % 2003 (est) % % change

m m 2001-03

Kellogg

427 40 447 40 +4.7

Weetabix 150 14 179 16 +19.3

Cereal Partners(Nestl)

150 14 168 15 +12.0

Quaker 64 6 67 6 +4.7

Jordans 32 3 39 4 +21.9


27/122


Others

43 4 34 3 -20.9

Own-label 203 19 184 17 -9.4

Total

1,068 100 1,117 100 +4.6

Source: Mintel

The top four continue to grow

Kellogg, despite struggling with Cornflakes and some of its core health brands, continues to grow

at 4.7% across the period 2001-03. Accounting for 40% of market share, Kellogg is the largestmanufacturer in the UK, with estimated sales of 447 million.

Weetabix has shown incredible growth (19.3%) across the period, against a backdrop of atakeover from a US private equity group. Weetabix struggled in the late 1990s and early 2000s,as it lost own-label contracts to competitors. This recovery is reflected in the strong performanceof both Weetabix and Alpen. Ranked as the second-largest manufacturer in the UK, Weetabixcommands a 16% share of the market, valued at 179 million.

Cereal Partners, using the Nestl brand, is the third top-selling manufacturer behind Weetabix. Ithas seen sales increase by 12% across the period 2001-03 to account for 15% of the market, at168 million. Quaker has also shown growth of around 4.7% across the period, to account for 67

million (6% share of the market).

A mixed fortune for smaller manufacturers

Over the 2001-02 period, Jordans grew its share by an estimated 22%, to 39 million. 'Other'manufacturers have seen their sales decline by 22%, accounting for only 3% of the total market.Own-label's share declined to an estimated 17% in 2003 (184 million), as this sector has beenhit by price discounting.

RTE top-selling brands

The UK's top-selling brands are identified in Figure 10.

Figure 10: The top-selling ready-to-eat breakfast cereals in the UK, by estimated brand shares, 2003

Brand m %

78 7.0


28/122


Weetabix 'Weetabix'

Kellogg's Cornflakes 74 6.6

Kellogg's Crunchy NutCornflakes

46 4.1

Kellogg's Frosties 41 3.7

Kellogg's Rice Krispies 36 3.2

Kellogg's Coco Pops 36 3.2

Kellogg's Special K 34 3.0

Nestl Shreddies 30 2.7

Quaker Sugar Puffs 29 2.6

Nestl Shredded Wheat 28 2.5

Nestl Cheerios 23 2.1

Weetabix Alpen 15 1.3

Nestl Cookie Crisp 9 0.8

Sub-total

479 42.9

Others

638 57.1

Grand total

1,117 100.0

Source: Mintel

Weetabix is number one

In 2002, Weetabix biscuits overtook Kellogg's Cornflakes to become the UK's number onebreakfast cereal brand. Growing at about 1% year on year, the brand was relaunched in June


29/122


2002. The company has provided support to the product, positioning it as a fun yet healthyproduct.

Also from Weetabix, Alpen is estimated to be worth 35 million; it accounts for 50% of brandedmuesli sales.

Kellogg has six in the top ten

While no longer the number one product in the UK at retail value sales of 74 million, Kellogg'sCornflakes is supported by a wide range of strong Kellogg's brand performers. Cornflakes isestimated to have fallen by around 5% in the period 2001-03, with a major relaunch in 2003,which stabilised the brand's decline.

The Crunchy Nut Cornflakes brand, however, continues to be successful, as the third top-sellingbrand at 46 million. Showing growth of around 19% across the period 2001-03, this brand hasbeen extended to include premium-priced indulgent lines, such as Crunchy Nut Red.

Special K has shown growth of around 6% across the period 2001-03, at an estimated 34million. As Kellogg's most successful health brand, with a focus on lower fat and better taste, thisbrand has also been extended to include premium-priced indulgent lines.

While Frosties is showing a downturn in value, Coco Pops is increasingly popular, and RiceKrispies experienced an estimated growth of 8% in value terms across the period 2001-03.

Nestl' strong in the children's sector

Shreddies and Cheerios are predominantly targeted towards children. Shreddies has shownstrong growth across the period 2001-03 and is estimated to be worth 30 million in 2003.

Shredded Wheat, within the wheat biscuit sector, appeals to all the family and is ranked asnumber ten, valued at 28 million. Mintel estimates growth of around 5% across the period 2001-03.

Hot cereal brands

The UK's top hot cereal brands are identified in Figure 11.

Figure 11: Hot breakfast cereal, brand shares, 2001 and 2003

2001 2003 %chang

e

m % m % 2001-03

6 17 10 24 +66.7


30/122


Quaker Oatso Simple

Weetabix Ready Brek 9 25 8 20 -11.1

Quaker Traditional Oats 5 14 5 12 -

Scotts Oats (Old Fashioned, Piper and Porage) 4 14 5 12 +25.0

Mornflake Superfast 1 3 1 2 -

Sub-total

25 72 29 71 +16.0

Others

11 28 12 29 +9.1

Grand total

36 100 41 100 +13.9

Source: Mintel

With very few brands active in the hot eating sector, it is not surprising that Quaker and Weetabixdominate. With intense competition between the two brands, there has been a reversal in fortunesover the last two years.

Quaker leads with Oatso Simple at an estimated 10 million, representing 24% of the instant hoteating sector, and demonstrating growth of around 67% across the period 2001-03. This brandhas attracted more adults to the market, and through the new launch 'Smoothie', Quaker is alsotargeting children and teens.

Weetabix Ready Brek targets parents for consumption by children. It is valued at an estimated 8million, showing a decline of around 11% across the period 2001-03. Ready Brek accounts for20% of the instant hot eating sector.

The traditional sector is characterised by small brands that lack presence, as such brands do not

appear to be growing. Quaker leads with the Scotts and Quaker offering each valued at 5 million.The Scotts brand is demonstrating growth, with sales up an estimated 25% between 2001 and2003.

Companies and brands

The UK market for breakfast cereal is heavily branded and Figure 12 provides a brand map fromthe main manufacturers. It should be noted that this brand map is not intended to be a


31/122


comprehensive listing of all cereals available on the retail market.

Figure 12: Brand map of the UK breakfast cereal market, by major companies, January 2004

Manufacturer Brands

Kellogg's

All-Bran, All-Bran Apricot Bites, Bart Simpson's Eat My Shorts, BranFlakes, Choco Cornflakes, Cornflakes, Cornflakes Banana Crunch,Coco Pops, Coco Pops Crunchers, Corn Pops, Country Store,Crispix, Crunchy Nut Cornflakes, Crunchy Nut Red, Crunchy NutClusters, Frosted Wheats, Frosties, Frosties Chocolate, FrostiesTurbo, Fruit 'n' Fibre, Honey Loops, Hunny B's, Just Right, RaisinWheats, Rice Krispies, Ricicles, Special K, Special K Red Berries,Special K Peach & Apricot, Start, Sultana Bran, X-Men 2 -The Cereal

Weetabix

Alpen, Alpen Crunch, Alpen Wheat Flakes, Alpen Crunchy Bran,

Ready Brek, Weetabix, Weetabix Mini Crunch, Weetabix Organic,Weetos

Cereal Partners

Shredded Wheat, Bite-sized Shredded Wheat, Shredded WheatFruitful, Honey Nut Shredded Wheat, Shreddies, Frosted Shreddies,Coco Shreddies, Cheerios, Honey Nut Cheerios, Nesquik, GoldenGrahams, Cinnamon Grahams, Clusters, Golden Nuggets, CookieCrisp, Lion Cereal, Pic a Pac, Fitnesse

Quaker

Sugar Puffs, Puffed Wheat, Oat Krunchies, Harvest Crunch, Oat BranCrispies, Scotts Porridge Oats, Oatso Simple, Quaker Oats, ScottsSo Easy

Jordans

Luxury Crunchy, Original Crunchy, Organic Muesli, Country Crisp,Special Muesli, Natural Muesli, Porridge Oats, Organic Four BerryCrisp, Organic Swiss Style Muesli, Organic Oats, Nature'sWholegrain, Natural Wheat Bran

Note: Not all flavour variants are given

Source: Mintel

Selected leading UK cereal manufacturers are profiled with examples of NPD that have appeared

since Mintel last reported on this market in February 2002.

Cereal Partners

Formed in 1990 as a 50:50 joint venture between US General Mills and Nestl SA, CerealPartners Worldwide has a turnover of nearly $1 billion. The company manufactures branded RTEcereals using the Nestl name, and also produces for retailer brands. In the UK, Cereal Partnersis estimated to command a 25% share when own-label is taken into consideration. The UK was


32/122


the first market entered by Cereal Partners when it purchased Shredded Wheat and Shreddiesfrom Nabisco. It operates from four sites: Welwyn Garden City, Watford, Bromborough andStaverton, employing around 1,000 people.

In October 2002, Cereal Partners appointed a new UK Managing Director, as the previousincumbent retired. That same year, global sales reported a slump for several consecutive

quarters, showing a similar pattern to the other leading cereal manufacturers as the industryexperienced a downturn in some of the core, flake products.

The Shredded Wheat brand, featuring the British Heart Foundation logo and focusing on thehealth benefits of whole grain, goes from strength to strength. In the US, organic cereals werelaunched in June 2002.

Cereal Partners has access to the large number of brands in the Nestl stable, many of whichcould be extended into a cereal format, reducing the cost and risk of new brand development (egLion Bar). Cereal Partners is also proficient at securing character licences for appeal amongstchildren. In January 2003, to coincide with the launch of Disney's Treasure Planet, holographicspinners and CD-ROM games were placed inside the boxes of Shreddies, Golden Grahams etc.

NPD

In September 2003, Fitnesse was launched. Described as a 99% fat-free cereal, it is aimed atwomen and is made from multigrain flakes of rice, wheat and corn. Priced at 1.19 for 375g, it hasbeen supported by TV advertising and is likely to compete with Kellogg's Special K. Also inSeptember, Nestl extended its famous confectionery Lion Barinto a new wheat and corn cereal,with the taste of the chocolate and caramel Lion Bar. Claiming to be the 'king of cereals' it ispriced at 1.98 for 375g.

In December 2002, a limited edition ofGolden Nuggets was launched; Choco Nuggets , priced

at 1.69 for a 375g box. Fruitful Shredded Wheat cereal was reformulated in October 2002,claiming to have a new fruitier tropical taste. Made from whole grain with no added salt, each500g box is priced at 1.59.

A big value variety pack, Pic a Pac , was launched in time for the school holidays in August 2002,containing Cheerios, Cinnamon Grahams, Golden Nuggets, Shredded Wheat Bitesize (withno added salt) , Shredded Wheat Fruitful (with no added salt) and Coco Shreddies , for 0.99.

In July 2002, Cookie Crisp was launched and has been a success within the children's sector.Described as a chocolate chip cookie breakfast cereal, it is made from corn and wheat cookiepieces with chocolate flavour chips and fortified with eight vitamins, calcium and iron. They areaimed at children and each 375g box is priced at 1.67. Also in July 2002, Shreddies was

extended with the introduction ofCoco Shreddies ; each box featured a Spider-Man characterand enclosed a free 'web shooter' with four to collect in the series. A 500g box is priced at 1.78.

Jordans

A family-owned company established for more than 150 years, Jordans is the leading supplier ofUK organic cereals and has been making food products since the 1960s. Savoury snacks as wellas breakfast cereal and cereal bars are manufactured from the site at Biggleswade, employing


33/122


more than 400 staff. Jordans was the first company to introduce cereal bars in the UK. As a majorexporter to Europe, around 22% of turnover is from overseas sales.

Within the breakfast cereal market, Jordans competes in the muesli sector and is the second-largest brand, behind Alpen. The company focuses on health benefits, offering indulgent andpremium products alongside organic and simple oat products. In March 2002 a new MD was

appointed.

NPD

In May 2002, the Country Crisp brand was extended with the introduction of 'Wild About Berries'containing 2% blackberries, cranberries and blueberries, priced at 1.89 for 550g.

Nature's Wholegrain was launched in July 2002. Claiming to combine health and luxury, it isavailable in two varieties containing wheat, oat flakes and oat bran. One has added sultanas,honey, sliced almonds and caramelised nuts, while the other has sultanas, dates, pecans andmaple syrup. They are priced at 2.19 each for a 500g box.

Kellogg

Kellogg is the world's biggest breakfast cereal manufacturer, selling products in over 160countries. With over 40 brands, it employs over 15,000 people and manufactures from 19 differentcountries. Within the UK, Kellogg manufactures from the Manchester and Wrexham sites, openedin 1938 and 1978 respectively. Estimated annual sales are $9 billion, with sales up 4% in thesecond quarter of 2002, Kellogg has been reporting strong and steady growth.

The stated corporate strategy recognises the need to cater for local market tastes, particularly inthe Asia-Pacific region. With 8% of sales coming from new products, the stated intent is to launch30 new products globally per year. R&D spend was set to treble between 2001 and 2004 and in

line with this a recent announcement was made to relocate R&D facilities to Australia.

Kellogg does not manufacture cereals for own-label. With strong brands, price erosion from own-label alternatives is a major threat for the company. In January 2003, Kellogg raised its prices inthe US by around 0.5%. Nutrition, quality and consistency are key communication themes in anattempt to differentiate their offer from 'copy-cats'.

NPD

The Cornflake brand was relaunched in March 2003 in redesigned boxes with 'foil-fresh' bags,intended to reinvigorate the brand after losing the number one breakfast brand status. Later in

November 2003, ' Banana Crunch ' was introduced, cornflakes mixed with 22% dried banana; a275g box is priced at 1.19.

In September 2003, Kellogg extended its Crunchy Nut Cornflakes brand into a new ' Cluster'variant. Described as a 'light and crunchy fusion of oats, wheat and corn' there are two varieties,Honey and Nut, or Milk Chocolate Curl. They are priced at 1.79 for 500g.

Hunny B's were originally introduced in June 2002 featuring the Winnie the Pooh characters onthe pack. The cereal is said to help keep bones and the heart healthy, increase physical energy


34/122


and increase concentration. In June 2003, Hunny B's were relaunched to include Piglet biscuits,as a limited edition tie-in with the launch ofPiglet's Big Movie . Each 350g box has arecommended price of 1.78. Similarly in May 2003, a limited edition toffee and caramel-flavoured' X-Men 2 ' cereal was launched, endorsed by the film and aimed at children, a 375g box is pricedat 2.05.

In March 2003, Kellogg replaced No ProblemOs , its The Simpsons -inspired cereal, with alimited edition Bart Simpson's Eat My Shorts , described as golden syrup-flavoured multigrainflakes in the shape of Bart's shorts. They contain less than 3% fat and claim to increaseconcentration and encourage healthy bones. A 350g box is priced at 1.95. No ProblemOs wereoriginally launched in February 2002 with mini chocolatey biscuits.

Also in March 2003, Kellogg extended its Special K brand with the taste of peaches and apricots.A 375g box for 2.39, it is 99% fat-free, enriched with vitamins and minerals and claims to be'100% satisfyingly tasty'.

Chocolate Frosties were introduced in October 2002 as a brand extension to Frosties ,chocolate and sugar-coated, a 500g box was priced at 1.85. Earlier in June 2002, the CocoPops brand was extended with the introduction ofCoco Pops Crunchers , described as crunchychocolate breakfast cereals. A 375g box was priced at 1.99.

Quaker

A subsidiary of PepsiCo, the US Quaker Oats Company is a strong global brand, and profits werereported to be up 55% in October 2002. Cereal activity in the UK is limited. Within the RTE sector,Sugar Puffs is the best-known Quaker brand, while in the hot eating sector, the new OatsoSimple has made significant inroads into what has been considered a staid sector, reinvigoratingsales in the traditional Scotts brand.

NPD

January 2004 saw an extension to the Harvest Crunch brand, with a Mediterranean version withPeach & Apricot or Raisin, Cranberry & Almond. A Nut Collection was also added which includesPecan clusters to the original Harvest Crunch recipe. Both are priced at 1.55 for a 500g box.

In preparation for winter, Quaker extended its Oatso Simple range with a new ' Smoothies 'variety in August 2003. Available in a multipack of three varieties - 2 x Super Strawberry, 2 x VeryVanilla, and 3 x Terrific Toffee - the packs are priced at 1.60 and are microwaveable. Each packis fortified with vitamins and iron.

In July 2003, the Sugar Puffs children's brand was relaunched in packaging featuring a new

Honey Monster design with a 'fresher feel'. A year earlier in June 2002, the brand featured a newrecipe with claims of 'best ever taste'.

Weetabix

In November 2003, a US private equity group, Hicks, Muse, Tate & Furst (owners of PremierFoods and part owners of United Biscuits) agreed to purchase Weetabix for 642 million, markingthe end of family ownership for the 71-year-old company. The CEO and family member stepped


35/122


down and took on non-executive duties.

Weetabix operates from factories in the UK, North America and South Africa, selling products inover 80 countries. Within the UK, there are four manufacturing sites at Burton Latimer, Corby,Hastings and Ashton-under-Lyme.

In 2002/03, Weetabix reported higher pre-tax profit than expected of 50.6 million, up 14% on theprevious year. Annual turnover is estimated to be around 362 million. Weetabix performed well in2002-2003, with the biscuit brand Weetabix overtaking Kellogg's Cornflakes as the UK number 1breakfast brand. Weetabix also manufactures own-label products.

NPD

Weetabix underwent several rebranding efforts in 2002. In November 2002, Crunchy Bran wasrelaunched under the Alpen brand as Alpen Crunchy Bran. Described as a high-fibre vegetarianbreakfast cereal made from wholewheat, bran, maize and oat bran, each 40g serving of CrunchyBran is equivalent to half the daily requirement for fibre. A 275g box is priced at 1.55. Earlier in

June, the Alpen breakfast cereal was relaunched in redesigned packaging featuring a new logoand bright colours, against the signature blue background.

Also in June, Minibix were rebranded as Weetabix Mini Crunch and the organic brand Nature'sOwn was rebranded Weetabix Organic . The Weetabix brand was relaunched with a new designin landscape orientation rather than portrait-shaped packs, with a new italicised Weetabix logo.

Retailer brand (own-label)

All of the supermarket chains have a strong own-label presence in the breakfast cereal category.Own-label accounts for 19% of value sales and is in slight decline. Cereal Partners and Weetabixare major suppliers, with Dailycer estimated to supply around 30% of UK own-label volume.

Dailycer

Wholly owned by the Netherlands-based Koninklijke Wessanen, Dailycer supplies 10% of theEuropean RTE breakfast cereal market, and 30% of UK own-label volume.

Dailycer has manufacturing capability for all the main cereal technologies, including organicproducts, and produces for own-label, as well as under licence for branded manufacturers suchas Weight Watchers from Heinz, and Perfect Balance . It also sells products under its ownbrands ofCheshire and The Big Cereal Company . It operates from two factories in the UK,Telford and Deeside, as well as in mainland Europe. Employing around 1,100 people, it has an

estimated annual turnover of 230 million.

Morning Foods

One of Europe's largest oat millers, this family-run company supplies own-label with RTE crunchyoat cluster cereal as well as milled oat products for porridge. It also retails product under theMornflake brand. It is a major exporter to more than 50 countries.


36/122


NPD

New product launches from the retailers followed the more successful brands, and launched intothe fastest-growing sectors such as children's, low-fat and luxury. A few are reviewed below.

Oatso Simple from Sainsbury's introduced an eight Easy Oat Sachet Selection in January 2004,providing an own-label alternative to Quaker's Oatso Simple. Each pack contains eight sachets ofScottish oats in three assorted varieties: Apple; Golden Syrup; and Original flavours. This productis suitable for vegetarians and vegans and is microwaveable. Each box is priced at 1.29.

In July 2003, Waitrose launched Chocolate Numbers Cereal as part of its new Food Explorersrange aimed at children. The chocolate-flavoured maize and rice crunchy cereal is free fromartificial colours, flavours and sweeteners. It has extra folic acid and 25% less salt and sugar thanthe typical chocolate-flavoured cereal. It is suitable for vegetarians and is packaged in a 250gplastic bag within a carton for 1.29.

In December 2002, Tesco launched an own-label version of Kellogg's Crunchy Nut Red, called

'Honey Nut with Cranberries'; the product also contains yogurt-flavour cornflakes with cranberriesand almonds. A 425g box is priced at 1.79.

Also in the indulgent sector, Sainsbury's launched Caramelised Nut & Raisin Crunch, under theTaste the Difference brand, in August 2002.

Described as slow-baked rolled oat clusters, folded with caramelised nuts and Chilean flameraisins, each 500g box is priced at 1.49. Strawberry & Banana Crisp was launched as a flavourvariant with strawberry and banana pieces, with 8% white chocolate curls for a 'creamy yet fruitytaste explosion'.

Other companies and smaller brands

Ennis Foods is based in Ireland and produces the chilled milk and cereal brand Rumblers , firstlaunched in 1998. The dual-compartment portable pot contains a spoon, fresh semi-skimmed milkand in a separate compartment cereal. Along with the Kellogg's 'To Go' twin-pot of fresh milk andcereal, the two brands stand out as the only offering of an out-of-home alternative to a bowl ofcereal with milk. NPD has been active at Ennis Foods. In March 2002, Breakfastables wereintroduced, as a child-targeted version of Rumblers. Available in frosted flake, low-fat crunchyflakes of corn and Choco-Surprise varieties, they are priced at 0.85 per portion.

Rumblers Weekend was launched in July 2002, containing two ready-to-eat breakfast potspackaged in a carton, forming a twin-pack-style offering. Each 175g pot contains cereal and aseparate serving of half-fat Millacmaid milk along with a spoon. In the same month, a Fruit &Fibre Rumblers was added to the existing range. Rumblers Bio was added in August 2002featuring bio yogurt in place of the usually fresh semi-skimmed milk, with cereal clusters andhazelnuts.

Another notable product launch in 2003 came from a new entrant to the breakfast cereal category.Capespan , the fruit juice manufacturer, introduced a premium range of muesli under three brandnames in January 2003. All three products are claimed to have a 50% fruit content. Fyffes TropicalFruit is described as a combination of bananas and nuts. Outspan Exotic Fruit is made with a


37/122


blend of five cereal flakes, and dried fruit (sultanas, raisins, apricots and mango) using theOutspan logo and company endorsement. Cape Orchard Fruit consists of apples and plums. Therange is packaged in a 750g Tetra Rex carton, which removed the need for a plastic insert linerbag, and is priced at 2.49. Capescan has plans to extend distribution, add new varieties, launcha smaller pack and develop a cereal bar to build on the success of this launch.

In February 2003, Health Care Products launched Scooby-Doo Cereals, described as whitechocolate-coated cereal snacks suitable for vegetarians and is aimed at children. Each 250g boxis priced at 1.89. Also in July 2002, Mr Men Choco Numbers cereal was launched, withchocolate-flavoured numbers and caramel-coated Mr Happy shakes, the 250g box was priced at1.29.

Organic

The organic sector is estimated to be worth 8 million, with Jordans as the leading supplier, withWeetabix Organic as the leading brand (Weetabix holds second in market share at with 25%).There are many other, smaller suppliers of organic cereal, with a selection presented here.

With the supply of organic produce limited and specialised, many of the branded organic offersare produced under licence. Whole Earth Foods began as a restaurant in 1967, extending to ahealth food store in 1969. By the 1990s, the company was sourcing organic produce and offeringit under licence to the supermarkets.

Doves Farm was established in 1978 and is one of Europe's largest suppliers of organic andspeciality flour and grain. New under the Doves Farm brand in July 2003 were two new organiccereal varieties. Chocolate Stars are free from wheat and gluten, aimed at children. Bio Bran is99% fat-free and high in wheat fibre. They are packaged in 375g packs, priced at 2.19 and 1.99respectively. Earlier in February 2003, Doves Farm introduced Bio Biz , an organic wheatbreakfast biscuit, similar to Weetabix.

Buxton Foods was established in 1991. In June 2003, the company launched a new organiccereal product aimed at children from 7 months to 5 years old. With no added salt or sugar, thepackaging features Beatrix Potter's Peter Rabbit.

A total of 77 new products were picked up by Mintel in the period February 2002 to January 2004across all manufacturers, with just three of these being hot eating products.

New product briefs

Examples of new product launches between August 2003 and February 2004 are shown in theremainder of this section. This listing is not exhaustive and does not detail all launches, but ratheris intended to give examples of new product activity and trends. The new product briefs are takendirectly from Mintel's GNPD database of new products.

February 2004

Tesco


38/122


In UK in the Breakfast Cereals category, Tesco has introducedMultigrain Hoops Cereals under the Tesco brand. The companyhas flagged the product as Vegetarian, Vitamin/Mineral Fortified.

Sugar coated multigrain breakfast cereals, with added vitaminsand iron, comprising: oat, barley, wheat, maize and rice hoops.They are said to be suitable for vegetarians, and are available in a375g box. Price 1.95.

January 2004

Kellogg

In UK in the Breakfast Cereals category, Kellogg has introduced K-Lock Corn Flakes under theKellogg's brand. The company has flagged the product as Novel, Innovative Package.

Kellogg has repackaged its Corn Flakes in a new shaped box, for the first time in its 97-yearhistory. The new box has a K-Lock closure which is recloseable, with a pointed top instead of theusual oblong shape. It is the second packaging innovation within the brand in 10 months, and thenew boxes are claimed to keep the flakes crisper and fresher for longer.


39/122


In UK in the Breakfast Cereals category, Kellogg has introduced Banana Cornflakes under theKellogg's brand.

Kellogg's has introduced a Banana Crunch edition of its Cornflakes. The cereal contains toastedflakes of corn with dried banana. Price 1.73.

Jordans

In UK in the Breakfast Cereals category, Jordans has introduced Special Fruit Muesli under theJordans brand.

New under the Jordans brand is Special Fruit Muesli, alow fat muesli available in Tesco andSainsbury's stores, priced at 2.59 for 750g. Price 3.77.

QuakerFoods & Beverages

In UK in the Breakfast Cereals category, Quaker Foods &Beverages has introduced Harvest Crunch Mediterranean Peach& Apricot under the Quaker brand.


40/122


New to the Harvest Crunch range is the Mediterrean Peach &Apricot with Raisin, Cranberry & Almond. Price 2.25.

In UK in the Breakfast Cereals category, Quaker Foods & Beverages has introduced HarvestCrunch Nut Collection under the Quaker brand.

New to the Harvest Crunch range is the Nut Collection, which adds Pecans clusters to the originalHarvest Crunch recipe. Price 2.25.

Cereal Partners


41/122


In UK in the Breakfast Cereals category, Cereal Partners has introduced Fitnesse Cereals underthe Nestl brand. The company has flagged the product as Low Fat, Female.

Cereal Partners has launched Fitnesse. It is claimed that this breakfast cereal helps the consumerto keep an eye on their weight. It is said to be healthy, its made up of multigrain flakes of rice,wheat and corn, contains vitamins and minerals and is 99% fat free. Price 2.89.

Sainsbury's

In UK in the Breakfast Cereals category, Sainsbury's has introduced Mango & Almond Muesliunder the Sainsbury's brand. The company has flagged the product as Vegetarian.

Sainsbury's has reformulated and improved their Mango & Almond Muesli. It is a delicious blendof oat and wheat flakes with 39% fruit and nuts, including raisins, mango and almonds. It issuitable for vegetarians. Price 4.35.

In UK in the Breakfast Cereals category, Sainsbury's has introduced Easy Oat Sachet Selectionunder the Sainsbury's brand. The company has flagged the product as Microwaveable,Vegetarian.

Sainsbury's has introduced an 8 Easy Oat Sachet Selection. Each pack contains 8 sachets ofScottish oats in three assorted varieties: Apple; Golden Syrup; and Original flavours. This productis suitable for vegetarians and vegans and is microwaveable. The oats are a source of fibre. Price


42/122


1.88.

November 2003

Kellogg

In UK in the Breakfast Cereals category, Kellogg has introduced Banana Crunch Corn Flakesunder the Kellogg's brand. Banana Crunch Corn Flakes combines corn flakes with pieces of driedbanana. Price 2.23.

Flahavan's

In UK in the Breakfast Cereals category, Flahavan's has introduced Quick Oats under the

Flahavan's brand. The company has flagged the product as Microwaveable.

Flahavan's is to launch its Irish Microwaveable Quick Oats in the UK through Tesco stores. Theoats are packaged in resealable drums with measuring scoops, and take two minutes to cook.

October 2003

Doves Farm Foods

In UK in the Breakfast Cereals category, Doves Farm Foods has introduced Organic Cerealsunder the Doves Farm brand. The company has flagged the product as Organic, Children (5-12),Low Fat.

New under the Doves Farm brand are two new cereal varieties, comprising: Chocolate Stars,wheat- and gluten-free and aimed at children; and Bio Bran, 99% fat-free and high in wheat fibre,said to keep the digestive system healthy. They are packaged in 375g packs, priced at 2.19 and1.99 respectively. Price 3.15.


43/122


September 2003

Cereal Partners

In UK in the Breakfast Cereals category, Cereal Partners has introduced Lion Cereal under theNestle brand.

A new wheat and corn cereal from Nestl with the added taste of the chocolate and caramel LionBar (chocolate countline brand). It is said to be the king of cereals. It is manufactured by CerealPartners which is a joint venture between Nestl and General Mills. Price 2.87.

Kellogg

In UK in the Breakfast Cereals category, Kellogg has introduced Crunchy Nut Clusters under theKellogg's brand. The company has flagged the product as Vegetarian, Vitamin/Mineral Fortified.

A new cereal range available in two varieties; Honey & Nut; and Milk Chocolate Curls. It is a lightand crunchy fusion of oats, wheat and corn blended with honey and peanuts (and milk chocolatecurls for the chocolate variety). It is said to be ludicrously tasty. Price 2.60.


44/122


In UK in the Breakfast Cereals category, Kellogg has introduced Cereal Range Extension underthe Kellogg's brand.

The Kellogg's brand has extended their Crunchy Nut cereal range with two new varieties: Honey& Nut; and Milk Chocolate.

Nestl

In UK in the Breakfast Cereals category, Nestl has introduced Fitness Cereal under the Nestlbrand. The company has flagged the product as Low Fat, Female.

New under the Nestl brand is Fitness, a new 99% fat-free ceral aimed at women, withmultigrain flakes made from rice, wheat and corn. The cereal is packaged in a 375g box, pricedat 1.99. The new launch is hoped to rival Kellogg's Special K offering. Price 2.89.

August 2003

QuakerFoods & Beverages

In UK in the Breakfast Cereals category, Quaker Foods &Beverages has introduced Oatso Simple Smoothies under theQuaker brand. The company has flagged the product asMicrowaveable, Children (5-12), Vitamin/Mineral Fortified.

Quaker Foods & Beverages is to launch Oatso Simple Smoothies,a flavoured hot oat cereal for children. It will be available in a

multipack of three varieties: 2 x Super Strawberry; 2 x VeryVanilla; and 3 x Terrific Toffee. The pack is priced at 1.60 and ismicrowaveable. Each pack is fortified with vitamins and iron. Price

2.32.


45/122


Tesco

In UK in the Breakfast Cereals category, Tesco has introduced Healthy Living Muesli under theTesco brand. The company has flagged the product as Low Calorie, Low Fat, Vegetarian.

Tesco Healthy Living Muesli is described as a delicious blend of wheatflakes and oats with raisins,apricots, cranberries and dates. The muesli is claimed to be suitable for vegetarians, have less

than 3% fat and 227 calories per serving. Price 1.86.

02/2004


46/122





Advertising and Promotion

Above the line

Advertising presents a barrier to entry

The breakfast cereal market is one of the most heavily advertised grocery categories. Themultitude of strong brands within the category competing for consumer awareness requirescontinual support. The need for advertising represents a barrier for new brand and new productentrants seeking to gain consumer awareness.

For several years, the total category advertising expenditure has been in decline, as sales in thecore ranges diminish and own-label erodes price points and margins. In 2001, Mintel reported thatin the US, the top four advertisers in the breakfast cereal category - General Mills, Kellogg Co,Kraft Foods' Post division and PepsiCo's Quaker - decided to pool $50 million for a genericcampaign to stem sector decline. They formed a consortium dedicated to building awareness andsales of the $6.7 billion ready-to-eat cereal industry.

In the UK, the debate continues into children's unhealthy diets and whether food manufacturersshould be banned from advertising to children. Some have gone so far as to say that sugary andhigh-fat foods targeting and advertising has a detrimental 'brainwashing' effect on children.

Expenditure reflects size and scale of the market

Figure 13 shows the total advertising expenditure on breakfast cereals for the period 1998-2003.

Figure 13: Main monitored media advertising expenditure on breakfast cereals, 1998-2003

000 Index % of sales

1998

97,212 100 9.75

1999 89,360 92 8.95


47/122


2000 79,798 82 7.94

2001 73,664 76 6.90

2002 63,927 66 5.86

2003 63,605 65 5.697

Source: Nielsen Media Research/Mintel

Figure 14: Annual percentage change - total media spending and total sales, 1999-2003


Since 1998, total advertising spend expressed as a percentage of sales has diminished at a rateof around 1 percentage point a year. Year-end figures for 2003 show total spend at roughly 64million, or 5.7% of sales. In comparison to other categories, such as biscuits or confectionery, totalspend levels are still high. The size of the total advertising budget within the breakfast cerealmarket reflects the size and scale of the global manufacturers operating in this market and theirdetermination to succeed.

As an index against 1998 data, total advertising spend has declined significantly, asmanufacturers switch their efforts into below-the-line activity, on-pack and in-pack promotions.The cereal market has strong nutritional messages to convey, with many of the leadingmanufacturers investing in cause-related marketing in favour of above the line media (forexample, Cereal Partners' Shredded Wheat cereal's association with the British HeartFoundation).

Spend on hot eating produced results

Figure 15 shows advertising spend, split by breakfast type for the period 1998-2003.


48/122


Figure 15: Main monitored media advertising expenditure on breakfast cereals, by breakfast type, 1998-2003

RTE Hot Total

000 Index 000 Index m Index

1998

92,604 100 4,608 100 97,212 100

1999 82,264 89 7,096 154 89,360 92

2000 75,272 81 4,526 98 79,798 82

2001 69,118 75 4,546 99 73,664 76

2002 58,885 64 5,042 109 63,927 66

2003 59,743 65 3,862 84 63,605 65


RTE cereals account for the majority of advertising support at around 90-95%. Across the periodadvertising budgets have almost halved from a high of 92.6 million in 1998.

In the hot eating sector, levels of support have been more stable, with an extremely strong year in1999 when levels rose to more than 7 million. This increase in support coincides with newactivity in the sector arising from the launch of Quaker Oatso Simple.

In 2002, 8% of spend was directed towards hot eating. Figures for 2003 indicate just 6% of spenddirected towards hot eating, the level expended in 2001. In fact, the hot cereal segmentexperienced strong gains in 2002 and 2003, demonstrating the effectiveness of the additionalspending in 2002.

RTE cereals

Figure 16 examines the advertising support behind the main RTE brands, comparing 2001 with2003.

Figure 16: Main monitored media advertising expenditure on RTE breakfast cereals, by selected brands,2001 and 2003

2001 2003 % change


49/122


000s % of RTEtotal

000s % of RTEtotal

2001-03

Cornflakes*

6,227 9.0 7,407 12.4 +18.9

Cereal Range 5,414 7.8 3,996 6.7 -26.2

Coco Pops - - 2,012 3.4 na

Crunchy Nut** 5,697 8.2 6,988 11.7 +22.7

Special K Cereal 5,790 8.4 6,056 10.1 +4.6

Fruit n Fibre 3,132 4.5 - -

Frosties*** 2,605 3.8 2,422 4.1 -7.0

2 Week Challenge 1,263 1.8 - - na

Other Kellogg 5,858 8.5 3,692 6.2 -37.0

Total Kellogg 35,986 52.1 32,573 54.5 -9.5

Shredded WheatBitesize

3,728 5.4 1,989 3.3 -46.6

Cheerios Cereal 2,629 3.8 2,757 4.6 +4.9

Shreddies Cereal 1,989 2.9 2,720 4.6 +36.8

Shredded Wheat 4,025+ 5.8 3,224 5.4 -19.9

Cereal 1,138 1.6 3,084 5.2 +171.0

Other Nestl 2,031 2.9 3,478 5.8 +71.2

Total Nestl 15,540 22.5 17,252 28.9 +11.0

5,263 7.6 3,942 6.6 -25.1


50/122


Weetabix

Minibix 3,293 4.8 - - na

Mini Crunch - 2.1 1,941 3.2 na

Alpen Muesli 1,957 2.8 1,504 2.5 -23.1

Crrrunch! 1,455 2.1 - - na

Other Weetabix 1,631 2.4 428 0.7 -73.8

Total Weetabix 13,599 19.7 7,815 13.1 -42.5

Harvest Crunch

1,636 2.4 - -

Sugar Puffs 1,399 2.0 1,406 2.4 +0.5

Other Quaker Oats - - 4 0.0 na

Total QuakerOats 3,035 4.4 1,410 2.4 -53.5

Other brands

958 1.4 693 1.2 -27.7

Grand total

69,118 100.0 59,743 100.0 -13.6

* includes Cornflakes Banana Crunch

** includes Crunchy Nut Red, Crunchy Nut Clusters

*** includes Choco Frosties

+ includes Shredded Wheat Sporties


Kellogg


51/122


Accounting for more than 50% of total category spend, Kellogg remains the dominant voice withinthe RTE sector. With an advertising budget of 32.6 million in 2003, this represents a 10% declinein total spend levels from 2001.

Cornflakes and Crunchy Nut Cornflakes receive the majority of the budget, giving each a share ofvoice of around 12% across the RTE category. At around 7 million per brand, Cornflakes

represents a 19% increase versus 2001, while CNCF saw an increase of 23%.

In an attempt to revitalise Cornflakes , Kellogg relaunched the 80-year-old brand in March 2003.Selling 240 million boxes per year, the new pack design, with silver foil bags is intended to keepthe product fresher. New TV adverts were aired featuring a modern-day take on Sleeping Beauty.Other adverts featured a girl getting ready for work, or children leaving Santa some Cornflakes.One execution supports the new Cornflakes Banana Crunch product. The brand receivesongoing press and PR campaigns linked with in-store activity. Kellogg's Cornflakes also sponsorsChris Tarrant's Capital Radio breakfast show. Kellogg claims that 4 million bowls of Cornflakes areconsumed each day.

TV support forCrunchy Nut Cornflakes centred on the strapline 'ludicrously tasty' and amongthe differing adverts screened across the period, one linked with a competition to travel for a year'go nuts and leave it all behind'. Crunchy Nut Clusters were reported to have been backed by a1.3 million TV and sampling campaign, featuring a taste description challenge and invitingviewers to register their comments online to win a trip to New York.

During 2003, the Frosties budget fell by 7% when compared to 2001 to just under 2.5 million,accounting for 3.4% share of voice within the RTE category. In 2003, Frosties moved away fromTony the Tiger for the first time in 50 years. Instead, the brand was linked with Cartoon Networkcharacters including Johnny Bravo and The Powerpuff Girls . Another series of adverts used thestrapline 'Earn Your Stripes' and urged boys to set challenges to prove their abilities. TV supportwas also provided for Chocolate Frosties using the strapline 'discover the dark side'.

Kellogg allocated nearly 4 million in 2003 for support across the cereal range. Several advertswere created to link with in-pack promotions such as Creature Comforts and Wobble Heads. Byadvertising the promotion, several brands were featured during the same advert, thus bringingsome economies of scale within the advertising budget, although this was a decline from 2001.

Support forFruit 'n' Fibre was withdrawn in 2003, an indication that the brand is struggling withinthe health sector. Similarly, All-Bran's sponsorship of the Channel 4 qu

bread fast cereals

Documents