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According to Breakfast Cereals 2012, a new Market Update published by market intelligence provider Key Note, the market grew by 4.3% in 2011. Hot cereals are the reason behind industry growth, as ready-to-eat (RTE) cereals have been unable to keep up with changing consumer trends.
The cereals market is divided into two principle categories: RTE and hot cereals. The presence of the former dominates the market. Key Note further divides the RTE cereals sector into five sections: children's, staples, health, muesli and adult indulgence. Children's is the biggest subsector and has been one of the key drivers of growth in the sector, in addition to products under the muesli and health headings. In 2011, the value of RTE cereals rose by a moderate 2.4%. However, in terms of the overall share of the market it accounts for, the sector is in decline.
The boxed cereals format is not suitable for changing consumer habits and, as a result, is beginning to go stale. Consumers, who are facing economic uncertainty and financial hardships, are looking to treat themselves to affordable luxuries, including breakfast solutions. Moreover, consumers are leading increasingly hectic, fast-paced lifestyles and are opting for convenient, on-the-go formats. These trends have not been favourable to the RTE cereals industry, which has been slow to respond to consumers' changing needs by introducing corresponding innovative products.
The value of hot cereals soared in 2011, rising by 24%, due to the popularity of porridge, which has become the favourite cereal in the UK. Porridge is healthy and provides slow-release energy, and formats have been introduced that mean it can be eaten on-the-go. These factors are at the core of consumer demand in the breakfast cereals market, which helps to explain the category's impressive success over the course of the year. Moreover, there is room for exciting flavour innovation. Manufacturers have begun to introduce original flavours, some of which coincide with seasons or events, to give consumers choice and create a dynamic breakfast occasion.
Although the market underwent positive value growth in 2011, manufacturers struggled, with the majority reporting declining value and volume sales. A culmination of market saturation (particularly in the RTE cereals sector); the growing importance of own-label goods, which are offering similar or even better quality, but at cheaper price than brands; consumers' rising awareness and reservations concerning the excessive amount of sugar in cereals; and pressure from retailers and consumers to engage in promotional activity in order to remain competitive have all taken a toll on manufacturers' profit. Although breakfast is said to be the most important meal of the day, the cereals industry is suffering its biggest slump in 100 years in the UK. As a result, the industry, which dominates the total breakfast market, lost 1% of its majority share in 2011. An analysis of the market reveals that the RTE cereals category is the culprit behind the industry's stumble and that it is the hot cereals sector that is keeping the market buoyant and will continue to do so over the next 5 years.
However, RTE cereals manufacturers have finally begun to respond to changing consumer habits. Key Note expects that they will use interactive campaigns and capitalise on events and holidays to drive value and volume sales between 2012 and 2016. In addition, there will be an influx of innovative products in the future, as manufacturers fight to make their products stand out on retail shelves. Key Note expects the breakfast cereals market will grow exponentially over the next 5 years, rising in value by 21% between 2012 and 2016.