Cereal Products
SIC 2043
NAICS 311230
Cereal makers around the world manufacture hot and cold breakfast foods and related products from milling and processing various grains.
First formulated as a "health food" by Americans, ready-to-eat (RTE) cereals have grown into a multibillion-dollar global business. According to an AC Nielsen study, 95 percent of American households purchase ready-to-eat cereals.
Kellogg Company, a pioneer in the business, has historically led the industry and remained the number one U.S. breakfast cereal company in 2004. Close behind was General Mills, which together with Kellogg accounted for about 65 percent of the cereal market. Kraft Inc., which owns the Post and Nabisco labels, and Quaker held the next two slots. Other branded cereal manufacturers held smaller shares of the global market, and private label products accounted for the remaining 10 percent.
Some analysts see the flat performance of ready-to-eat (RTE) cereals in the late 1990s and early 2000s as evidence that the category has matured. Sales of RTE cereals exceeded US$8.6 billion in 1995, but by 1999 dropped to US$8.1 billion. Industry leaders slashed prices to compete with cheaper private label cereals, and new brands were slow to be introduced and financially tenuous. Kellogg saw its operating profit drop 18 percent from 1998 to 2000, and its North American and global cereal market volumes decrease by 6 percent in 1998. According to research firm Mintel International, sales of RTE cereals grew only 1 percent annually between 1998 and 2003, when the market was valued at about US$9 billion.
Cereal products offer taste profiles that appeal to a wide variety of consumers of all ages in many different markets. Their convenience makes them a frequent choice in time-pressured households, a significant fact as the middle class grows in Asia and South America. RTE cereals also have a positive nutritional image, and some cereals can contribute to the type of low fat, high fiber diet recommended by medical authorities throughout the world. Global growth prospects for the RTE cereal market were further enhanced by the successful conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and the signing of the North American Free Trade Agreement (NAFTA) in 1994. Growing political stability and economic development in major markets around the world have also helped the cereal industry.
For the most part, English-speaking countries are the high volume consumers of RTE cereals. For example, cereal consumption in non-English markets in the mid-1990s was about 25 percent of English-speaking markets. In the early 2000s, Middle Eastern markets were just emerging, with Saudi Arabians consuming over 5,000 metric tons annually, over half of which was supplied by U.S. cereal producers. Per capita consumption of RTE cereal in France was just 1.8 pounds in the mid-1990s, while per capita consumption in England was 13.3 pounds. That is why Kellogg and other cereal manufacturers invested heavily in raising consumption in continental Europe in the 1990s. With an educated population and modern grocery distribution system, the European market held significant growth potential as its citizens moved away from traditional breakfasts. Latin America also held promise. Mexico represented the world's third-largest breakfast cereal market in dollar terms in 2003. In Chile, where RTE cereals were one of the fastest growing grocery products, imports soared almost 50 percent from 1996 to 1998.
RTE cereals were first developed in the United States in the late nineteenth century. These cereals—in the form of flakes, puffs, shreds, biscuits, and granules—were the first packaged convenience food, a category that exploded in popularity in the twentieth century.
RTE cereals were an outgrowth of the U.S. vegetarian/health foods movement of the nineteenth century. These cereals developed from a succession of new food products, which included graham crackers, invented in 1829 by Sylvester Graham; Granula (later Grape Nuts), developed by James Jackson of the Jackson Sanitarium; and Shredded Wheat, invented by Henry Perky in 1893.
Battle Creek, Michigan, was the center of the RTE cereal industry from the late 1800s throughout the twentieth century. The Eastern Health Reform Institute was founded in Battle Creek by the Seventh Day Adventist Church in 1866. The institute, later renamed the Battle Creek sanitarium, came under the leadership of John H. Kellogg in 1876. Kellogg, a physician, surgeon, and inventor, advocated the use of cereal grain foods that he had developed. Kellogg was joined at the sanitarium by his brother, W. K. Kellogg. A patient at the sanitarium, Charles W. Post, was inspired to found the Postum Cereal Company in Battle Creek in 1897. The company sold Postum, a hot cereal beverage, and Grape-Nuts cereal. The Postum Cereal Company became General Foods Corp. in 1929. General Foods by the early 2000s was part of Kraft Foods Inc., which continued to produce Post cereals. W. K. Kellogg left his brother John and the sanitarium in 1906 to form the Kellogg Company, also based in Battle Creek. The RTE cereal industry soon grew and helped create a burgeoning market for other packaged foods as well.
General Mills began as the Washburn Crosby Company, entering the RTE cereal market in the 1920s. Its Wheaties cereal was developed in 1924. Crispy Corn Kix joined the General Mills lineup in 1937, and Cheerioats (subsequently Cheerios) became the first RTE oat cereal in 1941. The Quaker Oats Company, another important cereal producer, was founded in 1873 as the North Star Oatmeal Mill in Cedar Rapids, Iowa. North Star reorganized with other companies to form the Quaker Oats Company in 1901.
During the 1940s, U.S. cereal makers improved their methods of puffing cereal products. During the first decade of the twentieth century, the puffing process was accomplished by shooting grains from cannons. Characteristically, the cereal industry incorporated this into advertising, with one cereal boasting that it was "shot from guns."
In the twentieth century, RTE cereals were introduced to other English-speaking countries, largely by the Kellogg Company. Domestic competitors developed in these new markets and made incremental progress in taking market share from Kellogg. However, by the mid-1990s, they still had a long way to go. Kellogg had an early start in the world market by entering Canada in the 1910s, Australia in the 1920s, the United Kingdom in the 1930s, and South Africa in the 1940s. In the 1950s, Kellogg entered its first non-English speaking market, Mexico, as well as many other countries in the following three decades.
While RTE cereals began as health foods, in the 1950s the industry developed high-calorie, pre-sweetened cereals aimed at the children's market. Later developments included Total, a highly enriched vitamin cereal, which was developed in 1961. The RTE cereal business was subject to various nutritional fads in the 1980s and 1990s, as specific "healthy" ingredients became known, promoted, and then controversial. For example, the RTE cereal industry latched onto oat bran in the 1980s, which was touted as a way to reduce cholesterol. Products specifically labeled "oat bran" sold at a US$34.9 million rate in the United States in 1987, jumped to US$105.2 million in 1988, and peaked at US$328.2 million in 1989. Scientific studies then emerged challenging the ability of oat bran to lower cholesterol levels, leading to the demise of many oat bran products. However, a good number of the oat-based cereals introduced in this era survived. Also, research in the mid-1990s confirmed the positive health benefits of oat bran, which helped spur sales of oat-based products once again. As the RTE cereal market experienced flat or...
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