The food giant needs sales to snap, crackle, and pop
EC: Kellogg's Is Trying to Stop a Cereal Killer
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Generations of Americans grew up knowing that Frosted Flakes are grrreeeat and each box of Raisin Bran has two scoops of raisins. But the Kellogg Company, which owns those and many other breakfast brands, faces a problem: Sales are down because Americans are eating less cereal. Kellogg’s and its competitors are looking for new ways to promote their products in grocery stores. Will the answer be a new "breakfast aisle"? Or maybe a cereal bar in the ready-to-eat section or those boxes sporting cartoon characters sitting by stacks of fruit in produce? It depends on what grocers are willing to try—and how much cereal producers are willing to spend.

The cereal industry's annual revenue—now $11 billion, according to research firm IBISWorld—has seen a 2.1 percent annual decline over the last 15 years. In Kellogg's US morning foods category, sales were down 1.6 percent year over year in calendar 2015. In 2014, the drop was 4.8 percent.

The reasons are varied: Families are having fewer kids, there's more of a focus on "healthy" eating, and people want breakfast on-the-go. But these explanations don't put milk and sugar on the corporate table, so there's a focus on new types of promotion.

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According to a trade publication report, Kellogg’s introduced its breakfast aisle concept in September at the Category Management Association conference in Las Vegas. The idea is to get grocery stores to rethink the notion of lining up shelf after shelf of cold cereal in the middle of a store. Instead, Kellogg’s wants them to include breakfast bars and toaster pastries with the hot and cold cereals. In theory, grocers could also push related products and the company would see greater sales. Kellogg’s said the expert on the project was not available to take questions.

Is the concept realistic or a sugar-coated dream? Shea Food Consultants President Rich Shea, a former cereal executive himself, finds this dubious. For one thing, it wouldn't be cheap, as there are so-called slotting fees to get products on the shelf. "You're talking usually millions of dollars in incentives to the grocery retailers, depending on the chains," he said.

Kellogg’s might be able to pass the cost along without consumers noticing. The company quotes an A.C. Nielsen Scantrack estimation that 89.7 percent of households buy an average of 20.6 boxes of cereal a year. With 116 million households in the US, according to the Census Bureau, that's 2.1 billion boxes annually. Kellogg’s has an estimated 34 percent market share, or about 714 million boxes. Spend $50 million on a promotion and that's about 7 cents per box.

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But that leaves the hurdle of whether grocers would be impressed with the plan. Most already run cereal down one side of an aisle and place breakfast bars and other such products directly across, Shea says. And how do you call it the breakfast aisle if fruit, breakfast sandwiches, waffles, and French toast aren't there as well?

Other experiments might ultimately fare better. Shea has heard of mix-your-own cereal stations in some grocery stores. He said Kellogg’s has tested placing cereal near fruit in the produce section as well as in the grocery aisles.

Moving out of the aisles and into the perimeters not only catches more foot traffic in stores but could be cheaper, says Mike D'Amato, regional sales director for nationally distributed Natalie’s Orchid Island Juice Company. "Frozen and grocery operate with slotting fees," he said. Produce departments don't and are more experimental.

So, don't be surprised if the next time you're at the grocery store it seems like you have a cereal stalker. They're after you, one spoonful at a time.