Kellogg’s Faces Marketing Challenges as Consumer Preferences for Breakfast Foods Evolve

Bloomberg recently published an interesting and potentially alarming article on Kellogg’s morning-foods division. The company’s U.S. morning-foods net sales fell 8 percent in the fourth quarter of 2014—the division’s seventh consecutive quarterly decline. Much of this is due to loss of cereal sales: according to Consumer Edge Research, 19 of Kellogg’s top 25 cereals eroded last year.In part due to changing consumer trends and demand, the company’s cereals are losing their share at the breakfast table despite the $1 billion+ a year that Kellogg’s spends on advertising. In comparison, General Mill’s, a comparably sized competitor, spent $870 million on advertising and media in 2014. Americans are increasingly eating breakfast on the go: granola bars, yogurt, fruit, and fast food breakfast sandwiches have risen in popularity at the expense of cereal. Whereas cereal was once considered convenient, these options are even more so.

On the other hand, consumers who prefer to eat at home are rediscovering hot meals such as oatmeal and eggs, which were up 3.5 percent in sales in the first half of 2014 and 7 percent in sales last year, respectively. While Kellogg’s benefits from its Eggo frozen waffle line that addresses those consumers who desire hot, made-at-home breakfasts, Eggo sales have not compensated for falling cereal sales.

Another consumer trend challenging cereal manufacturers is a desire to eat healthier, which within the context of cereals means increased concerns regarding the consumption of carbohydrates, GMOs (genetically modified organisms which are found in processed and prepackaged goods), and sugar. Kellogg’s Honey Smacks, for instance, contains 56% sugar by weight, which may raise red flags for health-conscious consumers.

If Kellogg’s sales are to be solely attributed to consumer trends, however, then it’s reasonable to assume that the firm’s competitors would be equally impacted over time. Conversely, General Mills’ cereal (such as Lucky Charms and Cheerios) sales have fallen only half as much as Kellogg’s in 2014, while Post Holdings (owner of Honey Bunches of Oats) managed a 2 percent increase. This begs the question: what else is contributing to Kellogg’s loss on breakfast? Has the company lost its marketing abilities?

In order to attract consumers and overcome the cultural shifts explored above, Kellogg’s is adding more fruit and natural ingredients to its cereals and cutting back on sugar by as much as 30%.

In comparison, General Mills’ Cheerios remain strong, as Cheerios are marketed as a healthier alternative to traditional cereals (despite the fact that one cup of Cheerios contains more sugar than three Chips Ahoy! cookies). General Mills also took advantage of increased demand for yogurt when it purchased Yoplait, the world’s second largest yogurt producer. Meanwhile, Kellogg’s purchased Pringles despite consumer preferences for healthier snack alternatives and the 2 percent decline in Kellogg’s U.S. snacks division in 2014. This demonstrates General Mills’ success at addressing consumer trends and demand as opposed to Kellogg’s seemingly non-strategic acquisition.

Kellogg’s Special K brand has been one of its more successful lines. Originally marketed as a diet brand, it is now marketed as a cereal for the health-conscious consumer, highlighting new flavors such as Raisin Bran with Cranberries. However, some doubt that this is sufficient to impact Kellogg’s performance in such a mature market in which competitors are forced to focus on ways of taking market share from each other in order to grow.

Kellogg’s was boosted by Kashi when it purchased the health-food cereal maker in 2000, but lately Kashi has been underperforming, with some of its lines falling 30% in sales in 2014. Some claim that it has lost its value proposition of a healthy brand: Kashi now makes butter cookies, frozen pizzas, and other inorganic foods contrary to healthy, natural eating. Kellogg’s has also been criticized for indecisiveness regarding the division, which has been moved around from Southern California to Battle Creek, MI back to Ja Lolla, CA all since 2013. This has rid the brand of its local, mom-and-pop persona. Kellogg’s plans to restore Kashi’s credibility via its 15 GMO-free cereals now in stores.

As Kellogg’s looks to develop products and position them to appeal to shifting consumer preferences, gluten-free cereals present an opportunity for Kellogg’s: sales of gluten-free cereal are up 22 percent, according to a recent Nielsen survey. While Kellogg’s already makes some gluten-free cereals such as gluten-free Rice Krispies and competes with specialty health food companies in addition to its mainstream competitors, further expansion into this market segment could prove to be lucrative.

All of these changes may come at the expense of Kellogg’s older brands, such as Frosted Flakes and Fruit Loops, which are being overwhelmed by new products. Older cereals were traditionally advertised on television using Disney-like cartoon characters that spoke directly to children. However, today’s children may not relate to Tony the Tiger or Toucan Sam, although their images are ingrained in adults’ minds. Indeed, Kellogg’s was able to increase Fruit Loops sales by 3% by marketing to adults. General Mill’s has taken a similar approach by running TV advertisements showing an adult couple enjoying Lucky Charms together.

From a marketing management perspective here are some questions to consider:

• Consumer Edge’s Robert Dickerson believes that Kellogg’s main problem is reduced demand. How would you, as the CMO of Kellogg’s, address this challenge?
• What tools in the promotions mix do you feel are most appropriate when promoting Kellogg’s breakfast cereals? What kind of metrics would you look at to validate the performance of your related recommendations?
• In a Bloomberg article, author Matthew Boyle states, “Kellogg’s created breakfast flakes and foresaw the power of TV advertising. There must be some way for his successors to sell breakfast food to working parents and their children who are now watching YouTube instead of Saturday morning cartoons.” What are your thoughts on accomplishing this goal?