The ad was developed to kick-start the long-declining cereal category, which had fallen in sales from $7.3 billion in 1997 to $6.7 billion last year, according to Information Resources, Inc. But even before the unprecedented campaign has gained traction, things are looking brighter for the lackluster category.
"There appear to be some early signs of an underlying trend bringing people back to the cereal category," said Jeff Montie, president of Kellogg's Morning Foods division. Data for the 52 weeks ended June 16 showed sales reaching $6.8 billion, up slightly from 2001.
The expected joint effort (AA, Feb. 11) from Kellogg Co., General Mills, Kraft Foods' Post division and PepsiCo's Quaker Foods & Beverages, started in late April in undisclosed test markets.
Mr. Montie attributes the rise in part to innovation that offers "better-tasting options," such as Kellogg's own Special K Red Berries, as well as Kellogg's increased advertising. Longtime leader Kellogg had been eclipsed by General Mills for a time, a result many industry observers note was due to Kellogg's severe cut in advertising. With the influx of spending as well as innovation, Kellogg's sales for the year ended June 16 grew 3% to $2.22 billion vs. General Mills' 3% decline to $2.19 billion.
The category is a fiercely competitive one, as might be expected looking at the profit margins of cereal, which are a good 50% higher than average packaged foods, according to Credit Suisse First Boston analyst Dave Nelson. But the competition these days, he said, "is based more on new products and good advertising than on trade promotion [i.e. discounting], which is ... self-defeating." As a result, he said, "We're seeing a healthier [cereal] category than we've seen in some time."
While Mr. Nelson said the idea of a collective ad campaign has some merit, he cited "further commoditization" of the category as a potential pitfall. "There is a message that could be done best collectively, but hopefully not to the exclusion of differentiated products," he said.
The TV spot, from Interpublic Group of Cos.' Suissa Miller, Los Angeles, features a collection of kids criticizing their fathers' morning eating habits, including pointing out the lack of nutrition in a doughnut. Cereal, however, gets high marks, with one pint-sized cereal-eater countering the notion that there's no time for cereal in the morning by offering, "this is really fast food!" (AdAge.com QwikFIND aan77b).
Initial results from concept testing of the spot "were positive," according to a General Mills spokesman, and were intriguing enough to drive the four competitors to follow up with a test launch in several markets. The themes of nutrition and convenience have been the drivers of category innovation and seemed to be messages that people most responded to, he said.
While General Mills this past year focused on health news of cholesterol-lowering claims for Cheerios and Honey Nut Cheerios and on the convenience of its Milk `N Cereal Bars and Chex Morning Mix offerings (not included in IRI's tracking of the company's cereal sales), Mr. Nelson cited the company's lack of innovation. "Mills has talked about a gap in new product launches in general, and specifically in cereal," he said. New product news in cereal is expected to come in another six months, during the back half of General Mills' fiscal year.