Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Cereal is no longer the breakfast of champions. A declining presence in American pantries has put companies that make the crunchy morning snack in a tough position.
Consumers, primarily millennials, prefer to fuel their day with smoothies, avocado toast, and Instagram-favorite overnight oats. Seventy percent of U.S. households still eat cereal, but only 12 percent eat it every day, according to a study by the polling firm Civic Science.
Grain consumption has been declining slowly and markedly. Annual U.S. sales in 2008 were 2.1 million tons, according to Euromonitor data. The surge due to the pandemic has waxed and waned, and sales volume in 2023 was only 1.6 million tons. It is expected to decline again this year.
The big cereals, Cheerios maker General Mills and Special K peddler WK Kellogg, were able to offset volume declines with higher prices. The company is also investing in its supply chain to support profitability. WK Kellogg stock is up 30% since its split from Kellogg.
However, this strategy may be a dead end. Consumers are fed up with high prices and are buying less or ditching their favorite brands altogether. WK Kellogg’s full-year sales are expected to be roughly flat compared to last year. Analysts expect further declines in 2025 and 2026, according to S&P Capital IQ.
This explains why WK Kellogg, which was spun off last year from a company now called Kelanova, is trading at a steep discount to its former parent company, which is benefiting from a booming snack business. useful for. Estimated earnings are 12 times, compared to Keranova’s 21 times. Competing cereal makers General Mills and Post Holdings are more diversified, trading at multiples of 14.5x and 18x, respectively. The disparity in ratings between WK Kellogg and its peers highlights how difficult it is to grow as an independent, cereal-focused business.
Breakfast cereals remain a $12 billion-plus annual business. But running a business during long-term decline is difficult. Companies must invest in product innovation, marketing, and promotion to protect sales. Competition will only become more intense. Fast food giants like McDonald’s, Wendy’s, Burger King, and Taco Bell are all trying to beef up their morning menus. There is no shortage of rivals willing to twist the spoon.
