GROCERY: Nature trail

As the old ad jingle goes, Life may be "just a bowl of cereal," but recent market dynamics are hinting at a trend that will continue to transform cereal bowls into vessels for the pursuit of a healthier lifestyle.

The overall market for ready-to-eat cereals has been looking flat, but natural and organic cereals are generating some excitement, as well as sales increases, according to the most recent volume tracking data.

SPINS, information and service provider for the natural products industry, says dollar sales for natural cold cereals are up so far this year, building on segment gains in the prior two full years.

In both natural supermarkets with sales of $2 million or more, and conventional food/drug/mass stores (excluding Wal-Mart) for the 24 weeks ended June 11, dollar sales were 2 percent higher than they were in the prior-year period, growing to $194.5 million from $190.8 million. This follows growth surges of 8 percent in 2003 and an astounding 17 percent in 2004, notes SPINS, an information company of VNU, which also owns Progressive Grocer.

Meanwhile ACNielsen shows for the 52 weeks ended July 16 that overall RTE cereal sales dollars declined 0.4 percent to $6.1 billion in food/drug/ mass stores, excluding Wal-Mart. This follows decreases of 3.6 percent and 3.8 percent in the year-ago periods of 2003 and 2004, respectively.

Retailers, manufacturers, and industry observers alike say these numbers reflect a shift in how consumers are making their breakfast cereal choices. Many category players in retail and manufacturing, as well as nutrition experts, say the change in emphasis on healthier choices is likely to be a permanent one.

"I think that the trend will last, as there are data to support our need to switch from heavy reliance on refined grains to the selection of more whole grain products," says Julie Miller Jones, a professor of nutrition and food science at the College of St. Catherine in St. Paul, Minn. "I think it will be a slow transition, just as the transition from whole milk to skim milk took years."

So just how healthy are the natural RTE cereals currently being touted as better for consumers? "They're usually whole grain, so that's a plus," notes Jones. "However, sometimes they're high in calories because they may have additional fats and sugars. Some granolas are low-fat, and these might be a good choice."

She continues: "The grains, dried fruits, and nuts [in granola] are important dietary components, with many vitamins, antioxidants, and fats that are unsaturated."

Private label climbs aboard

The naturalorganic trend is having an impact in the store brand end of the category, too. A look at IRI's top brands of RTE cereals, appearing in the July 2005 issue of Progressive Grocer's Product Preference Study, showed that private label headed the list.

Tellingly, those sales don't just include cheaper knockoffs of Froot Loops, Cocoa Puffs, and other mainstream brands, notes Bill Ross, owner of Bloomfield Bakers, a Los Alamitos, Calif.-based manufacturer of private label cereals that has carved itself a corner of the healthy cereals market. "With the major retailers joining in on the natural and organic trends, our sales have enjoyed tremendous growth over the past five years," Ross says.

Although Ross won't give out details or talk about specific cereals or retailer partners, he does say, "Our R&D staff is working overtime on new products and concepts for retail stores. There's a real frenzy at the moment."

One retailer seeing significant sales increases from private label natural RTE cereals is Springfield, Mass.-based Big Y, a 51-store chain with locations in Massachusetts and Connecticut. The reason, says Big Y brands development category manager Ann Wallenius, is that "consumers are more health-conscious and more educated about the benefits of eating natural/organics. As acceptance increases, suppliers offer more varieties. Natural foods, and especially organics, are becoming more mainstream."

Wallenius further notes that the chain has observed "declines in sales of adult and family cereals, with those sales shifting into natural and organic varieties."

The simple addition in 2003 of a line of cereals to the retailer's Full Circle private label brand, which "promises to use, whenever possible, certified organic products and minimal processing," has yielded big dividends. "Sales of Full Circle products [doubled] in the first year," relates Wallenius. "It also allowed private label to maintain its share of the category, with other varieties of private label cereal trending down along with the national brands." To keep the momentum healthy, she adds, "Our Full Circle label organic cereals are promoted regularly and are also featured in quarterly natural/organic ads."

When it comes to the Full Circle line, Big Y chooses to integrate, not segregate. "Using dedicated natural sections may limit the customer traffic to only those customers who shop specifically for healthy food products. We merchandise healthy cereals in the cereal aisle," explains Wallenius. "This gives all of our customers the opportunity to make healthy cereal a part of their buying decision."

As for what's ahead, Wallenius notes, "Consumer sales tell us that we need to keep looking for more healthy cereals to add to our existing offerings."

By contrast, private label represents only a "very small part" of the sales of healthy RTE cereals at Green Hills Farms, a one-store family-owned independent in Syracuse, N.Y., but that doesn't mean that better-for-you items aren't experiencing higher sales.

The store has responded to increased shopper demand for healthy RTE cereals by stocking such brands as Kellogg's Kashi and General Mills' Cascadian Farm and Muir Glen, which once would have been classed as "specialty items," says director of operations John Mahar.

Mahar describes Green Hills' category management strategy as "very customer-focused," and that includes integrating natural SKUs in the cereal aisle. "We prefer to have items integrated in the respective categories," says Mahar. "We feel, with the size of our store [22,000 square feet of selling space], we can accommodate our customers' needs better this way, and perhaps sell someone who isn't necessarily looking for a natural item, but cereal in general."

According to Mahar, it's the healthier offerings from the big guys -- Kellogg Co. and General Mills -- that are especially flying off the shelves. "During the fat-free craze a few years back, brands like Special K and Corn Flakes were rocking out of here," he notes, "and they're still strong sellers."

Family-friendly health

Despite all the focus on better nutrition, many manufacturers understand that the key to attracting consumers to natural cereals is to introduce exciting products that appeal to the whole household.

"At Kashi, we find that once people have taken the first steps toward healthier eating, they become inspired to make even more healthy choices, and it's something they want to do for their families, too," notes Jeff Johnson, director of nutrition at the La Jolla, Calif.-based company, a division of cereal giant Kellogg Co. "That's why we created new Kashi Mighty Bites, the all-natural whole grain kids' cereal specifically designed for a child's growth and development. It's the first children's cereal fortified with choline, a nutrient necessary for proper brain development." As a way of getting that family-friendly message across, "Kashi currently has one-quarter mod pallet displays for Mighty Bites Cereals, to increase merchandising in stores," says Johnson. "Each display features a $1-off-one coupon. We also have a trial-size shipper launching in late summer/early fall." Mighty Bites first shipped in May 2005.

Richmond, B.C.-based Nature's Path is likewise strong on product development, but according to marketing manager Kevin Greenwood, that's been the company's mandate from day one. "Nature's Path has always used organic whole grains, seeds, nuts, and fruits in our products," says Greenwood. "We're not moving towards the trend; the trend is moving toward us. It's our belief, backed by good science, that real or whole food is the best way to get the nutrients required by the body for good health. Clearly this strategy has resonated with consumers, as our growth over the past three years is in excess of 25 percent."

Among the company's innovative products is Optimum ReBound, introduced in July 2005, a cereal specially formulated for maximum post-exercise muscle recovery and fuel replenishment. The latest addition to the Optimum line of functional cereals that debuted in March 2005, ReBound contains 400 milligrams of omega-3 fatty acids per serving. Upcoming cereal products from Nature's Path include a revamped line of organic chewy granola bars, due this month.

Small brands, big potential

The growing interest in healthy cereals has also benefited such smaller newcomers as Darien, Conn.-based Bear Naked.

"Products need to be widely available for consumers to integrate them into their lifestyle," says Bear Naked co-founder and c.e.o. Brendan Synnott. The company's granolas have made their way into such banners as Kroger, Safeway, Giant, Shaw's, and Ukrop's, along with Whole Foods and Wild Oats.

Continues Synnott, "We believed that the consumer should actually be able to pronounce the ingredients, and then see them in the bag."

So far, he says, this approach seems to be working: "We are the fastest-growing natural cereal (RTE cold) in the country, and have had year-over-year growth of 800 percent each of the last two years."

Getting shoppers to try natural cereals for the first time can be challenging. Says Synnott: "I always try to mitigate that risk for the consumer and allow them to try the product via sampling or events."

Those events, according to Synnott, employ "in-house demo teams that travel the country asking people to get Bear Naked right in the cereal aisle. We do about 400 in-store events per year. In addition, we like to target races like 5Ks, bike races, and triathlons."

The next wave

What's next for RTE natural and organic cereals? That really depends on what consumers want—which right now appears to be even more of the good-for-you stuff.

Says Nature's Path Greenwood: "As consumers take a more active involvement in their overall health, they will demand more nutritional products. Also, future growth will come from more and more consumers wanting nutritious products to be from an organic source."

"In addition, as baby boomers age, they're trying to hold on to their youth and vitality," notes Greenwood. "As a consequence, they're searching out better nutritional options. Beyond that, you have the effect of anyone who's concerned about their or their family's health. You also have a younger demographic that's concerned about health and the environment."

Suggests Bear Naked's Synnott: "I see consumers emphasizing natural sweeteners like honey, rather than the highly refined sugars like high-fructose corn syrup."

Noting that "the general American consumer will always want what tastes good first and what's healthy second," Bloomfield Bakers' Ross believes, "This [healthy cereal] trend is here to stay and will be a decent percentage of total breakfast sales -- although doughnuts will never die."
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