Cereal makers will look to healthy and convenient options to help offset competition
Los Angeles, CA (PRWEB) January 25, 2013
Conflicting trends over the past five years kept the Cereal Production industry somewhat stagnant. As consumers' budgets tightened during the recession, many turned to cereal as an inexpensive breakfast option. According to IBISWorld industry analyst Olivia Tang, “These households typically opted for the cheaper varieties at the expense of major players' branded cereals.” In 2010 and 2011, however, revenue declined as consumers used their rising disposable income to indulge in luxuries they had postponed during the downturn, like eating at restaurants. Also, as people returned to work, they had less time to prepare breakfast, instead buying food at cafes or coffee shops, hurting cereal demand. Fortunately for the industry, though, households evened out their spending in 2012 to include cereals, namely branded products and more expensive healthy cereals. This trend is expected to lift revenue 0.5% in 2013. Consequently, revenue is expected to fall only 0.2% per year on average to $11.7 billion in the five years to 2013.
Meanwhile, profit has been volatile over the five-year period due to fluctuations in commodity prices. For example, the price of wheat soared 41.4% in 2011 due to a Russian export ban in 2010. Other major industry inputs, including barley, sugar and corn, experienced similar price jumps due to supply shocks. With most companies unable to fully pass on these cost hikes to price-conscious consumers, the Cereal Production industry’s average profit margin is expected to contract slightly in the five years to 2013. “Because the industry has a high level of concentration, with large companies like General Mills and Kellogg’s dominating the market, smaller firms were often unable to engage in price-based competition with these larger stores and still maintain profitability,” says Tang. As such, many of these stores were forced to exit the industry, causing the number of cereal production companies to decline at an annualized rate of 0.6% to 34 during the five years to 2013.
During the next five years, recovering disposable income will encourage consumers to purchase more high-end cereal, which is often marketed as a healthier option. In addition, more Americans will likely purchase breakfast bars as an on-the-go meal. Consequently, revenue is expected to grow slowly but steadily over the period. Still, growth will be limited by rising competition from substitutes, like yogurt parfaits bought from coffee shops. Consumers are expected to eat out for breakfast more frequently as higher employment levels tighten schedules, tempering demand for industry products. Input prices will also continue to pressure profit, but will rise at slower rates than they did in the past five years, allowing margins to stabilize. For more information, visit IBISWorld’s Cereal Production in the US industry report page.
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IBISWorld industry Report Key Topics
The industry acquires raw materials such as corn, wheat, flour, sugar, malt extract, rice and salt from various sources and processes these ingredients into ready-to-eat cereals, hot cereals and cereal bars. It also purchases raw materials such as plastic and paperboard containers from other manufacturers for packaging purposes. The finished breakfast cereals are subsequently sold to grocery wholesalers, retailers and food service providers.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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