Consumer Confidence
Things Aren't Grrrrreat!
Why Tony the Tiger should be nervous.



Unemployment remains high. Marijuana is legal in 16 states and Washington DC. Animal Planet broadcasts a mesmerizing cathode drip of cute kittens and killer crocodiles around the clock.

   


The breakfast cereal industry couldn’t ask for conditions more conducive to selling Corn Flakes and Rice Krispies, and yet, according to the market research firm SymphonyIRI, America is losing its appetite for ready-to-eat (RTE) breakfast cereals. As the website 24/7 Wall Street recently reported, sales of branded RTE cereals dropped 2.55 percent over the 52-week period ending April 17, and sales of private-label knockoffs fell even harder, with a 7.2 percent decrease in that time. Between 2007 and 2010, sales of Special K dropped 15.9 percent, and sales of Corn Pops dropped 12.8 percent, a fact that suggests both weight-conscious middle-aged women and tubby pre-diabetic tots are abandoning cereal in droves.

In part, the drop-off is due to the fact that the Kellogg’s issued a voluntary nationwide recall in July 2010 for 28 million boxes of Corn Pops, Honey Smacks, Froot Loops, and Apple Jacks after consumers complained about the “off-taste and smell” in these products and reported at least five bouts of “nausea and diarrhea.”

But these days even Tony the Tiger would be hard-pressed to summon much enthusiasm for breakfast cereal’s long-term prospects. Last August, Euromonitor International projected that North American sales would “remain stagnant from 2010 to 2015.” According to the USDA’s Economic Research Service, breakfast cereal consumption peaked in 1994 at 14.8 pounds per person — and has since dropped to around 10 pounds per person. In a 2007 survey conducted by Research and Markets, only 52 percent of respondents cited cereal as their top breakfast choice. And then there is what stands as perhaps the most damning evidence of our growing malaise for highly refined carbs sweetened with more highly refined carbs: Cereal City USA, a $22-million theme mall that Kellogg’s built in 1998, lasted less than a decade before shutting its doors in 2007 due to poor ticket sales. When tourists are no longer lining up to have their photos taken with giant incarnation of Tony the Tiger or Toucan Sam, you know a cultural era has ended.

For decades, the breakfast cereal sector has been one of the industrial food system’s crown jewels. More than 100 manufacturers produced hot and cold cereals in the first decade of the 20th century, according to a 2000 industry overview written by USDA agricultural economist Gregory K. Decker (“Cereal Sales Soggy Despite Price Cuts and Reduced Couponing”). Like an over-microwaved bowl of oatmeal, however, the industry congealed quickly. By 1954, just four firms controlled more than 80 percent of the RTE cereal market, and that same level of concentration continues today: Kellogg’s, General Mills, Post (now owned by Ralcorp), and Quaker Oaks (now owned by PepsiCo) manufacture approximately 75 percent of the brands you see in the cereal aisle of your local supermarket.

These four companies process tons of corn, wheat, sugar, and other cheap commodities in giant factories using machines that look capable of manufacturing state-of-the-art robots, or at least something a little more complicated than a corn flake. During the production process, they add value with a dash of vitamins and minerals, then throw in a dollop of packaging and several heavy scoops of advertising and marketing.

Because these four companies control so much of the market, they’re able to exercise economies of scale at every point of the way between the cornfield and your kitchen table. They pay less for raw materials than smaller producers because they buy such large quantities. They achieve advertising efficiencies that tinier players can’t match because they can afford to buy bigger (and thus cheaper) blocks of media time. Rarely, however, do breakfast cereal manufacturers pass their savings along to consumers. According to the University of Wisconsin’s Food System Research Group, only 36 percent of a box of cereal’s retail price goes to production costs. With 20 percent going to the retailer, that leaves cereal-makers with gross margins of around 44 percent, which, for the food manufacturing industry, is relatively high.

To critics, every bowl of Cap’n Crunch is a sweet, crunchy example of all that is wrong with America’s food system. Some brands feature whole grains, few chemical additives, and relatively tame amounts of sugar, but as a category, many breakfast cereal brands fall toward the calorie-dense, nutrient-poor end of the spectrum. Consumer Reports found that 11 popular brands are more than 40 percent sugar by weight, and even brands that at first glance may seem relatively healthy include some surprises in the fine print of their nutrition labels. For example, one cup of Cascadian Farms Organic Oats and Honey Granola contains 348 calories and the same amount of sugar (19 grams) as a standard-sized Hershey bar; once you add a half cup of 2 percent reduced fat milk, it has roughly the same amount of fat (11.5 grams) as a McDonald’s Cheeseburger.

Then there’s the fact that consumers aren’t just paying for empty calories. They’re also paying for empty advertising and economically inefficient couponing campaigns that manufacturers spend several hundred million dollars each year on just to print, distribute, and process. To push salty, sugary, over-priced flakes and  puffs down the flabby gullets of America’s children and maintain their oppressive grip on our nutritional destinies, critics contend, cereal manufacturers rely on silly rabbits and histrionic leprechauns. In 2007, the average child viewed 757 cereal commercials on TV, which, one suspects, was about, oh, 757 more than he saw for scrambled tofu.

To temper such outreach efforts and liberate consumers from the clutches of the breakfast cereal cabal, government agencies, elected officials, and activists have proposed federal intervention. In the 1970s, the Federal Trade Commission initiated a decade-long and ultimately unsuccessful lawsuit against the industry’s big four players, charging them with price collusion and, as economist Gregory K. Decker put it, “product proliferation as a barrier to entry.” In 1995, Congressman Chuck Schumer (D – NY), an “avid muncher of Cookie Crisp and Frosted Flakes” according to the Philadelphia Inquirer,  complained about “paying caviar prices for cornflakes quality,” and asked Attorney General Janet Reno to investigate the industry for price collusion. In recent years, organizations the American Academy of Pediatrics’ Communication Committee have been calling for more regulation of breakfast cereal marketing aimed at children.

No new decrees have been enacted yet, but as the industry’s current lackluster sales show, consumer indifference has a regulating effect of its own. We’re eating less cereal now not because of the legislative efforts of hungry politicians, but because other options engage us more now. For one thing, breakfast has grown into a meal we prefer to eat in the warm, homey comfort of McDonald’s rather than the cool industrial sheen of our high-end show kitchens. Then there’s the fact that many low-carb diet aficionados would sooner eat a bowl of cigarettes than a bowl of Corn Chex. Finally, the industry’s eating itself via the rising popularity of breakfast bars.

For those who still want their morning hit of rolled wheat, corn syrup solids, soy lecithin, and calcium carbonate, breakfast bars offer a more portable, more
efficient calorie consumption experience, with no peripherals and upgrades (bowls, spoons, milk, bananas, etc.) required. In other words, breakfast cereal, the original industrialized fast food, is outdated technology. Now that everyone’s either too busy tweeting to open a carton of milk or too busy practicing sustainable agriculture by poaching eggs from their backyard chickens, ready-to-eat cereal has no place in the world. Froot Loops are now the morning newspapers of breakfast food. • 16 June 2011



Greg Beato is a contributing editor at Reason magazine. Follow @GregBeato on Twitter.

Image by Zanastardust / CC BY 2.0




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Cereal's troubles
Where will kids get their froot?
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