Cereal bars February 2010

Issues in the market Growth of 66% to £1.85 billion in the sandwich shops’ sales over 2005-2009 was largely driven by store expansion. The leading operators added some 1,100 net new stores to their combined portfolio. The sector appears to have held its ground quite well in the recession, with estimated sales growth of 8% in 2009. The sector faces intense competition from non-specialists like coffee shops and from the home made sandwich. Key themes How has the cereal bar sector performed in the recession? What are the differences across demographic groups in cereal bar purchases and attitudes to cereal bars? How is the competitive landscape changing? How do non-users see cereal bars and what factors are putting them off?

Summary Market Performance Growth of 41% in value sales over 2004-09 saw the cereal bar market reach an estimated value of £324 million. Consumer interest in healthy eating and the recent growth in snacking, as well as brand activity have contributed to growth, though the sector has under pressure as a discretionary spending area. Opportunities for growth Sampling could convert non-users, as only one in four see cereal bars as tasty and one in eight as satisfying, but fewer than 15% as boring or unsatisfying, suggesting low awareness and prejudices. Looks, size and sweetness are all noted as off-putting by around one in six non-users, highlighting these as key areas in product development and marketing to attract new users. Future of the market Growth of 46% is forecast for the cereal bar market over 2009-14, to reach £472 billion in 2014, the growth set to benefit from rising disposable incomes and demographic changes. Brand activity, both in terms of marketing and in new product development, will remain important factors in the sector’s growth.

Internal Market Environment Health considerations waning The trend towards healthy eating has waned in 2008 and 2009. However, a sizeable minority still take an interest in issues like health and the natural credentials of food. Snacking and indulgence on the up Snacking and indulging with food have gained popularity in 2008 and 2009. This appears to signal a shift towards eating for comfort and little treats, as well as reflecting the ‘time squeeze’. Cereal bars = confectionary? The children's market for cereal bars has been affected by regulations on packed lunches at school classifying them as confectionary.

Broader Market Environment A challenging 2010? Consumer confidence was steadily improving from early 2009, but wavered towards the end of the year. Mintel expects a challenging 2010 for consumers. Growth in 25-34-year-olds is good news The number of 25-34-year-olds and over-55s is expected to grow the most over 2009-14. Question marks remains over whether cereal bars can attract the latter. ABs put health and naturalness in focus The AB population is projected to grow by nearly one million people over 2009-14, which is likely to put the spotlight on health, naturalness and variety.

Strengths and Weaknesses The market continues to attract entrants from other sectors, bringing variety and new consumers to the category. There are also number of established, strong brands present, their investment benefiting the sector as a whole. The most popular occasion for cereal bars is as a snack, the current rise in snacking thus in the category's favour. Two in three adults see cereal bars as convenient, boding well given the ongoing trend towards snacking on the go. Cereal bars are well-placed to benefit from the trend towards healthy eating, though need to push their health credentials. Cereal bars have a poor value image, putting them in the line of fire in the recession. Cereal bars face lack of interest and prejudices among non-users, just one in four seeing the bars as tasty (25%), and one in five (21%) as healthy . Even among users, the bars have a lacklustre image in many areas, and may need to sharpen their individual credentials. The children's market has been negatively affected by regulations on school lunches. Cereal bars have a long way to go on the list of preferred snacks, currently ranking seventh, with granola bars in 11th position.

Who’s Innovating? Range extensions took the lead in launch activity in 2009, new products having held top position in 2007 and 2008. However, new entrants have helped to keep up the new product count, such as biscuit and breakfast cereal brands launching cereal bars. No company dominates new launch activity, reflecting the fragmented market. Private label accounts for just a fifth of all new launches. A number of brands have looked to boost their health proposition, eg by offering part of the daily fibre or fruit intake per bar, or containing less than 100 calories.

UK sales of cereal bars and growth index, 2004-14 Market Size and Forecast UK sales of cereal bars and growth index, 2004-14 Source: Mintel Estimated to have reached £324 million in 2009, the cereal bar market grew by 4% against 2008 and by 41% since 2004. The sector has benefited from underlying consumer trends and brand activity over the period. However, it has come under pressure in the recession, as discretionary goods. Growth of 46% to £472 million is forecast over 2009-14, benefiting from the expected rise in personal disposable incomes, but dependent on brand activity.

Leading brands’ shares in the cereal bar sector, 2009 Market Share Leading brands’ shares in the cereal bar sector, 2009 At 80%, the combined share of the top five operators is quite high, signalling a highly consolidated sector. Kellogg's captures around a third of the cereal bars market. The combined share with United Biscuits comes to nearly a half, while the rest of the market is fragmented. Rice Krispies Squares and Nature Valley have posted the strongest sales growth in recent years, albeit from a low base, helped by strong marketing . Snack bars positioned as healthy or light have all posted healthy growth in the past few years, while those pitched as general snacks have lagged behind. Source: Mintel

Preferred snacks, December 2009 Snack preferences Preferred snacks, December 2009 Base: 1,000 internet users aged 16+ Classics hold the lead in snack preferences, with crisps in the lead followed by biscuits and cakes. Fruit and fruit smoothies are close behind, benefiting from the recent 5-a-day push. Favourite snacks by age group show the 16-24-year-olds as partial to sweet things. The 35-44-year-olds appear to take little interest in health, while no sweet treats make it to the top selection of over-55s. One in three adults (35%) eat cereal or snack bars and one in four (24%) eat granola bars, ranking 7th and 11th in the list of preferred snacks, respectively. Source: Toluna/Mintel

Occasions for eating cereal bars, December 2009 Usage occasions Occasions for eating cereal bars, December 2009 Base: 426 internet users aged 16+ who eat Cereal/Flapjack/ Granola bars Snacking between meals is the only ‘universal’ occasion for snack bars, used for this by two thirds of people. Two in five have adopted the bars as an alternative to other snacks, likely thanks to high profile publicity by leading brands. The bars are used as a breakfast alternative by one in three, reflecting the close connotations with breakfast cereal brands. Clearer targeting of specific occasions by brands could help support broader usage among existing users of cereal bars. Source: Toluna/Mintel

Consumer attitudes to cereal bars Words associated with cereal bars, December 2009 Base: 1,000 internet users aged 16+ Cereal and snack bars are seen as first and foremost convenient. Other than this, it seems, there are no generally accepted qualities, likely reflecting the varied nature of the products in the category. Among users, the views on cereal bars are generally very positive, however just one in five users see them as offering good value for money, and less than half as satisfying. Snack bars seem to hold little interest to non-users. One in four see them as tasty and one five as healthy, however, less than 15% describe them as boring or unhealthy. Source: Toluna/ Mintel

Reasons for not eating cereal bars, December 2009 Consumer – reasons for not eating cereal bars Reasons for not eating cereal bars, December 2009 Base: 574 Internet users aged 16+ who do not eat cereal and granola bars Nearly two in five people (37%) who don't eat snack bars point to lack of relevance as the reason. One in four note preferring other snacks. Looks, size and sweetness are all noted as off-putting by around one in six non-users, highlighting these as key areas in product development and marketing. Two in five non-users note just one reason for not eating cereal bars, potentially good news for the market. Source: Toluna/ Mintel