Report Highlights

Breakfast isn’t for breakfast companies anymore, or so the numbers suggest. Clarkston Consulting analyzed information from the latest quarterly earnings releases and quarterly filings of the fourteen dominant players engaged in the U.S. breakfast foods manufacturing category. The companies included in the analysis are ConAgra (CAG), General Mills (GIS), Kellogg Company (K), Kraft Foods (KRFT), PepsiCo (PEP), Nestle (NESN), WhiteWave Foods (WWAV), Group Danone (EPA:BN), Dean Foods (DF), Post Holdings (POST), Bob Evans Farms (BOBE), Hillshire Brands (HSH), Tyson Foods (TSN), and Hormel Foods (HRL).The breakfast foods industry continues to face mounting pressure from acute input inflation costs, especially meat and milk; excess production capacity; changing consumer preferences across the spectrum of shopping habits, purchase behavior, and consumption patterns; as well as an ever more demanding retail customer base. In the wake of these challenges, there resides a number of opportunities that leaders in the breakfast foods industry are hotly pursuing including plant consolidation; margin enhancement through higher pricing; innovative protein-based breakfast foods with consumption appeal beyond the traditional morning hours; and M&A to harness synergies and new revenue growth.

The breakfast foods industry continues to face mounting pressure from acute input inflation costs, especially meat and milk; excess production capacity; changing consumer preferences across the spectrum of shopping habits, purchase behavior, and consumption patterns; as well as an ever more demanding retail customer base. In the wake of these challenges, there resides a number of opportunities that leaders in the breakfast foods industry are hotly pursuing including plant consolidation; margin enhancement through higher pricing; innovative protein-based breakfast foods with consumption appeal beyond the traditional morning hours; and M&A to harness synergies and new revenue growth.

Top 3 Consumer Trends:

1. Need for healthy, satiating, convenient breakfast
2. Push for protein
3. Growing comfort with online shopping

Top 3 Category Disconnects:

1. Emphasis on trade marketing spend with declining category performance.
2. Focus on retail despite the emerging online channel.
3. Attention on traditional breakfast with declining category strength.

Impacts

• Despite general awareness of the benefits of a healthy, balanced breakfast, there are still many Americans skipping or skimping on breakfast, limiting the category’s growth potential. An opportunity exists for a brand to take over breakfast through consumer engagement, as demonstrated in recent years by PEP’s success with Frito-Lay engagement programs in snacks and with creative food service partnerships. Use open innovation to let the consumer create the breakfast experience for the brand, with the brand.
• Manufacturers need to be more nimble and open their innovation engine to fully understand and connect with their consumers. Those who are flexible to incorporating protein and other flavors or ingredients that are in high demand will be able to better compete for valuable retail shelf space and market share. HSH and TSN are in a great position with their dominance of the animal protein segment, and they are working to keep profit margins high in a volatile input cost environment by offering new products like breakfast sandwiches that include higher margin ingredients.
• To be a leader in the shift to ecommerce, manufacturers need to reevaluate their trade marketing spend to allocate their dollars to avenues that better align with how consumers are buying. Mobile and digital investments will pay off in both brand building and reaching consumers as they research, share information, and shop online. However, manufacturers who continue to pour money into physical retail promotional spend are experiencing diminishing returns from merchandised products as competitive retailers accept more promotions and dilute the effectiveness of any single promotion. Full omnichannel strategies will yield the highest return on investment.

For more information on Clarkston Consulting’s findings, download the report.