Morning delight

Breakfast cereal makers are finally succeeding in turning a cold market into a hot opportunity

Published 11 years ago on Apr 13, 2013 11 minutes Read

The alarm pings seemingly hours before it’s time to wake up. The children have to be shepherded to school, there’s no time for gym and the lists of pending chores will stay pending another day because there’s a meeting that’s going to finish late in the evening. Is this what runs through your head in the morning? Yes! says Preeti Kumar, who works for a leading private bank in Bengaluru and commutes 22 km to work each way. She is health-conscious but her mornings are too frantic to warrant a ‘proper breakfast’. “There’s never enough time these days,” sighs the 35-year-old who still rates idli-chutney as her favourite morning meal. “So these days, we just have cereal. It’s nutritious and convenient and there is a lot of variety.” 

Kumar is among the growing numbers of Indians who are driving the fast-exploding breakfast cereal market, valued by Euromonitor International at approximately ₹870 crore in 2012, which Kellogg’s leads with a market share of 57%. “As compared with what we had in the 1990s, we are now in a very receptive market,” says Aditya Bagri, general manager, marketing, of the ₹45-crore Bagrry’s India, a No.2 homegrown player with a 15.2% market share. “It is no longer necessary to explain the health benefits [of breakfast cereals] because consumers are already aware. We also find that many younger people are willing to move away from heavier traditional breakfasts to cereals.” 

It wasn’t always like this. Just ask Kellogg’s. The American giant got off to a decidedly soggy start when it launched in India in 1994. A nation that was used to starting its mornings with a hot, savoury meal didn’t warm up to the idea of a sweet breakfast with cold milk. It’s taken the company the better part of the past 20 years to lead a market that’s still minuscule compared with global markets. Still, there’s finally an expanding, sustainable market for breakfast cereals with several big players including PepsiCo, Marico, GlaxoSmithKline Consumer Healthcare (GSKCH), Britannia and Dr Oetker Fun Foods. How did these companies finally find a recipe for success in this market?

Breakfast power

First, a little background. The breakfast cereals market is divided into hot cereals (mostly oats, but also oat bran and wheat bran), and ready-to-eat (RTE) cold cereals (corn and wheat flakes, and muesli). Oats (the fastest growing segment of the Indian market) and muesli (next in growth) are not new products but have grown in popularity only in the past six-seven years. To some extent, of course, the market is self-propelled, thanks to higher spending power and hectic lifestyles. The other big reason is the widespread communication on health, especially on the escalating incidence of cardiovascular diseases, diabetes and obesity in Indians. Not only are influencers such as doctors, nutritionists and the media passing on these messages, the companies diligently themselves play the health card in all their communication. “New markets require companies to go to customers with powerful reasons to change, which is what these companies have done,” says brand analyst Santosh Desai. “The focus in the breakfast cereals market has been to highlight nutrition and create cultural familiarity with hot and spicy options.”

It seems to be working. A five-year study first published in November 2011 by Euromonitor International, charts the growth of the breakfast cereals market from about ₹222.4 crore in 2006 to ₹751.5 crore in 2011, an energetic CAGR of 27.6%. And if you are wondering why oats is the new wunderkind on the market’s menu, it’s because the ravenous hot cereals segment grew by a CAGR of 47% in the same period. Note, this was on a smaller base of ₹38.5 crore compared with the ₹183.9 crore held by RTE cereals in 2006, which make up the rest of the cereal market. 

The penetration of packaged breakfasts [ready-to-cook upma, poha, parantha etc] is still negligible, even though brands like Britannia’s Healthy Start and Quaker’s Nutri-poha and Nutri-upma are attempting to pitch them alongside breakfast cereals. Instead, the real action is in oats and cold cereals. In fact, the Euromonitor report predicts that the breakfast cereals market will grow by a CAGR of 16% between 2011 and 2016, rising to ₹1,565.20 crore, with hot cereals at about ₹829.54 crore and RTE cereals at ₹735.60 crore. 

Go with the grain

If there’s ever been a clear case of supply-led demand, it’s probably the breakfast oats market. For the longest time, Bagrry’s was the only “name” in the oats market. Then, PepsiCo rolled out Quaker Oats in 2006 and by 2011, companies such as Marico, GSKCH and Britannia had all launched their own versions. “The oats category has been a bit commoditised, but Horlicks Oats has been building its consumer franchise profitably,” reveals Soumava Sengupta, GM, foods, GSKCH. Horlicks Oats was launched in November 2011 and Sengupta says the product accounts for 10% of the GSKCH foods portfolio. Different pack sizes and a brand promise of nourishment have been the main planks of GSKCH’s marketing for oats. 

Where Horlicks has stuck to plain oats, Marico has grown its Saffola Oats to become the No.2 player in breakfast oats (after Quaker) by offering variety. Sameer Satpathy, executive vice-president and marketing head of the consumer products business at Marico, points out that one hurdle in the acceptance of oats was the taste (or rather, the lack of it). Admit it, plain oats tastes like the horse’s food it was originally grown for. “The consumer sees health and taste at the opposite ends of the spectrum. Growth can be unlocked only if this trade-off is minimised,” he says. “So, the research and development team at Marico was given a simple brief: how can we make oats not just acceptable but one that can be relished?”

It wasn’t easy getting the flavour right for the spiced oats, though — incidentally, Marico was the first to launch flavoured oats in India. “Preferences change every 200 km and arriving at taste preferences that will be liked everywhere, without which the supply chain becomes inefficient, is a particularly interesting challenge,” says Satpathy. Marico’s solution: six flavours catering to regional preferences.

Marico’s success owes a lot to an insight on Indian consumers — the preference for savoury over sweet options at breakfast. Check the aisles of any supermarket in the US or Europe and you’ll find oatmeal variants such as maple sugar, cinnamon, honey and various fruit flavours. In India, even Quaker — which has no savoury flavours in the US, its biggest market — has launched “lemon-veggie” and “homestyle masala” options. And, while it hasn’t let go of its sweet tooth, the flavours have a distinctly Indian feel — strawberry-apple and kesar-kishmish. “Flavours have to align with the habits and every day life of consumers,” says brand analyst Desai. “So, to get the flavours right, brands have to keep old habits in mind even as they try to create new ones.”

The potential of the oats segment has spared no one, not even the leader in the breakfast cereals market. “We launched Kellogg’s Heart-to-Heart Oats to participate in the exploding oats category,” confirms Kellogg’s India’s managing director, Sangeeta Pendurkar. India is the only market where the king of cold cereals has stepped into the ready-to-cook category. It’s not the first time Kellogg’s has tailored its offering to suit the local market here. 

 On second try 

Kellogg’s entry into India was almost an exercise in how not to launch a brand. Not enough products, not enough stores, exorbitant prices, alien tastes ignored… the list goes on. “The products were not marketed for good taste as they are in the US, but instead for health reasons,” adds Deborah Cross, food industry analyst and packaged food expert at Euromonitor International. “They assumed there was a gap in the market for premium brand products, so introduced only three corn flakes brands, only in premium outlets. Many consumers either had no access to, or could not afford the Kellogg’s products. They did not do much due diligence and market research on the Indian market until several years after they entered it.”

Once the research was done, Kellogg’s slowly started tweaking its India strategy. It expanded its offering to include locally popular flavours such as mango, banana and strawberry. In parallel it paid equal attention to children, virtually creating the children’s cereal market with products such as Chocos and Honey Loops. Pricing was an issue — at the time of launch, Kellogg’s basic corn flakes was considerably more expensive than then-market leader Mohun’s. In 2006, the company came up with single-serve packs priced at ₹10; unit for unit, it was still costlier than Mohun’s but the packs were aggressively promoted as an after-school and early evening snack. “We have assimilated a lot of data on breakfast habits across the country,” says Pendurkar. “Rather than a purely demographic segmentation, adults and children are equal opportunity markets for us and we are building the segments simultaneously.” She declines to say whether the company is in the black or not, nor does she confirm the company’s filing with the RoC, that shows sales of ₹301 crore and a profit of ₹9 crore for FY11.

As the current head of a patient player who had to wait for nearly two decades before the market took off, Kellogg’s Pendurkar feels, “there is no formula for the waiting period”. Any change of habit is a long-haul game and there are too many variables — consumer needs and investment by the organisation, among others — to arrive at a formulaic result. Still, once it realised it was on the wrong track, Kellogg’s followed a conventional blueprint, checking all the right boxes when it came down to product, price and promotion. 

Everyone wants a bite

Indeed, one reason for the growth in the breakfast cereals market is the determined marketing efforts of the various players. Kellogg’s is perhaps the most visible, thanks to its celebrity endorsements but others are also ensuring their brands are seen and remembered, especially at the point of sale. Saffola, for instance, has gone national with its oats variants only in the past year, while its muesli was launched in August 2012. Since it soft launched the masala oats in South India, the marketing efforts — including on-ground activations with local celebrity chefs, festival-themed cooking shows, trial packs, in-store promotions — were concentrated in that region. Similarly, with its early-mover advantage, Quaker Oats had close to four years to establish its presence before other big players stepped into the breakfast oats space. It did this with traditional TV and print ads, as well as online.

Apart from the usual social media presence, the company also created Good Morning Heart, which offered health diagnostics, healthy cooking and fitness tips, and advice from nutrition specialists and dieticians. In 2009, it started the “mission to make India heart healthy” in collaboration with Apollo Hospitals, Chennai police and some corporate houses, where it offered an online health check-up and personalised diet counselling by nutritionists. Two years later, it followed up with the Smart Heart Challenge that invited employees with high risk of heart disease to change their eating habits, work out and de-stress daily, and have their cholesterol checked at Apollo Clinics, all for free. “Oats is still a nascent category in India, but the fastest growing within the breakfast segment,” says a PepsiCo  spokesperson. “We are investing heavily to educate the consumer.”

Over the years, Kellogg’s too has pumped in serious sums of money into marketing activities in India. It is a regular advertiser on television and in print and has signed on celebrity brand ambassadors for its various products. 

Not surprisingly, local players find it difficult to match the marketing muscle of the big multinationals. Bagrry’s, for instance, does virtually no advertising, instead it is focusing on improving its distribution network — it’s already available in over 130 cities and towns across India, Nepal and Bhutan. But Bagri isn’t complaining about the advertising onslaught.“The multinationals have opened up the category and built awareness, which is a plus,” he says. “So the competition here is more a marketing opportunity than a negative.”

Certainly, another small player, the Mumbai-based Express Foods, is cashing in on the growing popularity of muesli by offering something more than just a box of cereal (even though the company does that with eight variants under the Harvest Crunch brand). In late 2011, it launched the Express Foods Cereal Bar at an upmarket department store in south Mumbai; there are now five such cereal bars across Mumbai, Bengaluru and Delhi. Here, customers can make their own muesli mixture, choosing from premium ingredients such as cranberries, blackcurrants, Belgian chocolate chips and Californian almonds. “Customers like the concept because of the customisation possibilities,” points out C Jaikishan, director, Express Foods. “Not having the financial resources to compete with the advertising budgets of the Goliaths means our products are our brand ambassadors,” he adds. 

Will all this frenetic activity ensure that the market continues to remain charged up? Analysts believe that while the overall market will certainly grow, there could be a shuffling of marketshare — Kellogg’s leads the pack currently but will have to work harder to remain on top. “Most of the innovation in breakfast cereals within the last few years has been in hot cereals and muesli, and Kellogg’s mainly offers RTE flakes,” explains Euromonitor’s Cross. “Hot cereals trend more with the traditional tastes of Indian consumers.” 

Internationally, the breakfast cereals market is mature, even ageing, with multiple formats, flavours and pack sizes. In India, as Marico’s Satpathy points out, “penetration is low and so is the frequency at which breakfast cereals are consumed.”  This, then, is a market that is only just waking up.