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AMZ Effect: Breakfast Cereal

By October 18, 2018 No Comments

by Jacob Porter, One Click Retail

Dry goods are the backbone of Amazon’s grocery sector. The ecommerce giant, responsible for roughly half of all online sales in the US, has been pushing fresh foods for years but it’s hard to imagine that consumer adoption levels will ever catch up to non-perishables. Improvements in rapid fulfillment and features like Amazon Fresh and Prime Pantry have helped raise public awareness of Amazon as a complete grocery destination, but when it comes to fruit, vegetables, meat and other perishables, consumers still value their ability to see, touch and smell before buying.

So Amazon’s grocery sector has been driven by non-perishables, and one of the key categories has always been Breakfast Cereal. Breakfast has an outsized influence on Amazon’s Grocery sector. The top two categories – by a wide margin – are Coffee and Cold Beverages, and it’s safe to say that in America Coffee is usually associated with breakfast. Cold Beverages, as it turns out, is also highly breakfast driven, with a significant share of the market held by Instant Breakfast Drinks, Meal Replacement Drinks and Energy Drinks. The Breakfast Food category isn’t far behind – it ranked as #4 in our most recent report (Q2 2018) – revealing just how hungry Amazon shoppers in the US are for cereals, breakfast bars, toaster pastries and other morning foods.

Not only is breakfast the most important meal of the day, it’s arguably the meal most impacted by the latest trends in lifestyle and consumer buying habits. With that in mind, let’s take a look at the year-to-date performance of Breakfast Cereal on Amazon and the wider trends playing a role in 2018.

AMZ Effect: Breakfast Cereal

The Breakfast Cereal category is divided into two subcategories: Cold Cereal which includes traditional cereal, granola and muesli, and Hot Cereal such as oatmeal and grits. Together, these two product types experienced a growth in YTD sales of 25% compared to the same period in 2017, amounting to estimated total sales in the area of $50M.  Cold Cereal is the larger of the two, with $30M in estimated sales, but Hot Cereal grew faster than its counterpart. The 30% YoY growth in sales of the latter subcategory can be attributed to a particularly strong winter season, in which weekly sales of Hot Cereal from January to March of the year peaked just shy of $500k, compared to only about $300k during the first three months of 2017.

Major Brands Continue to Lead

It’s no surprise that when we look at the top ten performing items YTD 2018, six come from one of two major brands: Kellogg’s and Quaker, leading in the Cold and Hot Cereal subcategories respectively. The biggest trend across these leading items is the popularity of variety packs, accounting for two-thirds of these items including the YTD bestselling Breakfast Cereal.

The leading Cold Cereal, Kellogg’s Frosted Mini-Wheats, is one exception to this trend, and it also breaks an even more relevant trend: it’s the only one of the six major-brand items on this list that does not come in single-serve packaging.  Individually-packaged servings are common in the Breakfast Cereal space because of their portability (you can pack one in your bag or purse) and their shelf-stability (having one serving doesn’t subject the rest of the box to the risk of going stale). But a broader look at the category indicates that single-serve packaging may be losing its appeal, especially when we look at third-party sellers and emerging brands.

AMZ Effect: Breakfast Cereal

Emerging Brands and Third Parties are Catching Up

It’s crucial to note the disparity between first- (1P) and third-party (3P) sales during this period. In Cold Cereal, which as a whole grew by a healthy 20% YoY, 1P sales grew by a meager 10% while 3P sales nearly doubled. This brings 3P Cold Cereal sales to almost $12M, a 40% share of the subcategory and growing.

More importantly, 3P sales of Cold Cereal is entirely comprised of products marketed to health-conscious consumers. For instance, the bestselling 3P Cold Cereal from ProGranola includes the following in its Amazon product title: “Paleo : Low Net Carb : Gluten Free : Grain Free”. This is consistent with recent trends across many product categories, such as Cosmetics where Amazon’s 3P sellers are at the forefront of the clean-living movement. These 3P sellers have responded to consumer interests and social media-driven trends much more quickly than 1P brands, attracting consumers seeking healthy and/or ethical alternatives to established category leaders.

But in Breakfast Cereal, healthy-living is neither limited to 3P sellers nor to emerging brands. Low-sugar versions of popular cereals are gaining traction and emerging 1P sellers are earning more customers by marketing a healthier alternative, such as Nature’s Path Organic Cereal using the following bullet-points on their product detail page:

  • “15g whole grains, 2g fiber, 2g protein and Kosher”
  • “Nothing is added – no sugar, no salt”
  • “All Nature’s Path products are USDA Organic, Non-GMO verified and Vegetarian”

The same trends are also visible in the Hot Cereal subcategory to varying degrees. Although 3P sales are growing more slowly compared to Cold Cereal, it’s not by accident that the #2 Breakfast Cereal YTD on Amazon.com is a 3P Hot Cereal: Bob’s Red Mill Rolled Oats. Bob’s Red Mill is also the #2 Hot Cereal brand by market share, controlling 20% of the subcategory. This success can be attributed to numerous factors including high-quality page content which accentuates the nutritional benefits of whole grain oats and a very prominent “Non-GMO” stamp on the product detail page.

Another key advantage is the inclusion of “Old Fashioned” in the product title; this is an appeal to emotion which may speak to many of the same consumers who are trying to make more healthy and ethical purchasing decisions. This is a tactic also embraced by Bob’s Red Mill’s closest competitor, McCann’s Steel Cut Oatmeal. Despite being a large international brand, McCann’s uses its small business roots to appeal to shoppers:

  • “All McCann’s oats are grown in the counties of Kildare and Meath in Ireland… and harvested specifically for McCann’s by local Irish farmers “
  • “Warming the hearts, minds and souls of the most discriminating oatmeal lovers for over 150 years”

The growing footprint of 3P brands on Amazon is visible in the fact that if we eliminate the two leading brands in both Cold and Hot Cereal, the top items are both held by 3Ps. However, the trend in favor of value-driven purchasing is benefitting both 1P and 3P brands. The four leading items from emerging brands – Bob’s Red Mill, ProGranola, McCann’s and Nature’s Path – are all at a disadvantage: the first two are 3P items and the latter two are Exclusively for Prime. It’s remarkable that despite these disadvantages all four of these brands have earned a place among the top ten bestselling Breakfast Cereals YTD.

The trends illustrated by Amazon’s Breakfast Cereal category will continue to grow in their influence on the entire grocery sector in the coming months and years. Smaller brands can benefit from their ability to respond and adapt to changes in consumer habits, whether it’s social media trends, value-driven shopping or new technologies, but agility doesn’t just belong to emerging brands. With the right tools and insights, all brands can learn to adapt responsively to consumer priorities, to reach a larger audience and to earn the loyalty of shoppers. Identifying and appealing to new trends is crucial in today’s competitive ecommerce-driven market, and it’s up to brands to set themselves up for success.