Post Holdings sees cereal demand dip as Gen Z seeks healthier breakfasts

Dive Brief:

• Post Holdings’ cereal volumes declined 2.3% in its most recent quarter as the category continues to face falling demand, according to the company’s earnings report. 
• Niche brands with better-for-you ingredients have chipped away at the market share of cereal giants such as Post, the company’s chief operating officer Jeff Zadoks told analysts.
• The Honey Bunches of Oats owner is leaning into premium cereals to maintain market share in the slumping category, Zadoks said.

Dive Insight:

Younger consumers are abandoning cereal for protein-heavy alternatives like yogurt, cottage cheese and overnight oats. This has put pressure on sales for some of the largest players in the cereal category, including WK Kellogg Co and General Mills.

Big cereal companies are struggling to compete in the growing niche cereal market, Zadoks said. Although more expensive, smaller cereal companies have the flexibility to innovate in manufacturing as they're not bound to large production contracts.

“It's been a challenge for the large manufacturers to succeed in that space, partly because we and our peers are not set up for small-run products, so the margins are really difficult to make sense,” Zadoks said.

Last August, the Associated Press, citing Nielsen IQ data, reported that unit sales in the cereal category declined 4.2% in the previous twelve-month period.

Startup cereal brands touting healthier ingredients have grown in recent years. The direct-to-consumer brand Magic Spoon, which contains 12 grams of protein per serving, has built a strong retail presence in thousands of grocery stores.

Post has turned to innovation to spur growth among its cereal segment. Last month, the company debuted a chocolate flavor of Honey Bunches of Oats.

Despite sluggish cereal sales, net sales at Post during the quarter increased 0.4% to $2 billion. 

Competitor WK Kellogg Co, which released earnings on Tuesday, also lamented the challenging consumer environment on its earnings call, Seeking Alpha reported. Sales at the Froot Loops maker fell 1.8% year-over-year in its most recent quarter, while volumes dropped 5.6% and its product mix/pricing rose 3.8%, according to its earnings report.