In addition to revenue growth, volumes are expected to grow by 1bn pounds in production, moving from 11.09bn in 2014 to 12.25 bn pounds in 2019, said the Technavio report.
Smaller sizes, bigger growth for developing markets
Arushi Thakur, senior industry manager at Technavio, said while countries such as the US, UK and Germany will carry the lion share of the market, much of the growth will come via developing markets.
“In developing countries, there is a lot of innovation that is being seen in the packaging size,” she said. “Different package sizes are being used to cater to the needs of the local user … Regions are also introducing a lot of ingredients that can appeal to the larger audience.”
Single-serve package sizes, running from 20 g to 50 g of cereal, are very popular in countries where cereal is not engrained in the culture, Thakur said. There are even companies giving away free packages of cereal in an effort to entice market growth and gain new loyal customers.
Developing market growth is mainly being seen in the Asia Pacific market, including Japan, India and China, she said. There is also a good amount of growth in South Africa.
“The growth rate is very high [in these countries],” Thakur said. “The base is not so big but the level of adoption is much higher than in developed regions.”
Hot cereal, health, innovation and social media: Keys to growing in a crowded market
The most dominant segment for growth in the cereal market will be for hot cereal, Thakur said. Cereal companies are also trying to incorporate healthier ingredients and trends, such as lower sugar, organic and gluten-free, to help reach new market segments across the world.
Gluten-free alone will see a 6% to 7% growth in the next two to three years, she said.
In developed markets, such as the US, she said development of new products will be essential to growth. Companies are focusing on ready-to-eat and fortified products, such as Kellogg's introduction of Omega-3 fortified Raisin Bran for the elderly and other niche market segments.
“A lot of time, they will be saying a product has been enhanced by iron, calcium or vitamin D,” Thakur said. “A lot of stress is being put on the health emphasis.”
Social media is another trend many organizations will use to improve their foothold in the cereal market, regardless of geography. Communication with followers and fans will be necessary to ensure growth, predicts the report.
Thakur believes that each key manufacturer will need to innovate in formulation, packaging or pricing to get deeper penetration in the market.
“That’s going to be the way to go to carve a niche for themselves,” she said.
Thakur also believes companies like General Mills and Kellogg will stay dominant, but saysthere is space for regional players in developing countries to grab a share of the market by introducing unique ingredients or products.