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It's in the cups.

It's probably one of the last things people think about as Spring approaches, but hot cereal is definitely hot right now. And one of the most interesting new entries comes from the natural foods category.

It's hot cereal in a cup. Consumers just add water and stir, and they've got a hot, healthy breakfast for people on the go - the very people that supermarket executives and their suppliers are trying to better serve.

The concept of hot food in a cup - think soup - was born of the drive for convenience; a factor to which every channel of the industry is paying close attention. After reading the trade papers and attending conferences this past year, executives must think that every shopper in the United States is starved for time, working around the clock, stuck in traffic, and has no idea where the kitchen is or what to do when they get there.

It's an extreme scenario and certainly not applicable to all shoppers, but it is the focus of much industry attention. Consumer research shows that shoppers are looking for convenience, and are willing to pay for products that deliver.

How does all this apply to cereal?

Breakfast? No, it's deskfast

In 1995, Fantastic Foods of Petaluma, Calif., launched the first cereal cup. "We didn't do any test marketing, we just launched nationally in natural food stores," said Larry Tsai, vice president of marketing.

Originally introduced in four flavors, consumer response was swift. And statements like, "why hasn't anyone thought of this before," came back to the company. Fantastic Foods quickly followed with four more flavors within the first year.

"The trial was exciting, and the repeat has been very good," said Tsai. "We're building a nice healthy franchise."

According to Information Resources Inc. scan data, the company posted sales of $2 million in the hot cereal category in 1996, its first year on the market. Since 1975, Fantastic Foods has grown from a small vegetarian restaurant in Mill Valley, Calif., to a $30 million a year business that produces more than 100 instant food products. It operates under the slogan "Healthy Meals for a Hectic World," providing items that play right into the hands of those time-starved consumers.

More and more, people are consuming their meals at work, and that includes breakfast; or what is being newly dubbed deskfast.

According to The NPD Group, a Park Ridge, Ill.-based consumer research firm, the number of people who eat breakfast at their morning destination has doubled since 1990. Whatever their reasons, they need food that is fast, easy-to-prepare and requires minimum clean up.

"We saw the success from our line of soups," said Tsai, "and applied that equation to other foods."

"People are so interested in cups, and the convenience of cups," agreed Joe Leonard, vice president of sales and marketing, The Spice Hinter Inc. "(The consumer) just throws these cups in their desk drawer. It's simple, they don't even need a microwave for this."

The Spice Hunter introduced its own line of hot cereal cups about a year after Fantastic Foods. "What we saw from their results was encouraging," said Leonard.

When soup cups hit it big, according to Leonard, the category became so competitive that price reductions ran rampant. This put the product's profitability, not popularity, in question. But unlike soup cups, the cereal products have managed to maintain their price points during a period when the major players in the cereal aisle are slashing prices on their most popular brands. This may say more to supermarket executives about a product's viability than consumer research data.

"Our hot cereal products last year were the single most successful product launch the company has ever had," said Tsai. "All this happened when major cereal manufacturers were rolling back their prices. We're getting anywhere from 99 cents to $1.39 a cup." One store near GROCERY HEADQUARTERS is charging, and getting, $1.59 for a single serving of hot cereal in a cup.

Both Fantastic Foods and The Spice Hunter are trying to keep prices between $1.09 and $1.14.

"We want people to see this and think 'this is still a pretty good buy,'" said Tsai.

A question of space

No longer a category to scoff at, the sale of natural foods in supermarkets increases every year, and not just in stores with natural formats such as Whole Foods Markets. More and more, supermarket shoppers are being treated to an entire aisle of natural foods.

"NLEA labeling was the single most important factor leading to the natural food phenomenon," said Tsai. "Consumers are spending more time studying what goes into their food products."

But entry into the cereal aisle isn't easy.

"They haven't the funds to make it in the grocery aisle," said Debbie Leland, natural foods and grocery buyer for Rainbow Foods, Hopkins, Minn. Rainbow has a 2,300-sq.-ft. natural foods department in 27 of its 31 stores in the Minneapolis area.

Leland carries Fantastic Foods cereal cups, and took them based on the success of their cupped soup. They sell for approximately $1.09 and "they're doing fairly well," she said. "Based on sales, I'd say it was a pretty decent item."

And while she admits they'd probably sell in the grocery aisle, as well, they simply haven't got the financial resources to justify placement.

"You have to find somebody to be progressive," said Leonard. "We're showing real syndicated data that when we do get into the grocery store, we can sell a lot of velocity or equivalent vs. standard items."

"Retailers really want to put products on their shelves their customers really want," said Tsai.

And, said Leonard, history has shown that regardless of certain trade practices, "consumer demand will eventually win out."

Fantastic Foods Inc. 707/778-7801 The Spice Hunter Inc. 805/544-4466 Kellogg USA 800/Kellogg
COPYRIGHT 1997 MacFadden Communications Group LLC
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Title Annotation:hot cereal products; includes related article on Kelloggs USA
Comment:It's in the cups.(includes related article on Kelloggs USA)(hot cereal products)
Publication:Grocery Headquarters
Article Type:Statistical Data Included
Geographic Code:1USA
Date:May 1, 1997
Words:972
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