Cold cereal producer finds growth in knockoff approach

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MINNEAPOLIS -- If Toucan Sam heard what Malt-O-Meal is up to, it would throw him for a loop. It would make the Honey Nut Cheerios bee buzzing mad.

The Minneapolis-based company has quietly notched impressive gains in the otherwise lumbering cold cereal market by mastering the knockoff. Its Tootie Fruities bear a striking resemblance to Froot Loops. As for its Honey Nut Scooters -- where have we seen that classic oat ring before?

Malt-O-Meal, recently rechristened MOM Brands, has built a lucrative cold cereal niche by delivering more product for the money than similar cereals made by industry titans General Mills and Kellogg's.

"Once people try us, we have a very loyal group of consumers," said Chris Neugent, MOM Brands' chief executive.

It's a growing group. Between 2001 and 2011, Malt-O-Meal's annual sales climbed from $300 million to about $750 million. In 2009, it opened a cereal factory in North Carolina, a $275 million project. And in the past decade, it has spent $100 million boosting production capacity and efficiency at a big cereal plant in Northfield, Minn.

Not bad for a firm associated for decades with just one product, the hot wheat concoction known as Malt-O-Meal.

The 93-year-old company, owned by descendants of its founder, still makes its namesake product. But hot cereal comprises only about 10 percent of total sales, and most of that comes from Better Oats, a fast-growing instant oatmeal line.

Several newer brands like Better Oats and Mom's Best Naturals -- cold cereals made with natural ingredients -- led the company in February to change its corporate name from Malt-O-Meal to MOM Brands.

The rebranding also reflects a change in the company's strategy. A decade ago, half of its sales came from private-label cereal, products carrying the brands of supermarket chains. Today, that's down to 20 percent.

The core business is Malt-O-Meal branded cold cereal -- Tootie Fruities, Marshmallow Mateys and the like -- that took off in the 1980s.

Cold cereal is a huge business, generating about $9 billion in U.S. sales in 2011, according to Mintel International. But it's a mature, slow-growing business. And Golden Valley, Minn.-based General Mills and Michigan-based Kellogg's together capture more than 60 percent of the market.

Malt-O-Meal has been gaining ground, though, particularly on the No. 3 and 4 players, Post and PepsiCo's Quaker division.

Its share of the U.S. cold cereal business as measured in pounds jumped from 3.1 percent in 2011 to 9.6 percent last year, fourth among major cereal makers and just a bit behind Post, according to Nielsen Co. data provided by MOM Brands.

Consumers usually pay about 20 to 25 percent less for a pound of Malt-O-Meal branded cereal than they do for a pound of its rivals' products, Mr. Neugent said.

Mr. Neugent, Malt-O-Meal's CEO since 2008, makes no excuses for the knockoff approach. "We're not the first ones to come in and have similar products."

The strategy doesn't always sit well with its competitors, though. "We're not on their Christmas card list, I will say that," Mr. Neugent said.

businessnews

First Published June 16, 2012 12:00 AM


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