Breakfast Cereal Manufacturing
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Industry Overview
The US breakfast cereal manufacturing industry includes about 30 companies with combined annual revenue of about $12 billion. Major companies include Kellogg, General Mills, Post (part of Ralcorp Holdings); and Quaker (owned by PepsiCo). The industry is highly concentrated: the top four companies account for 80 percent of revenue.
Breakfast cereal manufacturing includes companies that make ready-to-serve packaged cereal and cereals such as oatmeal and farina that must be cooked prior to eating. It doesn't include the manufacturing of granola bars, breakfast bars, or packaged cereal snacks.
Competitive Landscape
Demand is driven by demographics and health considerations, particularly the attitudes of busy families and working professionals toward the first meal of the day. The profitability of individual companies depends on managing raw material costs, operating efficiently, and maximizing retail shelf space. Large companies have advantages in purchasing, distribution, and marketing. Small operations can compete effectively by manufacturing cereals that emphasize organic or healthful ingredients. The industry is capital-intensive: average annual revenue per employee is about $800,000.
Products, Operations & Technology
The industry's major product is ready-to-eat (RTE) cereal, which represents 90 percent of total industry revenue. The most popular cereals are made with corn flakes, wheat, oats, mixed grains, or puffed rice. Other products include instant hot cereal, rolled oats, farina, and infant cereal.
To make breakfast cereal, grain is received, inspected, and cleaned at the cereal factory, then crushed by large metal rollers. Whole-grain cereals retain all three parts of the grain: the endosperm, bran, and germ. For flour-based cereals, crushers remove the germ and bran and finely process the remaining endosperm.
Whole grain, flaked cereals are steam-cooked using a rotating pressure cooker. Workers (or, in some cases, automated dispensers) add flavoring agents, sweeteners, salt, and water. Once cooked, the grain mixture exits the cooker onto a conveyor belt and passes through a drying oven in a process known as tempering. The cooked grains retain around 30 percent water moisture so that they can be flattened by large metal rollers, shaped, and cut into flakes. The flakes are conveyed to ovens and tossed into a blast of very hot air.
Puffed and shaped cereals are often cooked by large corkscrew extruders. A flour-based mix passes through the extruder, retaining around 20 percent moisture as it cooks. A rotating knife cuts the dough into distinct shapes as a dye machine adds colors. The cereal is then dried in a large gas-powered oven. For puffed cereal, a process called gun-puffing uses steam pressure and high heat to puff and dry the cereal.
Cooked cereal moves from the drying ovens by conveyor belt, and is typically coated with flavorings, frosting, preservatives, and fortifying vitamins and minerals. It then enters a cooling tower, where a heat exchanger cools the cereal and removes almost all moisture before loading it into a hopper for packaging. An automated packaging machine can pack cereal at about 80 to 100 boxes per minute. Cereal boxes are held in company warehouses on pallets until shipped by truck by the company or a food distributor.
A large cereal processing plant can process 50 to 80 tons of grain in a single 10-hour shift and around 30,000 tons of grain a year. To reduce shipping costs, companies typically operate multiple manufacturing plants across the US. Most plants are capable of manufacturing a wide range of cereal brands, though each plant typically specializes in one or two cooking processes.
Common inputs include the grains themselves (corn, oats, wheat, and rice in roughly equal amounts); sweeteners like brown, beet, and cane sugar; cocoa; fats and oils; vitamins, minerals, and chemical preservatives; and plastic and cardboard for packaging. Key manufacturing and energy inputs include water, electricity, and natural gas.
Recent technological advances include the twin-screw cooking extruder, which increases the flow of the dough and can lower cooking time from several hours to 20 minutes. Other important advances include computer-controlled temperature gauges, automation improvements, highly precise quality control metrics, and a rapid ability to prototype and develop new products.
