According to “Pricing the Cereal Aisle—Understanding how consumers react to inflation,” a study by consumer insights platform Veylinx, the impact of price increases on demand for the two most popular U.S. cereal brands, Cheerios and Frosted Flakes, shows that even though the majority of consumers are concerned about the impact of inflation on their daily lives, they are willing to absorb rising prices when it comes to cereal. Relatively small price increases have little effect on demand for these breakfast staples.
For example, the study found that when prices rise by 20 cents (from $3.29 to $3.49), demand for Frosted Flakes is virtually unchanged and demand for Cheerios drops by only 1.5%. Larger price increases do have a more significant effect on demand: a 50-cent price increase reduces demand for both brands by almost 13%.
People who eat cereal more than twice a week are more tolerant of price increases, the study shows. Their demand falls by only 15% when the average price goes all the way from $3.29 to $3.99 (a 21% increase). At this price change, demand drops by 26% for people who consume two or fewer bowls per week.
When it comes to price, $3.99 appears to be an important psychological threshold, with demand falling sharply above that point; demand decreases dramatically again at $4.99. With that, men are nearly twice as willing to absorb price increases as women. Surprisingly, although older consumers (55+) express the most worry about inflation—with 89% somewhat or very concerned—they are just as likely to absorb price increases as younger consumers. Gen Z consumers are the least worried about inflation (71% concerned), which is also reflected in their greater willingness to tolerate rising cereal prices.
Counterintuitively, lower income consumers ($25K annually) are least worried about inflation (78%) while consumers with $100K+ in annual income report being most worried, with 88% somewhat or very concerned, according to the findings.
The Veylinx study also looked at purchase interest for a range of potential packaging innovations (sustainable packaging, single-serve pouches, resealable packages and multipacks) to see if they provide opportunities for brands to raise prices without reducing consumer demand. The study finds that most of these innovations did not drive higher demand than the standard Cheerios and Frosted Flakes boxes, regardless of the price point.
For Cheerios, sustainable packaging showed the most promise, performing the best at higher price points than the other innovations tested. For Frosted Flakes, single-serve pouches drove the greatest demand of those innovations.