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How Quaker has Been Making Big Money on Oats for Over 50 Years

Lisa Jackson, The Motley Fool




It's been a decade since Starbucks launched oatmeal to go topped with brown sugar, dried fruit, and nuts and saw the item quickly become a breakfast best-seller. McDonald's jumped on the oatmeal wagon two years later, sweetening the heart-healthy grain with fruit and not-so-healthy cream. 

Oatmeal made it into the fast lane over the past few years, but much of the groundwork was done by Pepsico's (NASDAQ: PEP) Quaker Oats decades ago. More food brands are reaping sales thanks to the growing popularity of oats, but Quaker continues to trailblaze the field with new products that keep the oatmeal category growing. 

SOURCE: GETTY IMAGES

Quaker made oatmeal more convenient and purposeful




Although Quaker Oats have been around since the late 1800s, oatmeal was a slow-cook cereal until the mid-1960s, when the company introduced instant oatmeal. In 1997, the FDA announced: "soluble fiber from oatmeal as part of a low saturated fat, low cholesterol diet, may reduce the risk of heart disease."  Quaker jumped on the chance to put the claim on its packages and hot cereal sales increased almost 4% for the year after the claim was approved, according to IRI Worldwide. The hot cereal category has almost doubled in size in the 20 years since the claim hit shelves, with IRI reporting sales of $688 million in 1997 and more than $1.3 billion last year. And Quaker has continued to take a big bite of the market, generating more than 60% of the category's sales last year.

During the last two decades, Quaker shifted instant oats into cups and reduced the cook time for hearty steel-cut oats from 20 minutes to 3 for more convenience. By the mid-2000s, interest in functional foods was growing as people looked for foods that could address their top two health concerns: heart health and weight control. Quaker's High Fiber and Weight Control varieties of Instant Oats were designed to help. The company introduced Low-sugar Instant Oats to answer concerns about diabetes, which also ranked near the top of consumers' list. Although oatmeal became faster to prepare and offered important health benefits, Mintel data showed it was only eaten by about two-thirds of Americans. To get into more pantries, oatmeal needed to get rid of a major barrier -- the bowl.

Meeting the need for portability and easier eating

The push for portability for hot cereal increased after market intelligence firm Mintel reported 40% of millennials didn't eat it because it required a bowl and cleanup. Cereal bars, around since the mid-80s as an on-the-go alternative to cereal, became a billion-dollar business with General Mills, Quaker, Kellogg's, and others participating. But according to Mintel's research, available cereal bars didn't fully address worries about fat, fiber, and sugar held by people older than 45 -- a key bar-consuming audience. Enter Kraft's oat-based BelVita Breakfast Biscuits, a whole-grain, high-fiber option promising to sustain energy.

Response to the 2012 launch was positive. The portable oat bar with health benefits was generating $100 million across 10 countries when it launched in the U.S. and reached $600 million last year. Quaker responded with Breakfast Flats and Breakfast Squares: "...easy, convenient, on-the-go bar-type nutrition with fruits and nuts and seeds to bring nutritious grains into the diet and can be consumed really any time throughout the day," said Jeff Zachwieja, Ph.D., senior director of Pepsico's Global R&D.

Staying in step with consumer time constraints and tastes

Finding quick breakfasts that meet nutritional needs remains a quest for many consumers, especially parents hustling to get children fed and ready for the day. Several years ago, consumers and chefs began experimenting with a cold, no-cook version of oatmeal, mixing milk, yogurt, sweeteners, fruits, and nuts are with oats and chilling the combination overnight.

To meet that market, Quaker introduced overnight oats -- a mixture with quinoa and flaxseed for added protein. The night-before-prep breakfast has been a winner for the company, bringing in over $11 million in first-year sales.

Quaker also headed to the refrigerated foods aisle with Morning-Go Kits containing Breakfast Flats, Greek yogurt, and trail mix. The to-go boxes offer a lot of protein and whole grains, ingredients known to provide energy and curb appetite. Importantly, the kit allows Quaker to show up "beyond the bowl" according to Quaker Senior Director of Innovation Strategy Brian Hannigan.

While cold winter mornings can create cravings for a warm bowl of oatmeal, Quaker and other companies are recognizing consumers are looking for oats year-round and on-demand. Quaker's efforts are meeting consumer needs, turning oatmeal into an all-day, hassle-free, easy-to-eat food.

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Lisa Jackson has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool owns shares of Post Holdings. The Motley Fool has a disclosure policy.