I recently spent a week's vacation in Prince Edward Island. Most mornings I found myself eating spectacular breakfasts and this got me thinking about the business itself. Nutritionists often remark that breakfast is the most important meal of the day, especially for kids because it provides the energy to go about your daily grind. Breakfast cereals alone account for estimated spending of $6.2 billion annually. The total amount for all things breakfast is many times larger. This presents investors with many different opportunities. When you consider how many people skip breakfast every day, the potential market is even greater.

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Cold Cereal
This is probably the first thing that comes to mind for most people when they think of eating breakfast at home. It's quick and easy. Cheerios, made by General Mills (NYSE:GIS), leads the way with 12.6% market share (Numbers from 2008) followed by Kellogg's (NYSE:K) Special K at 5.4% and Ralcorp's (NYSE:RAH) Post Honey Bunches of Oats at 4.9%. Thirteen brands account for half the cereal sales in the U.S. - the fight here is clearly for second place. Kellogg's investors need not frown. Overall, it has a 33% market share versus 25% for General Mills and 15% for Post. It might not have the number one brand in the cereal game, but it has five of the top 10. That's a good consolation prize.

Frozen Food
I'm talking about waffles, pancakes and other breakfast items that you store in the freezer. The big winner is Kellogg, whose Eggo frozen waffles have 73% market share in the category. Unfortunately, due to a listeria outbreak last fall and a subsequent flood at its Atlanta plant, the company has been unable to meet customer demand in the first half of 2010. This shortage hurt Kellogg's second quarter results. With Eggo sales off 9% year-over-year and North American cereal sales off 13%, overall revenues were 5.3% lower, resulting in a 15% drop in net income. Kellogg believes the second half will be better. Time will tell if any market share went to other competitors like Aunt Jemima, made by Pinnacle Foods Group under license from Quaker Oats.

Warm Cereal
Quaker Oats, owned by Pepsico (NYSE:PEP), has a commanding 58% market share in the warm-cereal market. Through the first half of the year, it sold $212.2 million in oatmeal in the United States. Private-label brands were next at $103.7 million with Cream of Wheat, owned by B&G Foods (NYSE:BGS), in third with $27.2 million. According to Quaker Foods and Snacks President Jaya Kumar, "Only 40% of Americans eat breakfast even though 97% consider it the most important meal of the day." My sentiments exactly. Pepsico, realizing the untapped potential, plans to spend more on product innovation, hoping this increases the oatmeal unit's 4% contribution to overall sales.

Breakfast has been one of the few bright spots in the restaurant industry in recent years. For the 12-month period ended March 2010, 12 billion morning meals were served at restaurants with 80% coming from quick-service establishments. The two fastest growing items ordered by breakfast customers over the past five years are specialty coffee and breakfast sandwiches. Demographics suggest this growth will continue. This bodes well for McDonald's (NYSE:MCD), Starbucks (Nasdaq:SBUX), Tim Horton's (NYSE:THI) and Panera Bread (Nasdaq:PNRA). All of whom have done well during this recession.

Bottom Line
Imagine what would happen if every American ate a good meal in the morning. Not only would the country be healthier physically, it'd be healthier financially as well. (Trim the fat from your grocery bill to reduce the impact of food cost on your budget. To learn more, see 22 Ways To Fight Rising Food Prices.)

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