Here's the good news: Fewer Americans are skipping breakfast, considered the most important meal of the day. The bad news: Fewer are eating cereal. Bad news, that is, for cereal companies like General Mills, Kellogg and Post.
Cold cereal is still the number one choice for breakfast in America, with sales topping $9 billion over the last year, according to Nielsen. However, "What we've seen for the cereal category over the past four years has been a 7 percent drop in volume," said John Baumgartner of Wells Fargo Securities.
Baumgartner and other analysts cite several reasons: consumer boredom with cereal, a desire for higher protein products such as yogurt, and the need for on-the-go breakfasts consumers can eat in their cars. "Cereal sales have gotten squeezed over the past several quarters," said Morningstar's Erin Lash.
The rise of Greek yogurt
Last quarter, Kellogg reported a 3 percent drop in revenues for its morning foods unit, while General Mills' cereal division reported a 2 percent drop.
"Not all consumers choose a bowl of cereal and milk," Kellogg said in a statement. "For them, we're developing foods that provide the benefits of cereal in portable and convenient formats."
Those new "formats" include breakfast bars and shakes. Sales of Kellogg's Pop Tarts are holding up well, and General Mills' granola sales jumped more than 40 percent in a month, according to Nielsen. Both have been playing catch-up to the Greek yogurt craze, which has helped propel the yogurt category to the number two position for breakfast at nearly $7 billion in sales.
"Five years ago (Greek yogurt) was a novelty in this country. Now Greek is about 40 percent," said Baumgartner. He adds the breakfast table will only get more competitive as new players vie for "share of stomach."
Those new players include a growing number of fast food chains. Yum Brands' Taco Bell is rolling out a national breakfast menu, joining other newcomers in recent years like Subway and Wendy's (which has since scaled back its breakfast experiment). McDonald's has started serving "Breakfast After Midnight" at some of its 24-hour stores. Nation's Restaurant News reports the first meal of the day is a $42 billion business to the industry, and QSR Magazine claims the number of quick-serve breakfast items jumped 17 percent between 2009 and 2011.
What hurts cereal hurts milk. Milk sales have been on a gradual decline for years.
"Cereal and the use of milk is pretty well linked," said Todd Hale, senior vice president of consumer insight for Nielsen.
Cold cereal 'only popular in the U.S.'
Most Americans still eat breakfast at home, which may be one reason shares of General Mills have strongly outperformed McDonald's this year. Credit Suisse, however, warns investors to be cautious about the packaged foods sector, calling valuations "shockingly high."
And cold cereal is not a concept that translates well overseas.
"Kellogg spent a lot of time in their analyst day in November talking about the fact that they were adjusting their product portfolio over in Europe," said Morningstar's Lash. "Cold cereal is really only popular in the U.S., and so they've adjusted their cereal offerings internationally to appeal to that consumer who maybe wants to dunk a cereal bar in coffee or in yogurt."
In the States, meanwhile, cereal companies are boosting the nutritional value of their products. Post plans to add more protein to some cereal. General Mills said that gluten-free Chex have helped that brand grow by double digits.
Finally, there's the threat to cold cereal's traditional core audience: kids. Remember Mikey and Life cereal? Wells Fargo's Baumgartner says there are fewer Mikeys at the moment.
"What we've seen, given the economy in the U.S. over the past five years, is a five-year birth decline, so at the margin, that is unfavorable for the consumption of this category."
Cereal marketers are aiming not so much at Mikey, but Mikey's generation, promoting cereal nostalgia. Count Chocula has a devoted adult following, and General Mills said grownups are driving sales of Lucky Charms, proving some Americans still believe cereal can be "magically delicious."
—By CNBC's Jane Wells. Follow her on Twitter @janewells.