Michael Harvey was seen on CCTV clutching the breakfast snack in his left hand with his right hand at his groin while staring at one of the children - a young girl - near the checkout.
Prosecutor Angela Hadfield described how on August 7 as the family left the Matlock shop Harvey “removed his right hand from his crotch” and paid for the cereal before leaving.
Just two days prior to the creepy incident Harvey was captured - again on CCTV in Matlock - watching a woman with a girl aged three-four years old and boy aged around two years old.
Ms Harvey said: “The CCTV shows him appear in front of the Co-op behind the woman and the two children. His hand can be seen around the area of his crotch.”
The prosecutor told how as the woman placed the young girl in the rear of the car, leaving the door open while she put the young boy inside, Harvey stepped backwards - watching the young girl.
She said: “The woman comes back around to the pavement and closes the car door and she looks at Harvey, who appears to look away and take a couple of steps away from the car.”The defendant was then seen walking away along Causeway Lane.
Ms Hadfield said neither family had yet been identified by police and all evidence heard was from CCTV footage.
The court heard Harvey had no previous convictions but was cautioned for sexual activity in the presence of a child aged under-13 in 2018 and was subject of a sexual harm prevention order.
Harvey’s solicitor Kirsten Collings told District Judge Andrew Davison: “Michael Harvey is 85 years of age - he lost his wife 18 months ago and has clearly struggled enormously with that loss.”
Harvey, of Jackson Tor Road, admitted two counts of outraging public decency.
His case was adjourned for probation reports and he was bailed with conditions not to have contact with any child aged under 18 and not to go to Iceland or Hall Leys park in Matlock.