Word: cereally
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...cuts are an admission that the industry's pricing has been sending shoppers down other aisles. "The rise in cereal prices has been absolutely outrageous," says Patricia Cromie, a lawyer and mother of two in Allendale, New Jersey. "I can spend $4 and change for just one box and have it gone in less than a week." Since World War II, no food category has had more price increases than cereal, which easily outdistanced the rate of inflation for groceries (see chart). But consumers began balking in 1994, angered by relentless price hikes. Last year sales of cereal began...
With more than 200 cereal products fighting it out on the shelves--it can get ugly when Cap'n Crunch takes on Count Chocula at the A&P--lower prices would seem to be a natural result. Yet competition hasn't worked that way with cereals, though it has in other categories. (Prices of Coke and Pepsi are cheaper in real terms than they were a decade ago.) That is because the cereal manufacturers have been using consumers to finance what has become a very expensive marketing war. So as prices inflate, the companies use the additional money--about...
...heavy promotional efforts, the company's market share has fallen from 16.8% a year ago to 15.6% today. "If we had done nothing, we faced seeing a 15% market-share slide, to 13%," says John Bowlin, the president of Kraft Foods, the division of Philip Morris that makes Post cereals. Post was not losing share to Kellogg as much as to private-label brands, which can cost one-third as much as their national counterparts and have grown from 3% of the cereal market in 1987 to 10% today. (Industry insiders dub the price spread between store-brand and name...
Parent company Philip Morris, whose price cuts on Marlboros were monumentally successful, can well afford the gamble with cereal. A $53 billion packaged-goods powerhouse, Philip Morris is larger than Kellogg ($7 billion) and General Mills ($8.3 billion) combined. Cereal accounts for a mere 2.2% of sales and about 2.1% of operating profits, so the company can easily offset any losses elsewhere. For instance, it jacked up its cigarette prices 4' a pack earlier this month, a move expected to recapture some of the revenue losses from Post cereals. Just last week Philip Morris said its first-quarter profit rose...
...same token, No. 1 Kellogg will desperately seek to hold the line on pricing and protect its hefty profit margins. Kellogg relies on domestic cereal sales for 42% of its revenues and 43% of its $1.26 billion in operating profits. The company said it would lower prices only on a brand-by-brand basis. For instance, this month it lowered the price of its Raisin Bran, a fiercely contested item, 15%, to $3.40 for a 20-oz. box. No. 2 General Mills was also standing pat. Big G took the first stab at price cuts two years ago, when...