Word: kelloggs
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...part of the Philip Morris consumer-goods empire, last week slashed the wholesale price of its 22 cereal brands an average of 20%. The price cuts, the most sweeping in decades, are designed to puff up Post's soggy sales. The No. 3 manufacturer had been losing ground to Kellogg and General Mills, the industry leaders in the $7.5 billion cold-cereal business, as well as to store brands. If--and it's a big if--grocers pass along the full savings, the price of a 20-oz. box of Post Premium Raisin Bran would fall from...
...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-brand cereals "the gouge...
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...
...core players were missing and we were always trying to fill in the holes," senior Stacy Kellogg said. "Our focus definitely shifted more toward defense...