In the aftermath of the cereal wars, sales of private-label and bagged cereals have shifted to the branded lines, whose price was recently cut, retailers report.
"Since the price cuts, certain brands have experienced slight increases in sales," said Ruth Kinzey, spokeswoman for Harris Teeter, Charlotte, N.C.
"There has been some slight shifting of volume from lower-cost items, such as bagged cereals and private-label, to national brands," said Chris Ahearn, spokeswoman at Food Lion, Salisbury, N.C. However, she said the increase is not significant, citing that consumers see a smaller price difference between the branded, private-label and bagged cereals.
"Regular shelf movement has improved, but private label is down a little because the price spread has been reduced," said Dave Renaldi, grocery director for Martin's Super Markets, South Bend, Ind.
The price wars began this past April, when Post cut its cereal prices by an average of 20%. The fighting heated up two months later, when Kellogg Co., General Mills and Quaker announced average price reductions of 19%, 11% and 15%, respectively. Though overall cereal dollar sales have decreased since the price cuts, certain manufacturers have seen unit volume gains.
Overall, the category generated $7.7 billion in sales for the 52 weeks ended Sept. 5, 1996, down 4.1%, according to InfoScan data compiled by Information Resources Inc., Chicago. Unit volume totaled 2.6 billion, a 1.6% decrease.
But some major manufacturers have seen unit volume gains. For example, Minneapolis-based General Mills, which cut its prices in June of 1996, increased its ready-to-eat cereal sales 0.17% with over $2 billion in sales for the 52 weeks ended Sept. 5, 1996, according to IRI. During that same period, General Mills' unit volume was about 603 million, up 1.6%.
Kraft Foods' Post Cereal division, based in White Plains, N.Y., had just over $1 billion in cereal sales, a 4.6% decrease in dollar sales. However, it had 341.7 million in unit sales, a 1.6% increase.
Though some retailers report otherwise, private-label cereals for the same 52-week period realized a 4.7% dollar increase from $511 million, according to IRI. Private-label unit volume was up as well, with 263 million units sold, a 1.2% increase.
Most retailers, however, are not putting their stock in private-label cereals since the national brands cut prices.
"Bagged cereals and private-label will probably feel some effects of the price declines as customers are more easily able to afford to buy national brands," said Ahearn of Food Lion.
Retailers also told SN that promotional activities have changed as a result of the price cuts. Although manufacturers are still promoting cereal, the deals are not as good.
"The off-invoices, billbacks and scan coupons are not as large as before, but we still promote them as much as we did in the past," said Renaldi of Martin's.
Harris Teeter has had to be more creative when marketing the cereal category because the price cuts have decreased manufacturer promotional efforts, according to Kinzey.
"Fly sheets and endcap promotions are, however, still used," Kinzey added.
"When special promotions have occurred, there has been movement," said Kinzey. "The response has been less than it was in the past because some of the cuts were not as deep as what had been previously offered."
Food Lion has also observed reduced promotions for the cereal category.
"We have not seen an increase in promotional spending and have information that leads us to believe there will be less promotional spending in the future," said Ahearn.
Though the Landover, Md.-based Giant Food has also noticed a decrease in promotional activity for cereal manufacturers, the situation will not last for long, said Dave Herriman, senior vice president of grocery, pharmacy and bakery operations.
"The depth of retail promotional price cuts has decreased along with special coupons, but the manufacturers have had to put their money into the reductions," Herriman said.
"When the new budget kicks in, they'll have the money to promote again," said Herriman, adding that the cereal business is highly competitive.
Reduced prices and changes in promotional activity for the cereal category have affected consumers' buying habits, but retailers also observed changes in the category's profitability.
"Cereal is a high dollar-ring category, and to reduce the retail by 11% or 20% dramatically reduces your total sales for that category," said JoAnn Gage, spokeswoman for Price Chopper, Schenectady, N.Y.