WHITE PLAINS, N.Y. -- Across-the-line price reductions on its ready-to-eat cereals and a change in couponing strategy by Post here have retailers expecting an upturn in category sales and more changes in couponing.
Post, the nation's third-largest cereal maker, said last week it would reduce list prices across its entire line of Post and Nabisco ready-to-eat cereals by an average of 20%. It is also simplifying its couponing by making its coupons good on all its products, rather than on specific items.
A number of observers said the move could help jumpstart the category and bring private-label products under more pressure. It was not immediately clear whether other brand manufacturers will follow this latest move.
"Anything that's done to bring positive attention to a category as important as cereal
al is going to help the category," said a grocery buyer for a division of Kroger Co., Cincinnati.
"It's an important strategic move for the company," said Burt Flickinger, director of Management Horizons, a consulting division of Price Waterhouse, New York. "It's also a gutsy move, given that the price of raw materials will probably be increasing in the upcoming crop year."
Some question how much of the discount will make its way to consumers.
"It remains to be seen whether this is a real price reduction of dramatic proportion or some sort of readjustment in off-invoice spending and list price that would result in a modest decrease in price," said Gordon Wade, president of Cincinnati Consulting Group, Cincinnati. "But in any case, it's clear that Post has to do something in order to preserve shelf presence for its products."
A spokeswoman for Kraft confirmed that the reduction is on the list price of all Post cereals.
Flickinger expects consumers will see all or a significant part of the reduction.
"If we look at history to predict the future, supermarkets did a very good job passing through the full savings with Procter & Gamble's last four price decreases and also with General Mills about two years ago," Flickinger said. "[The General Mills cut] definitely helped the category because it really rationalized pricing for the consumer."
A one-fifth reduction in the price paid by consumers would no doubt help the category, said a buyer with a division of Winn-Dixie Stores, Jacksonville, Fla.
"If consumers are going to end up paying that much less for Post products, that's going to bring some new activity to the aisle, at least for a little while," he said. "When General Mills did the same thing about two years ago, all the publicity seemed to help overall cereal sales," he said. "But now there's more at stake," he added. "Bagged cereals are becoming popular and private labels are still going strong. That gives consumers two low-price alternatives. I think that had something to do with this move by Post."
Tim Callahan, Post's vice president of marketing strategy, told SN that indeed the move came in an effort to improve the value perception of Post's products, a problem he said is faced by all branded cereal manufacturers.
"We firmly believe this initiative will help reignite the category's growth. That, coupled with the belief that we will grow our share of the market, will result in volume growth for us," he said.
Retailers said the price reductions should be reflected on the shelves by as early as this week.
"We're passing on the savings as quickly as we possibly can; customers should see reduced prices in our stores by next week," said Chris Ahearn, corporate communications manager for Food Lion, Salisbury, N.C. "The actual cost savings to consumers is going to be between 70 cents and 80 cents a box. We would expect to see increases in volume of cereal as a result of the decreased prices."
Other manufacturers are not jumping on the price-cutting bandwagon.
"We're going to continue to make our pricing decisions on a product-by-product basis," said Anthony Hebron, manager of corporate publicity for Kellogg Co., the industry leader, based in Battle Creek, Mich. "For instance, earlier this month we reduced the cost of Kellogg's Raisin Bran by about 15.9%," he said, citing Post's actions as an indication of the intense competitive nature of the cereal market.
David Dix, director of communications for General Mills, Minneapolis, the No. 2 player in the category, said Post was following his company's lead. Two years ago, General Mills cut prices by 11% on some of its best-selling cereals.
Callahan said the simplification in couponing "helps to offset a lot of the revenue impact to us." It will also reduce paperwork for retailers, he said. Post will still offer specific coupons when introducing new items, he noted.
Callahan added that the company's coupon move is a signal of a change in the cereal aisle. "It's one of the most heavily couponed categories, but what we're seeing in this category is that it's becoming increasingly inefficient. In terms of discussions we've had with the trade, they say there's a lot of administration and handling with all of that. It can all be simplified."
He said Post has done similar coupon programs in the past, "but not of the breadth and scope of what we're doing going forward."
The coupon change is another in an industrywide series of moves in that area. When General Mills lowered its prices two years ago, it also eliminated $175 million from its annual promotion budget, the bulk of that coming from couponing.
"The problem was that redemption rates on coupons had remained flat, while more and more coupons had flooded the marketplace," General Mills' Dix told SN. "So it was evident consumers weren't taking advantage of coupon opportunities. We didn't cut coupons out altogether, but we take a very close look at coupons we run today so that we don't fall into the trap where we think we're providing a value to consumers when in fact we're not."
Dix noted that General Mills has also tried offering across-the-line coupons. "We actually tried that right after we did our price reduction. It didn't work for us."
The next dramatic couponing event came in February when Procter & Gamble, Cincinnati, eliminated coupons in three upstate New York markets. Other large players, such as Clorox and Kimberley-Clark, are reportedly considering reducing either the value or the number of coupons in those markets.
Fred Reicker, director of corporate communications for Clorox, Oakland, Calif., said his company will launch a couponing test in those markets before July. "We don't know how long the test will run. It will apply essentially to all of our brands. Basically, it's going to enable us to measure the effectiveness and efficiency of alternatives to freestanding insert coupons," Reicker told SN.
"This is right on our objective or driving non-value-added costs out of the system and evaluating opportunities for increasing value for our customers and for consumers. It will also be an opportunity for us to learn about offering non-price incentives to consumers," he said.
