CRUNCH TIME IN CEREAL

RUSSELL REDMAN

Although more and more of the spoons dipped into cereal bowls nowadays come out with private-label crunchies, brand-name cereals are far from soggy. National brands still drive the category's sales, despite steady shelf-space gains by private labels, according to grocery buyers and merchandisers contacted by SN. They say the major cereal manufacturers have been cutting prices, encouraging consumers to think twice about switching to private-label cereal.

"Some [national-brand cereal] companies are still using the coupons, and some are still doing the buy-one-get-one-frees. But they're getting away from that," said Richard Hardy, head buyer at Associated Food Stores, a Salt Lake City-based wholesaler. "More are starting to go to temporary price reductions, reducing the price and getting it out there on a regular basis to where it's a lot more competitive than it used to be."

Emil Oles, grocery buyer and merchandiser at Genuardi's Family Markets, Norristown, Pa., has seen the same trend. "We've been using a lot of half-price sales on our cereals for the national brands," he said. "As far as manufacturers' coupons, I think there's been less available. They've given us more opportunities to run with scanner- and bill-back-type programs."

At H.G. Hill Stores, Nashville, Tenn., Red & White private-label cereal was introduced about a year ago, but national-brand cereal sales haven't dropped off because manufacturers are doing a better job in slashing prices, said Calvin Dale, grocery buyer. "They're going to prepriced packaging; there's a lot more of that than usual. That way, they get the price point they want out there. It's much lower," he explained. "General Mills did that considerably and just went to an everyday-low-price [approach] and less promoting and less couponing, because that's expensive." Kellogg Co. also has turned more to price cuts, he added.

The marketing shift in brand-name cereal reflects an overall strategy change by national-brand grocery suppliers, who are questioning couponing's effectiveness in forging customer loyalty, said Jeff Nedelman, vice president of communications and strategic planning at the Grocery Manufacturers of America, Washington.

"In couponing, one, it's expensive; two, the redemption rate is falling; and three, do coupons really build brand loyalty, as opposed to building what might be described as a 'promiscuous' consumer who brand-hops from product to product based upon the promotion that's in place by the manufacturer or the retailer?

"Value-consciousness is there; that's the demand. And the question for both retailers and manufacturers is, how do you meet the need?" Nedelman said.

But retailers and wholesalers said coupons remain a mainstay promotional tool for cereal, notably among the national brands.

"They are more and more aggressive with coupons," said Bill Vitulli, vice president of government and community affairs at A&P, Montvale, N.J. He added that he sees a lot of BOGOs but few TPRs for brand-name cereal. "In the freestanding inserts, I still see loads of coupons."

Yet private-label cereal sales are gaining momentum. For the 52 weeks ended May 7, dollar volume of private-label cereal jumped 12.5% and its pound sales were up 9.8%, according to Information Resources Inc., Chicago. Overall, ready-to-eat cereal dollar sales rose 3.6% to $8.1 billion; total pound sales were flat.

Among leading branded varieties with significant private-label competition, Kellogg's Corn Flakes had a 1.7% increase in dollar sales but a 13.8% drop in unit volume for the year ended Dec. 10, 1994, according to A.C. Nielsen, Schaumburg, Ill. General Mills' Cheerios fell 2.5% in dollar volume and 3.5% in unit volume. Also showing declines were Kellogg's Rice Krispies and Raisin Bran, and General Mills' Trix and Honey Nut Cheerios.

According to Nielsen, private-label cereal -- with a 5.6% dollar share and a 9.1% unit share of the market -- was up 10.5% and 8.4%, respectively, in dollar and unit sales.

Such results encourage retailers like A&P -- which includes Waldbaum's, Kohl's and severalother chains -- to maintain aggressive private-label programs. A&P regularly pits its America's Choice and Master Choice cereals against the national brands in print ads and in-store displays. "The reason we're so heavily into private-label cereals is because of the big disparity in the retail [price] vs. the national brands," A&P's Vitulli said. "Apparently, the public feels the quality is as good as the national brands because our sales are doing very well."

But A&P remains vigilant about stocking a wide selection of national brands, he noted. "There are so many national-brand varieties of cereal, and they all seem to do very well," he said. "Our focus is on having whatever the customer wants. There are people who are sold on national brands, and by all means we're going to have it there for them."

America's Choice has 16 varieties, and Master Choice has about half as many. "We've been expanding [private label] ever since we introduced it, and there will be more coming," Vitulli said.

More private-label cereal also may be in store at Genuardi's, which may add a store brand to the category, Oles said. The chain now carries eight to 10 stockkeeping units of Thorofare private-label cereal.

"We're probably looking at going with a Genuardi label [for cereal] somewhere down the road before we would increase the Thorofare label," Oles said. "The plans are there, but it's not settled yet." At Valu Food, Baltimore, private-label cereal has done "extremely well," absorbing some space from national brands, according to Charles Alves, vice president of sales. "We have brought in some additional private-label items," he said. "We have a primary private label, Parade, and a secondary private label called Better Value." National-brand cereal has a heavy edge in terms of shelf space, variety and promotional muscle, buyers and merchandisers told SN. But all agreed that private label is necessary for the category.

"It's definitely a factor today in the cereal section. I can remember in years past you couldn't give it away. But that [price] spread got so big, so the consumer tried it and said, 'That's not bad.' So it sells," said Bill Adcox, grocery buyer at Autry Greer & Sons, Prichard, Ala., which carries the Red & White brand.

While private label has carved a niche, Greer hasn't increased space for it in its cereal aisles, which average 36 feet on one side, Adcox said. "We usually just put the private label in about the equal number of rows right next to the national brands," he explained.

"We run a promotion on the private-label cereal about once a month," he added. "We just run it like two for $3, multiple choice [of varieties]."

Likewise, Associated-supplied supermarkets haven't expanded space for their private-label cereal, Western Family, of which the wholesaler carries about 20 SKUs, according to Hardy.

"The branded [cereal] by far has the majority of the space," he said, noting that stores use a lot of compare-and-save signs. "What they're doing with private label is taking the leaders in that and trying to get it next to the leaders in the [branded] category. [Private label] is lucky to get a couple of facings per SKU."

Associated has been careful to preserve space for private-label cereal, limiting the number of brand-name cereal sizes. "We've been more selective [but are] not reducing what we carry. We're reviewing it instead of just bringing in every one," Hardy said.

"Bagged cereals are growing continually in this market," Hardy added. "The ones that are doing the best are Malt-O-Meals, and the Quakers are growing all the time, too. We have our own under the Hospitality-Valley Fare label."

H.G. Hill, which typically displays cereal in 52-foot gondolas, has accommodated the Red & White label by removing some national-brand sizes. "Everything I have [in branded items] sells well, but we will take a size out sometimes. We've cut some sizes," Dale said.

Although price lures many consumers to private labels, the prolific advertising behind national brands is the main force that drives overall cereal sales, according to retailers and wholesalers.

"Some private-label items drive sales very well," Valu Foods' Alves said. "But national brands are basically what we build our ads around in driving the consumer into the store."