HOT SEASON FOR CEREAL

Richard Turcsik

When the weather outside is frightful, hot cereal looks delightful. The category is attracting a lot of attention now from consumers and retailers as winter grips much of the nation. In interviews with nine companies from different markets, SN heard mostly good news and positive expectations for sales of hot cereals through the season. Some operators said they have expanded space allocated for it to accommodate the upturn.

The retailers said, however, that other factors besides Jack Frost nipping at shoppers' noses would influence sales.

For example, they said the category is driven by promotion, with advertising and couponing used monthly or more frequently. But some retailers added that the overall level of promotional support by manufacturers is looking weaker than last year, which could flatten sales growth.

Some buyers also mentioned increased marketing to kids as likely to affect the category this year.

Still, sales definitely climb nationally when the mercury drops. Volume builds

then begins to taper in spring and summer months, according to scanning data compiled by Information Resources Inc., Chicago.

Just during the four-week period ended Oct. 10, 1993, for instance, hot cereal sales reached more than $65 million, a 49% increase over the $43.6 million sold in the four weeks ended Sept. 12, 1993. For the 52-week period ended Oct. 2, 1993, the hot cereals-oatmeal category had supermarket sales of $689 million, an increase of 5.4% over the previous year.

Retailers' comments echoed the trend.

"Hot cereals are just beginning to sell now. They're like hot cocoa -- they sell when the weather gets cold," Mark Polsky, senior vice president of Magruder, Rockville, Md., told SN in late December.

"Weather has everything to do with sales of hot cereal," said Sue Kunstmann, communications specialist at Schnuck Markets, St. Louis. "To date, the weather has been mild, but the colder the weather, the stronger the sales will be."

She said sales as of late December were up slightly versus last year, which is also consistent with sales trends for the entire cereal category at the chain. "Hot cereal sales are steady and pretty much performing as expected," she said. Nick Wedberg, vice president of sales for Plumb's, Muskegon, Mich., agreed that sales trends will depend upon the weather, and added "it is real cold in Michigan right now, so sales are pretty brisk.

"I expect sales of hot cereals will be better this winter, because the economy is picking up and that will automatically help that category. Sales were slow during the summer, but they always are," Wedberg said.

The buyer for a leading Metro New York area chain, who did not wish to be identified, said his sales have so far been flat, probably because "the weather was not that cold in this region during the fall. Because the hot cereals tend to be seasonal, we do advertise them more in the winter months."

Other retailers said you don't need real winter weather for strong category sales. Although most people are not likely to encounter Jack Frost in Los Angeles, for example, Hughes Family Markets anticipated that its sales and profits of the hot cereal category will climb by 8%.

According to Harland Polk, senior vice president for the Irwindale-based chain, it is promotion that will boost the category.

"We find that manufacturer coupons are driving sales in the category. We advertise and promote the category through ads with coupons," he explained.

Jeff Lipes, buyer-merchandiser at Eagle Food Centers, Milan, Ill., said he finds that buy-one-get-one-free promotions work "extremely well" to build sales of hot cereals.

"We have several BOGOs planned this winter with Quaker, which is the biggest player out there right now. Quaker continues to do in-house coupon programs with us. Nabisco's Mix & Eat is also starting to become a bigger player in terms of advertising dollars. They are also going to do some couponing with us this year," Lipes said.

The baking season also gives the category a boost. "While sales of hot cereals are for the most part very seasonal, the rolled cooking oats are used year-round for baking, so they are always strong. We also try to build an endcap up with a couple of different sizes of rolled oats during the baking season," Lipes said.

Hot cereal BOGOs are popular in St. Louis, according to Kunstmann. "Buy-one-get-one-free promotions have been driving the hot cereal sales in this market for the past several years. We don't look for any change in that this season," the Schnuck spokeswoman said.

"There is always some street money that is out there that is used for advertising. And that increases our profit percentage, too," said Wedberg of Plumb's.

But for some other chains, the climate for manufacturer support seems to be chillier this year. Several retailers noted that fewer manufacturer promotions are scheduled for their markets compared with past years, and as a result sales could remain flat compared with last winter's.

"Our hot cereal sales are up 50% from the summertime. However, sales and movement have not increased from last winter due to limited promotional activity from the manufacturers," said Emily G. Holdstein, senior vice president of Wonder Market Cos., Worcester, Mass.

"Quaker oatmeal in instant and regular varieties accounts for over 60% of the total category, and Quaker is the only manufacturer actively promoting sales through price reduction," Holdstein said.

Bob Lamb, buyer-merchandiser for retailer John C. Groub Co., Seymour, Ind., said that sales have in fact been flat so far, and deals have been shrinking.

"We have been passing on the deal money at retail, but there haven't been any ad proposals or any extra dollars this year. Quaker has had a couple of ad proposals, but they are the only ones who have done anything as far as offering ad monies and in-ad coupons," Lamb said.

When the support is available, he added, "We pass along the deal monies by lowering the prices. If manufacturers offer $3 off invoice, or a special flight time, if it is at least four weeks, we reduce the retail to the extent of the deal allowance they are giving us.

"We will make the price change and it will get special tags indicating that it is a manufacturer deal passed through. We put an effective date right on the shelf tag saying this price is good through such and such a date," Lamb said.

The buyer at the New York chain also said couponing has not been as strong this year as it was last year.

For the most part, however, retailers agreed that margins for the category are strong.

"Margins on the hot cereals are pretty good, by and large. Of course, when we feature them they are not quite as good, but that is the nature of the business," said Magruder's Polsky.

"Hot cereal margins are not bad and have increased over the years," said Wedberg.

The profit picture and overall category strength lead some chains to increase space devoted to hot cereals. "The space we devote to the hot cereals is getting larger every year, mainly because of the new entries that have been coming on the market," Polsky of Magruder said. "Hot cereal is a growing category. For us it has been growing every year, so I anticipate growth over last year."

Dave Coleman, buyer-merchandiser at Quality Markets, Jamestown, N.Y., said the chain expands its hot cereal department somewhat during the winter months by adding stockkeeping units. Sales pick up substantially during the winter versus the summer, he said.

"During the summer months we shrink down the category and we find that sales begin to pick up when it gets cold in October and November. We advertise the category during the winter months and make use of the Quaker in-ad coupons that are available. We also list Cream of Wheat in our ads," he said. Wedberg said Plumb's devotes an average of 12 feet to hot cereals in its 19 supermarkets.

"Normally, we have the sales reps do minor resets in that area at store level as winter approaches. We just expand on the hot cereals and maybe cut back a little bit on the fruit snacks and some of the other items that sell better in the summer versus the winter. We usually promote the hot cereals at least once a month in our ads," he said.

Magruder devotes a complete four-foot section in each of the chain's 12 Washington metropolitan area stores to hot cereals during the winter months, Polsky said.

"Currently we are merchandising the hot cereal category in a 16-foot horizontal set beneath the granola bars and fruit snacks. We're devoting the same amount of space this year as last year," said Kunstmann of Schnuck's.

Polk said that at Hughes, "We merchandise the hot cereals on the bottom three shelves of a 16-foot section. We do not change our set-up according to the seasons, and we did not devote more space to the category this year than last year."

Holdstein said Wonder Market merchandises the hot cereals by allocating four- to eight-foot sections at the end of the stores' cold cereal aisles.

Lamb of John C. Groub said his chain devotes about 16 linear feet to the hot cereal category.

"We don't add to our assortment during the winter months. We basically carry the same variety and we maintain it even during the slow months," he said.