THE SURVIVORS OF WAR

DON YAEGER

Private-label cereal is alive and well following some anxious moments during last year's price wars among the branded manufacturers.

Despite the hot new prices and promotions by manufacturers of national brands, private label has remained a contender in the cereal category. That's because after manufacturers of national brands slashed prices, makers of private label followed suit.

"It appears that we have restored an effective branded/private-label price gap in most markets," an official at Ralcorp Holdings, St. Louis, recently told the St. Louis Society of Financial Analysts. Ralcorp supplies 60% of the ready-to-eat cereal market with 25 brands.

Patrick Farrell, the company's vice president of investor and public relations, said that private-label growth is expected to be a modest 1% to 2% per year over the next four years. The private-label category is currently growing about 1%, he said.

Retailers report that store-brand cereal sales are presently "somewhat higher," to as much as 7% above what they were this time last year. That figure is mostly attributed to Piggly Wiggly Corp., Memphis, Tenn., whose store-brand cereal wasn't affected by the industry price war, said Newburn Rooks, director of store brands.

"When they pulled out the stops on prices, we were still cheaper," he said. The category was aided by a heavily promoted everyday-low-price program, he said.

In the West, private label is "as strong as ever," said Charles Jones, head buyer at Scolari's Food & Drug, Sparks, Nev. While sales of the national brands are running even with last year, private label, under intense promotion, is up about 3% this year.

Some premium store labels are suffering, though, because the price gap between them and branded items is not that wide.

Doug Hilsenbeck, head buyer at Affiliated Foods, St. Joseph, Mo., said that the firm's Shurfine line, which has the same quality standard as national brands, is off substantially.

"For 20 cents more, [consumers] will buy the national brand," he said.

But sales are holding even or increasing slightly for the firm's Price Save second-tier label, which is priced about 50% lower than national brands, Hilsenbeck said.

And he predicts that the Shurfine label can do better, saying volume could be improved by going to an EDLP of $1.99. "Then the customer doesn't have to wait for a sale," he said. Shurfine honey nut oats currently retails for about $2.49 to $2.69.

At The Mad Butcher, Pine Bluff, Ark., private-label sales are down slightly because the price gap between store and national brands hasn't been completely restored, said Roger Burks, senior vice president.

National brands, on special, now cost about 50% less than they did before the price war. This leaves private brands selling at just 15% less than their branded counterparts, Burks noted. Previously, the "Flavorite" brands were as much as 50% cheaper. "Still, dollars are up for the entire category," Burks said.

Fleming Cos., Oklahoma City, reported a "fairly modest" increase in private label last year, even though the entire category was down. This year, the company is consolidating its entire private-label program from 13 to five labels. Fleming's cereal line will be consolidated under the BestYet label.

"This way, we can use size to strengthen our marketing and procurement for customers," a company official told SN.

At Balls Foods Stores, Kansas City, Kan., gross margins on private label are between 16% and 22%, while they run 5% to 13% on national brands, said Larry Brown, grocery buyer. With price deals, such as $1.69 for a 15-ounce box of Always Save crisp rice, private label can stand on its own without a lot of advertising, Brown said. Five new items soon will be added to Balls' shelves, including three under the Best Choice banner and two in the Always Save line.

Just this year, Piggly Wiggly introduced a private-label spoon-size frosted shredded wheat and a crunchy fruit-flavored kids' cereal. Both items are said to be doing well.

"Customers are always complaining about the high cost of cereal, so store brands get high visibility," said Joanne Gage, vice president of consumer services at Price Chopper Supermarkets, Schenectady, N.Y.

Private label is the first thing mentioned in the company's consumer focus groups, Gage noted. "Participants realize the good quality and value of these lines." She said that private-label cereals "are holding their own," and in some instances, are doing better than last year.

While some retailers avoid promoting and advertising store brands, others have active programs. Scolari's Food & Drug has at least one private-label cereal on special every week of the year, according to Jones. Attention goes to items like wheat flakes and fruit flakes. Specials are placed on endcaps or on freestanding displays.

Jones said the company occasionally gets promotional money from the store-brand supplier. This is passed on to the consumer, resulting in discounts of 10 to 20 cents a box.

Items on promotion rack up sales increases of 30% over regularly priced cereal, Jones noted.

At The Mad Butcher, private-label cereal gets a big end-aisle display whenever there is a manufacturer allowance, which is about once every six weeks. The display is in place over a two-week period. The store brand also appears in regular food ads every week or two, said Burks.

"If Kellogg's Raisin Bran is in an ad, we will put the private-label equivalent right below it," he said.

While retailers report modest gains in dry cereal last year, the hot cereal category garnered even better gains in some areas.