WILD OATS

LISA SAXTON

It's been quite a year for cold cereal -- a bit rough for national brands; somewhat exhilarating for private labels. First, 12 months ago General Mills announced plans to cut promotional spending and prices. Next, in June, the same company temporarily suspended shipment of its products containing oats because a contractor improperly treated the oats with a pesticide not registered with the Environmental Protection Agency.

Then, last month, two congressmen accused the top four cold cereal manufacturers of pricing antitrust activity.

When asked how all of this has affected the category, retailers contacted by SN stoically reported little, if any, effect on the sales of national brands. However, their voices took on a distinct tone of enthusiasm when discussing the continued growth of private-label cereals.

"All those events that you've mentioned have been like the proverbial tree falling in the woods," said Paul Bernish, director of public affairs at Kroger Co., Cincinnati. "It hasn't had any impact.

"What continues to be the case in the cereal category is that private-label sales remain strong," he added. "We showed double-digit sales growth in our private label of 1994 over 1993.

"We think we have very high-quality products and the prices, compared to national brands, are very attractive. And they continue to do well."

Likewise, Mike Read, director of public relations and government affairs at Albertson's, Boise, Idaho, also reported negligible impact from this past year's cereal rumblings. He, too, cited continued growth in private-label products.

Indeed, according to Nielsen North America, total private-label, ready-to-eat cereal sales reached $441.3 million for the 52-week period ended Dec. 10, 1994, a 10.5% increase over 1993.

The silver lining in the accusation of the congressmen was the opportunity for retailers to continue to highlight their private-label products -- a chance for price comparisons.

Quality can also be compared, retailers said. A grocery executive at a large chain noted that with reputable companies such as Ralston Purina and Gilster-Mary Lee producing private-label products, the consumer is getting a quality product at a good price.

"We are currently enjoying a very healthy increase with respect to our private-label sales and market share," he added.

But this doesn't mean retailers have lost sight of the importance of national brands and their contribution to the bottom line.

Ned Meara, corporate grocery merchandising manager at Grand Union Co., Wayne, N.J., said while private-label products are merchandised adjacent to their national brand counterparts, they are not allotted comparable space, simply because the national brands outsell private label.

And although private-label cereals generally retail between $1 and $2 a box less than national brands, retailers could find no fault with how the big four manufacturers come to market.

"They're part of the great American capitalistic system; and they're entitled to do whatever they want," said Meara. "The costs of advertising cereal and introducing new brands are upwards of $50 million per brand. Somebody has to pay for that. The question then is, Do we really need all these new brands, when 75% to 80% of them fail?"

Meara said of the 200 brands now available, the bulk of the business remains with old favorites such as Corn Flakes, Frosted Flakes, Rice Krispies and Cheerios.

"You look on TV and the amount of their expenditures are enormous. So are they gouging the customer or are they protecting their turf? I think they're protecting their turf," said Meara.

"How a supplier comes to market is his call," said the retailer representing a major chain. "But cereal prices continue to escalate because national brand companies continue to throw more money into the brand advertising. And it does not come free."

"The manufacturers have to make a profit," said Charles Collings, president and chief executive officer of Raley's, West Sacramento, Calif. "And we know, in this country, if one manufacturer gets way out of line in pricing his products, somebody else will steal his business. It's the same with retail."

Sue Hosey, vice president of consumer affairs at P&C Food Markets, Syracuse, N.Y., also could not place any pricing blame on manufacturers.

"Cereal is a very competitive market; one of the most competitive supermarket categories," she said. "I think national brand manufacturers may be spending the dollar a different way with all their promotional activity."

"I agree prices are high and so do the cereal manufacturers," said Jack Ryder, president of Cannondale Associates, a consulting company based in Wilton, Conn. "They wish the prices were lower. But the fact is it costs an awful lot of money to make a cereal plant. And I know that a number of these manufacturers have recently built new plants.

"So they're sinking heavy capital investment into the cereal category. They've got to get that money back someday. They're businessmen . . . you can't just give your product away," said Ryder.

While not giving it away, and despite talk of issuing fewer coupons, manufacturers are still giving consumers plenty of chances to get a bargain.

Ross Nixon, vice president of merchandising at Dahl's Food Markets, Des Moines, Iowa, said manufacturer scanner options are beneficial to both retailer and consumer.

"Companies are phasing out coupons. But whether it's Kellogg's, General Mills, Post, they will, for instance, give you 75 cents a unit and you reduce the price and give a good consumer value and move a lot of product. You don't get paid for what you buy, you get paid for what you sell," said Nixon.

Still, as one retailer pointed out, these deals are on a finite number of cases.

"As retailers, we would really like to take all the fluff out of this [category]," he said, noting the continued success of private-label brands proves consumers will trade down if there is no perceived value to national brands.

"There's always an alternative for the consumer vs. the high prices of Kellogg's and General Mills, and that is private-label cereal, or some less-expensive brands," said Bill Spencer, president of the consulting division of Gage Management, Minneapolis.

"I think the price increases by the major cereal manufacturers over the years has, in part, caused private-label share to double over about the last five years," he said.

Some retailers are not only positioning their private-label products against the national brands, they are also calling attention to, and asking for, comparison shopping.

"On our packages we say, 'If you like Wheaties, try this.' That's on our Wheat Flakes," said Grand Union's Meara.

Wakefern Food Corp., the cooperative wholesaler based in Elizabeth, N.J., has used the congressmen's claims in its private-label cereal advertisements, part of an ongoing private-label campaign telling shoppers about "The Amazing Truth About the ShopRite Brand."

During the last week of March, Wakefern featured side-by-side comparisons and touted the savings on private label. For example, ShopRite Sugar Frosted Flakes/$2.49 compared with Kellogg's Frosted Flakes at $4.29, a savings of $1.80.

A sampling of the copy accompanying the ad reads: "Quality you can compare to national brands at store-brand prices. That's the amazing truth about the ShopRite Brand. And it hardly takes an act of Congress to save you money these days."

There are, however, exceptions to every trend. Dahl's Nixon said in his market private-label cereals aren't that big.

"We don't do a great amount of business with the control-label cereal category," he said. "For some reason, I don't know why, the branded cereals have always done better in our stores."