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Quaker Oats Mulling Price Cuts to Match Competition

June 18, 1996

CHICAGO (AP) _ The cereal-aisle scuffle is turning into an all-out food fight.

Quaker Oats Co. said Monday it is mulling cutting prices on some of its cereals, which include Cap’N Crunch, Quaker Toasted Oatmeal and Life cereals.

Rivals Kellogg and Post Cereals already cut prices and analysts say Quaker, the fourth biggest cereal company, and No. 2 General Mills have little choice but to keep up.

``I think it’s a done deal,″ CS First Boston food analyst Michael Mouboussin said. ``I think the industry has gone through a couple of years of cost reductions and capacity reductions and are now listening to consumers and what they want _ lower prices.″

Quaker spokesman Ron Bottrell would not say when the company plans to make a final decision on cutting prices. ``For now, we’re just simply looking at the competitive situation,″ he said.

Bottrell said Quaker’s boxed cereals already were cheaper than competitors on a price-per-pound basis, but that its market share has slipped since No. 3 Post reduced costs of Post and Nabisco brands. The Chicago-based company normally controls about 8 percent of the market.

A General Mills spokesman did not immediately return a call seeking comment.

Mouboussin said General Mills began the price-cutting trend two years ago on Cheerios, Wheaties and other cereals. Other cereal makers refused to follow then, but now are making even sharper cuts while phasing out discounting and realigning coupon strategies.

Kellogg, the nation’s leading cereal company and maker of such brands as Frosted Flakes, Raisin Bran and Froot Loops, jumped into the fray last week, announcing it was cutting prices on 16 popular brands by an average 19 percent.

Since Post’s price cuts were announced April 15, Kellogg’s market share dropped nearly 4 percentage points to about 32.5 percent, said Thomas A. Knowlton, president of Kellogg North America. Post gained about 4 points, to 20 percent.

Ralcorp, a St. Louis maker of CHEX-branded cereals, said it will cut about 100 positions and $25 million to $30 million in costs at its Ralston Foods cereal and snack unit. The company said recent dramatic changes in cereal prices have hurt overall profits.

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