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General Mills Cutting Cereal Prices

April 5, 1994

GOLDEN VALLEY, Minn. (AP) _ General Mills Inc. announced Monday price cuts on Cheerios, Wheaties and other cereals and said it would slash spending on cereal promotions by more than $175 million.

The company, which reported disappointing fiscal third-quarter results and has seen its stock slide to a three-year low, said the moves would result in a charge against earnings of 5 to 10 cents per share for its fourth quarter, ending May 29. But the changes were not expected to have a material effect on General Mills’ 29 percent share of the $8.7 billion U.S. cereal market.

General Mills stressed that it is breaking with the industry’s growing reliance on coupons.

″The practice of pricing up and discounting back has become more and more inefficient for manufacturers and retailers, and burdensome for consumers,″ said General Mills president Steve Sanger. The 50 cents a consumer saves by clipping a coupon can cost manufacturers as much as 75 cents, he added.

The cereal price cuts will average 11 percent and start in early May. General Mills said the average price for a 15 oz. box of Cheerios should drop to about $2.90 from $3.30.

″It’s a big cut ... given that price declines are not in their basic modus operandi of the recent past,″ said Brooks O’Neil, an analyst at Piper Jaffray Inc. in Minneapolis. ″I think they’re clearly frustrated with the current industry infatuation with price up and spend back strategy.″

Others said the move would force competitors to reexamine their pricing strategies.

″I’m waiting to see what Kellogg says publicly about this. They’re going to have to put their thinking caps on,″ said Roger Spencer a food industry analyst for PaineWebber Inc. ″This isn’t everyday low pricing, but it’s a step toward it.″

Kellogg Co., based in Battle Creek, Mich., could not immediately be reached for comment on the General Mills pricing change.

General Mills’ stock fell $2 to $53.62 1/2 per share Monday on the New York Stock Exchange.

General Mills said it was scaling back but not eliminating coupons and other promotions.

Sanger said the number of coupons issued by cereal manufacturers has grown by 6 billion over the past four years, while the number actually redeemed has remained unchanged.

″Clearly, the money we were spending to print, distribute and handle those additional coupons was not benefiting consumers,″ he said. ″This action is designed to curtail inefficient spending and to provide consumers with consistent value, not to increase market share.″

The company said the charge against fourth-quarter earnings would reflect compensation to retailers for lowering shelf prices on inventory bought before the price reductions.

General Mills’ earnings for the quarter ended Feb. 27 were up 2.9 percent from the previous year to $145 million, or 91 cents per share. But operating profits for the period fell 1 percent, mainly due to bad weather and fierce competition in the cereal industry.

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