Costly crunchies - breakfast cereals - includes graph on price increase of cereal and sidebar article on sugar prices - In the News - Food - Column

Vegetarian Times, Nov, 1995 by Amy O'Connor

Have you been noticing the price of Hbreakfast cereal climbing at a faster rate than other groceries? Ever wonder how a product made from grain and sugar can fetch prices of $ 4 to $ 6 a box? You're not alone. Consumer outrage and a blistering study of the high cost of breakfast cereals have led two congressmen to ask the Federal Trade Commission and the Justice Department to investigate possible price collusion among the cereal industry's biggest producers. But die four largest makers of ready-to-eat cereal have apparently read the writing on the wall. According to economists, cereal price increases show signs of leveling off. And for the first time in nearly a decade, two of the four manufacturers have elected not to raise cereal prices this year.

Criticism of the cereal industry began snowballing in January, when shoppers polled by Philadelphia-based Consumer Network Research named ready-to-eat cereals the "no-contest Worst Value product winner." Two months later, a report issued by the University of Connecticut's Food Marketing Policy Center put numbers behind the complaints. Using data from the Bureau of Labor Statistics and cereal manufacturers, it showed cereal prices have risen 90 percent since 1983 - twice the rate of other foods-even though the cost of ingredients and labor has gone down as a percentage of total costs. It also publicized the fact that the four largest cereal makers (Kellogg's, General Mills, Quaker Oats and Post) dominate 85 percent of the market, appropriating an average of 55 percent of the wholesale price of a box of cereal for advertising and profit - a higher margin than any other food.

Soon after the March report, Rep. Sam Gejdenson (D-Conn.) and Rep. Charles Schumer (D-N.Y.) weighed in with their own analysis, blaming little competition between brands, massive marketing campaigns, and weak generic and alternative labels for the high prices. They also told consumers that the four largest manufacturers could lower cereal prices and still reap healthy profits.

Ron Bottrell, a spokesperson for Chicago-based Quaker Oats Co., says he is fed up with the media's focus on high cereal prices. "Cereal has become a bench-mark for what people view as inflation because just about everybody buys it, " he says. "They're hung up on die $4 per box they pay, but if you look at the price per serving, it's still less than you would pay for a bagel or French toast."

There is evidence that cereal companies are trying to keep costs down. Quaker, which makes Cap'n Crunch, Quaker Oat Bran and Life brands, hasn't increased the wholesale price of cereal since a 1.9 percent bump in 1994. And Kellogg's, which manufactures Corn Flakes and Rice Krispies, recently fired more than 1,000 workers; industry analysts say the move was an effort to contain rising costs and keep cereal prices stable.

According to the Washington, D.C.-based Grocery Manufacturers of America, cereal prices are not as high as they appear since 60 percent of all purchases are made with coupons, making the shelf price higher than the price paid by many consumers.

So far, the law is on the side of cereal manufacturers. Last year, a judge dismissed a lawsuit filed by the New York State attorney general against the big four cereal makers; the suit charged the cereal makers with anti-competitive behavior, but the judge accepted the manufacturers' claim that coupons offset the shelf price of cereal.

Ronald Cotterill, Ph.D., director of the Food Marketing Policy Center at the University of Connecticut, calls the coupon argument "patently false," arguing that 98 percent of coupons are never redeemed, and 30 million households don't get the Sunday paper.

While the debate rages on, the cereal industry is looking for ways to pacify its critics. "The whole industry is sensitive to the pricing question," Cotterill says. As for customers that can't give up their Raisin Bran, Connie Corbett, a director of the food department of Consumers Union, has this advice: "Keep clipping coupons, or pay more for name brands."