Price cuts make mass wake up to cereal; competition among major suppliers should allow retailers to milk sales - Food Merchandising

Discount Store News, July 15, 1996

Recent events in the cereal industry make it easier than ever for nontraditional food outlets to harvest more sales.

Post's and Nabisco's 20% rollback in prices, coupled with Procter & Gamble's experiment with eliminating coupons, bode well for discount and drugstores. The Kellogg Company's average 19% price cuts last month on Frosted Flakes, Raisin Bran and 14 other cereals put pressure on General Mills and Quaker Oats to follow suit to keep afloat in the $9 billion cereal business. Price cuts by Post and Nabisco have helped their shares rise about to more than 20%, according Information Resources Inc.

"Reduced pricing makes larger-size boxes that discounters tend to sell more affordable," said Phil Lempert, an industry expert.

Added Alan Patrick, executive vice president of Genovese Drug Stores, "The elimination of coupons favors drugstore shopping because customers don't always bring coupons on a drugstore trip."

The moves on the suppliers, part come at an opportune time for drug and discount stores.

After toying with more portable food items such as breakfast bars, discounters and drug chains are eyeing the cereal category, and the nation's cereal manufacturers are touting their lines of cold cereals as a potential moneymaker.

"If retailers are stocking convenience foods, then including cereal makes sense," said a spokeswoman for Kellogg Co., Battle Creek, Mich.

Several drug chains have forged ahead with big cereal programs. In its new prototype, for example, Rite Aid has added an entire miniature food department. Spokesman Craig Muckle said that the idea is to offer any item a customer might need for any meal." The department featured mainstay cereals such as Cheerios and Frosted Mini-wheats.

Eckerd Drug is also in the process of boosting its food set to include cereal. Eckerd installed 400 new Food Marts-mini food departments - into its stores last year, bringing the total to 850. Another 475 will be added in 1996. Chain executives said that cereal works especially well in its stores serving vacation areas where people purchase it for use in condominiums.

In the Midwest, Walgreen Co. was one of the first chain drugstores to stock all of Kellogg's top cereals. Discounters have been a bit cereal, suppliers said, despite success with cereal bars. "They still work the food sections on an in-and-out basis," noted Frank Blod, a principal at the New England Consulting Group, Westport, Conn., who specializes in retailing. "The challenge facing the cereal manufacturers is to convince drugstores and discounters that cereal needs to be stocked on a year-round basis."

Lempert also sees potential for drugstores and discounters to offer private label cereals. "Both of these trade classes have successful private labels, so stretching into food and cereal makes sense," he said.

Another avenue for increasing cereal sales is to push its value as a finger snack. While cereal accounts for a tiny segment of snacks, its consumption as a finger food has grown over the last 10 years, according to NPD Group, a company that tracks eating habits. And the snack market holds potential. Americans consume an average of 200 snacks annually, compared to 300 or so breakfasts, the research firm reported.