KELLOGG HIKES PRICE OF CEREAL

Increase May Help Maintain Ad Budgets

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NEW YORK (AdAge.com) -- Kellogg Co., based in Battle Creek, Mich., today announced a price hike of 2% to 2.5% for its cold cereal brands, a move that analysts think is likely to be good for ad budgets.

Price of wheat, cocoa up
While the increase on cereals such as Special K and Cocoa Krispies was prompted largely by higher commodity prices for wheat and cocoa that are likely to gobble up much of the profit margin, one food analyst said that Kellogg's decision will probably drive its marketing budget as well.

"[The price hike] keeps the funds in place to raise advertising, which Kellogg has said it wants to do. ... They think they have something to say," one analyst said.

A spokeswoman for Kellogg

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said the price increase is intended to offset increased commodity costs, and doesn't necessarily have to do with marketing, although the change will allow the company to stay at current levels of brand building.

Kellogg's U.S. cereal advertising is handled by Publicis Groupe's Leo Burnett, Chicago. Kellogg spent $154 million in measured media against its cereals during the first 10 months of 2002, according to Taylor Nelson Sofres' CMR.

Rivals may follow
Analysts expect that Kellogg's cereal rivals, including General Mills and Kraft Foods, will follow suit.

A Kraft spokeswoman said there have been no changes on Post prices as of now, and said she could not speculate on future activity. A General Mills spokesman was unavailable at press time.

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