Once a breakfast pioneer, Post has morphed into the Jan Brady of cereal marketers: stuck in the middle.
Trapped at No. 3 behind Kellogg Co.and General Mills but ahead of private-label and value brands, Post's cereals portfolio has become a bit of an orphan, tossed from one conglomerate to the next and without a cohesive strategy. But Post is striking out on its own, charting a fresh course as a stand-alone company with new marketing and retail plans with the aim of breaking through in the competitive $6.4 billion ready-to-eat cereal category.
The new era started earlier this month when Post—called Post Holdings—completed its spinoff from parent Ralcorp, which had acquired the Post brands from Kraft Foods four years ago. Both companies struggled to grow the brands, which include Honey Bunches of Oats, Grape Nuts, Shredded Wheat and Pebbles. Even with its massive marketing machine, Kraft gave up on competing with Kellogg and Big G, divesting its cereal business in the face of pressure from activist investors.
Ralcorp originally hailed the 2008 acquisition as a "transforming event." But under the company, Post's cereal dollar market share dropped to near 11% from about 15%, and Ralcorp decided to return to its private-label roots. No. 1 Kellogg , meanwhile, grew 2.34 share points to a 33.42% dollar share in the year ending Jan. 22 , while General Mills held fairly steady at 30.74%, according to SymphonyIRI, which excludes Walmart Stores.
So how can a stand-alone Post do any better? The company's new management says the brands will benefit from more focus and is planning a multipronged attack to correct what it says Ralcorp did wrong. Plans include more-aggressive marketing and promotional spending, increasing social and digital efforts, beefing up sales staffing and putting more emphasis on PR, according to regulatory filings. At the same time Post has expanded its agency roster, hiring independent Upshot, Chicago, for its biggest brand, Honey Bunches of Oats. The cereal is the second-largest brand in the category behind General Mills' Honey Nut Cheerios, but sales volume slipped 8.9% in the year ending Jan. 22 , according to SymphonyIRI.
Independent shop Womenkind, New York, is taking on Great Grains, Post's third-largest cereal. The brand commands less than 1% of the category, but sales volume jumped by 19% in the year ending Jan. 22 , according to SymphonyIRI. New TV campaigns for both brands will break soon, the agencies told Ad Age . BurnsGroup, New York, which held all Post brands under Ralcorp, will keep Pebbles, which is Post's second largest-cereal, according to executives familiar with the matter.
The roster and marketing changes are driven by new Exec VP-Marketing James Holbrook, former CEO of Emak Worldwide. (Emak is the former parent company of four marketing-services agencies, including Upshot, but has now dissolved after emerging from bankruptcy last year, according to Upshot executives.) Post declined to comment for this story, citing rules it said prohibited it from talking so soon after going public.
Work cut out for it
Some analysts say Post has its work cut out for it.
"They don't have the value equation [like] Malt-O-Meal or private label, and they don't spend from an advertising perspective at the levels of Kellogg or General Mills," said Rick Shea, a food-marketing consultant and a former marketer for Kraft and Malt-O-Meal.
Wall Street analyst group Bernstein Research said in a report that Post is "strategically disadvantaged, as its smaller cereal brands lack the scale to compete with larger brands."
But Post has the wind at its back in a few respects. For one, the company has some of the most iconic brands in the category, which have been propelled by storied advertising over the years. Well-remembered spots include naturalist Euell Gibbons pitching Grape Nuts in the 1970s, Fred Flintstone putting his weight behind Fruity Pebbles, and Raisin Bran ads hyping the fact that they were not sugared—unlike Kellogg 's version. Post's roots date to 1895, when C.W. Post made the first batch of Postum, a cereal beverage, in a barn in Battle Creek, Mich. Grape Nuts was launched in 1897 as one of the first ready-to-eat cereals. The Postum Co. later evolved into General Foods, which hatched brands across multiple categories before merging with Kraft in 1989.
"The Post brands are great," said David Diamond, a packaged-goods marketing consultant. They are brands that in the past companies "would never think about selling," he added. "But one of the corporate mantras of recent decades has been you either want to be No. 1 or No. 2 or get out of the business."
At Kraft , Post brands benefited from the scale and strength of the marketer's sales force but "struggled to receive ... focus as it competed across the vast Kraft portfolio," Post's new management stated in a letter to shareholders.
Under Ralcorp, Post outsourced sales to brokers, which the new Post said led to a diminishing retail presence. Even before the spin-off, Post began boosting its sales force by 50%, according to the filing. At the same time, the company appears poised to boost its ad budget from 7% of sales to 9%, according to Wall Street analyst Stifel Nicolaus. Ad and marketing expenses totaled $117 million in 2011, according to Post.
For Great Grains, Post is ditching celebrity chef Curtis Stone as its ad spokesperson, moving to a "user-as-hero approach" in which a female consumer will tout the cereal's "minimally processed" formula, said Kevin Driscoll, Womenkind's managing director for client services. The tagline is "Great Grains. Nutrition you can see." New ads for Honey Bunches of Oats will portray brand employees riding yellow bikes in a suburban neighborhood and spreading the word about the brand's new "Fruit Blends" line extension, according to Upshot.
Some analysts like what they see, including CNBC's Jim Cramer, who dedicated an entire "Mad Money" segment last week to Post. He compared the brand's breakup with Ralcorp with Tina Turner leaving Ike, "with Post standing for Tina: Rollin', rollin', rollin', rollin' up the stock chart."
And that 's pretty funky for No. 3.