The second-place player in the $6 billion cold-cereal category is taking on Kellogg's kid favorite with Fruity Cheerios, backed not just by heavy advertising and coupons, but with national ads on milk containers that proclaim it has "25% less sugar than the leading fruity cereal." The move, following Kellogg's failed attempt to take on its rival's titan Cheerios with Tiger Power, cranks up an in-store war between the two.
The dog-eat-dog approach is no surprise to Neuberger Berman analyst Bill Leach, who said "the only way to grow in the declining cereal category is to take it from someone else."
Because 70% of purchase decisions are made in the store, General Mills chose to focus much of its effort there, said Michelle Peterson, marketing manager for Cheerios. The ploy to put ads on milk packages-including replacing the regular label on the front panels of some gallon milk jugs-was logical because, she said, "the cross-purchase of milk and cereal is very high."
According to an executive close to Kellogg, the leader has stepped up its in-store efforts to beat back Fruity Cheerios, offering $1-off coupons and participation in retailers' promotional programs such as Shaw's Extreme Value Buy, which places cereal boxes on checkout counters. (Kellogg's agency is Publicis Groupe's Saatchi & Saatchi, New York). It's crucial for Kellogg to defend the faltering Froot Loops franchise, which has seen sales drop 2.2% this year, Information Resources Inc. figures show.
The question is whether even Cheerios' healthful halo will enable the low-sugar variety to catch on. Kellogg's Froot Loops with one-third less sugar has been a flop. And General Mills' move to convert its brands to whole grain and plug that fact on packages, ads and public-relations pushes has, by its own admission, done little to drive its portfolio. The company's cereal sales fell 3.8% to $1.8 billion-compared to Kellogg's growth of 0.1% to $2 billion-in food, drug and mass outlets excluding Wal-Mart for the 52 weeks ended Aug. 13, according to IRI.
Moreover, there's a danger in overextension. Although "Cheerios is [General Mills'] crown jewel, an extraordinary franchise that's almost impenetrable," an executive close to the category said, continually extending the franchise may strip away its equity.