Big G Yields On Cereal-Price Cuts

Joins Rivals in Downsizing Boxes to Effectively Lower Consumer's Checkout Bill

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General Mills thought people would pay more for its products. It was wrong.

The Minneapolis marketer will effectively lower prices for its cereals beginning in late June -- by downsizing packages -- marking the end of its hubris and admitting, after years of playing catch-up with Kellogg Co., that Big G's cachet doesn't command more cash than its competitors.

"By adjusting package sizes and getting unit retail prices down, General Mills hopes to be competitive in the category pricewise," said one Midwest retail executive. Even after its rivals in the sluggish $7.5 billion cereal category -- Kellogg, Quaker and Kraft's Post -- in September lowered package sizes while keeping prices static, Mills kept its prices premium. Yet Kellogg continued to lead the category in dollar share, with 33.8% compared to Mills' 29.7%.

"Mills got a little haughty thinking they could sell their cereal at any price," said another Midwest grocery executive. Mills has good products, he said, but "there is a certain price threshold over which consumers aren't willing to go." Many of the company's cereals have crept above $4, and "they finally realize some of this stuff just isn't affordable."

Slipping cereal sales
General Mills cereal sales slipped 1.2% to $2.2 billion for the 52 weeks ended Jan. 27 in food, drug and mass outlets including Wal-Mart, while Kellogg grew 0.7%, according to ACNielsen. Industry experts are unsure whether getting prices in line with competitors' will help, but it probably won't hurt.

Landor Managing Director Allen Adamson said the idea of changing package sizes to give consumers the idea they're paying less is a common one and often works, because consumers tend to "shop specific price points vs. price-per-ounce." The important thing, he said, is to be "careful to ensure it's a tweak rather than too far a push that will affect the value equation of the brand."

A General Mills spokesman declined to comment on the price changes. In sales materials, the company is telling retailers the move is also environmentally sound (see info box).

More chocolate, more crunch
In addition to the "right size, right price" strategy, which will take effect for most cereals June 25, the company is trying to drive up sales with new products. On the heels of chocolate versions of Quaker's Life and Kellogg's Special K, Mills' health-oriented Chex brand will go cocoa crazy with Chocolate Chex. Mills' Cheerios brand -- by far the biggest in the category at nearly $900 million in annual sales -- will for the first time move beyond the simple O with Oat Cluster Cheerios Crunch. Both will get national newspaper inserts, in-store support and national advertising. Chex is handled by Interpublic Group of Cos.' Campbell Mithun and Cheerios by Publicis Groupe's Saatchi & Saatchi.

General Mills also hopes to tap into the health-and-diet craze, which Kellogg has captured so successfully with Special K, with the launch in late May of two licensed products: Curves cereal and Curves 100-calorie bars. Tying to the 10,000-strong chain of ladies-only fitness centers, Mills' hopes to leverage the brand's 90% household awareness with Curves' 4 million members and create a successful diet-bar brand.

The initial chocolate-peanut-butter and strawberries-and-creme varieties will be marketed via newspaper inserts, in-store sampling, and displays and cross-promotions with Curves fitness centers. Details on the cereal were not available. Curves, along with Campbell Mithun, which is believed to be handling the products, referred calls to General Mills, which declined to comment.
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