General Mills Price Cuts Fail to Stem Couponing

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The cereal price wars, partly designed to cut back couponing in the supermarket's most heavily promoted aisle, may not be completely achieving that goal.

This spring, General Mills announced a $175 million plan to cut prices of products representing 40% of its cereal volume, and at the same time discontinue its most expensive couponing tactics-particularly "Buy one, get one free" coupons and those worth more than 75 cents.

Market leader Kellogg Co. simultaneously, but more quietly, decided to stop offering "Buy one, get one free" coupons.

Although retailers have begun to respond to the General Mills incentives by lowering shelf prices, some cereal and promotion industry insiders say the move to reduce the number of high-value coupon events has opened the door for aggressive promotion by smaller cereal marketers.

General Mills' coupon reduction initiative has so far fueled activity by marketers that traditionally rely on coupons and has also sparked interest among companies that haven't been using coupons, said Joan Johnson, marketing communications manager at CMS, the Winston-Salem, N.C.-based coupon clearinghouse.

Though General Mills, the No. 2 cereal marketer, has told Wall Street analysts that it expects the number of "high-value" coupon drops to plummet this summer, Kraft General Foods' Post division, the No. 3 marketer, and No. 4 Quaker Oats Co. continue offering $1-plus coupons.

"Consumer reliance on cereal coupons won't abate overnight," said one industry insider. "If Kellogg and General Mills really cut out discounting and make it work, everyone else will follow. But nobody's convinced yet that the rules in this category are going to change."

General Mills estimates the cereal industry paid $610 million in 1993 to issue 25.5 billion coupons, with 500 million redeemed.

Most cereal coupons continue to run in free standing inserts from Valassis Communications and News America FSI.

"We don't expect to see any major reduction in couponing from any manufacturers-including cereal marketers-as a result of General Mills' initiative," said Lynn Liddle, Valassis corporate communications director.

Valassis maintained that other cereal marketers have continued to support coupon programs as heavily as ever.

Though Wall Street would also like cereal marketers to improve their profit margins by reducing coupons, many analysts are concerned that couponing has become so much of a habit that consumers may not buy cereal without that instant discount.

"You run the risk of consumers saying, `Hey, what's happened to cereal coupons?' They realize they're being asked to pay closer to the non-merchandised price," said one analyst who asked not to be named. "General Mills can talk value all they want, but what is value to the consumer if you take away her addiction to those promotions?"

The good news for General Mills is that fresh data from Information Resources Inc. show many retailers are actually reducing shelf prices of the eight Big G brands targeted for cuts.

General Mills said its analysis shows about 75% of all stores have instituted some price cuts, with those retailers passing about 75% of General Mills' funding onto consumers. Big G is convinced by sales data that its price and promotion tactic is the right one to help the cereal category overall keep growing, a spokesman said.

Kate Fitzgerald coordinates Promotion Marketing News.

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