Ralcorp Basks in Consumer Cereal-Eating Boom

Sales for Category up 2% as Marketers Capitalize on Its Recession-Proof Status

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CHICAGO (AdAge.com) -- It's a good time to be in the cereal business. Just ask Ralcorp Holdings.

As the recession wallops consumers' wallets, they are buying more staples such as cereal. That has helped the marketer that recently acquired Post Foods to report more than a tripling of earnings in the fourth quarter, largely on the strength of its brand-name cereal sales. Ralcorp isn't alone. General Mills and Kellogg also have enjoyed impressive earnings this year.
Sweet success: Cereal is selling.
Sweet success: Cereal is selling.

"Although some may talk about how expensive a box of cereal is, it's still very economical as a meal or as a snack," said Lynn Dornblaser, director-consumer package goods trend insight at Mintel. She added that more consumers are eating cereal for meals other than breakfast.

As a category, cereal sales are up about 2% over last year, according to Information Resources Inc. But the data don't include Wal-Mart, and several package-food companies have said the data are misleading.

Major marketers have been capitalizing on cereal's status as one of the few recession-proof businesses. But Ralcorp, which declined to comment for this article, hadn't done TV advertising before. It was widely speculated that well-known Post brands such as Honey Bunches of Oats and Grape Nuts would languish after the acquisition, which was completed in August.

According to TNS Media Intelligence, Ralcorp spent less than $100,000 advertising its food businesses in all of 2007. During that time Kraft spent $89 million in measured media on Post brands, according to TNS. And while figures from August to the present aren't yet available, Ralcorp has continued TV advertising, at least with Honey Bunches of Oats, and left the creative business with WPP Group's Ogilvy & Mather, New York.

"Management said that Shredded Wheat had an unsuccessful marketing campaign this year when it tried to compete with Special K in weight management," Credit Suisse analyst Robert Moskow wrote in a research note. "Grape Nuts sales have been declining due to lack of marketing attention. Both will get marketing support in the months ahead." The good news, he added, is that sales remain strong, thanks in part to a "major merchandising effort at Wal-Mart."
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