More Grist Goes Into Cereal Price War Mill

From Times Wire Services

Cereal eaters will soon be getting more bang for their buck.

General Mills Inc., which began a breakfast cereal price war when it cut prices two years ago, announced Wednesday that it will either cut prices or package bigger boxes for the same price on 19 other brands.

The cuts had been expected by analysts after other leading cereal makers slashed their prices.

Last week, Kellogg Co., the biggest player in the $9-billion market for ready-to-eat cereal, cut prices on two-thirds of its domestic brands by an average of 19%.


That followed the first salvo fired in April by Post, the nation’s No. 3 cereal maker, which cut prices an average of 20%.

In early July, prices on 12 General Mills brands, including Cocoa Puffs, Trix, Lucky Charms and Total Raisin Bran, will be cut by an average of 11%, the company said.

The package size on seven other brands will increase in August, at no increase in price, so customers will get an average of 11% more cereal.

Prices for regular Cheerios and Wheaties are not affected by the latest cuts. General Mills cut prices on those brands in April 1994, when it started the cereal war.

General Mills shares fell 25 cents to $54.125 and Kellogg rose 25 cents to $69.875 on the New York Stock Exchange. Shares of Philip Morris Cos., Post’s parent, fell 12.5 cents to $102.375, also on the NYSE.

Stephen Sanger, General Mills’ chairman and chief executive, said his company’s cereal sales had grown 10% over the last year.

He said Wednesday that the latest price cuts will reduce sales for fiscal 1997 by 4%, or about $100 million.

“We believe the long-term benefits of these actions far outweigh their costs,” Sanger said.


He said a planned reduction in marketing expenses and greater productivity will offset much of the impact of the price cuts, but the actions are expected to trim after-tax earnings by $30 million to $35 million.

Analysts had been expecting General Mills to cut its prices after Post and Kellogg made their moves.

Quaker Oats Co., a relatively small player in ready-to-eat cereals, is also expected to cut prices on some brands.