Quaker Oats Will Cut Its Cereal Prices an Average of 15%

Breakfast is getting cheaper by the day.

Quaker Oats Co. on Wednesday became the fourth of the nation’s largest cereal makers to reduce prices on its brands, trimming them an average of 15% on most boxed cereals, including the popular Cap’n Crunch and Life. Prices of Quaker’s bagged cereals were not changed.

Quaker expected the price cuts, and its continued struggle to revive sales of its troubled Snapple tea and juice line, to hurt the bottom line in the second half of the year. Earnings for the second quarter are expected to be on target.

The cereal cuts alone are expected to reduce the Chicago-based company’s after-tax earnings this year by $30 million to $40 million, Chairman and Chief Executive William D. Smithburg said. The announcement came after the close of trading Wednesday.

Quaker reported last week that its share of the cereal market suffered after a price war was triggered in April by No. 3 cereal maker Post.

Quaker’s share fell to 7.9% on June 8 from 8.3% a year earlier, according to Nielsen Marketing Research. Post’s share also fell in that period, but it rose 15% in the four weeks after it initiated the latest round of price cuts.

Kellogg Co. and General Mills Inc., the top two cereal makers, also suffered falling market share after Post cut prices.

“Clearly, competition is on pricing right now,” Quaker spokesman Ron Bottrell said.

General Mills announced last week it would either cut prices or package bigger boxes for the same price on 27 brands or sizes.

Kellogg, the maker of Frosted Flakes, Frosted Mini-Wheats and Froot Loops, cut prices on 16 rands by an average of 19%. Post cut prices an average of 20% on brands, including Spoon Size Shredded Wheat and Raisin Bran.

Before the cuts, Quaker claimed the lowest prices on a per-pound basis, and Bottrell said the new reductions will restore its cereals as the lowest-priced.

Quaker also said that initial euphoria this year about the fortunes of its troubled Snapple line was premature. After posting broad gains early on amid a retooled product line and heavy advertising, sales for the first half ending June 30 are expected to be flat.

The so-called New Age beverage line remains popular on both coasts but has failed to catch on in Midwest and Southern markets.