Lawmakers Urge Further Cereal Price Cuts
Cuts in the cost of breakfast cereals announced a year ago by the four major U.S. manufacturers are “less than meets the consumer’s eye,” two congressmen charged Thursday, and they threatened to seek antitrust action if the cereal makers don’t further reduce their prices.
Reps. Charles E. Schumer (D-N.Y.) and Sam Gejdenson (D-Conn.) also warned that a recent price hike by General Mills Inc. could indicate a cycle of price increases is resuming.
For the record:
12:00 a.m. July 26, 1997 For the Record
Los Angeles Times Saturday July 26, 1997 Home Edition Business Part D Page 2 Financial Desk 2 inches; 39 words Type of Material: Correction
Cereal makers--A story in Friday’s editions should have identified Post-Nabisco as one of four cereal makers whose pricing is being criticized by two members of Congress. The company was misidentified as RJR Nabisco Holdings, which, in fact, has sold its cereal division to Post.
A report prepared by the two lawmakers showed that although General Mills, Kellogg Co., RJR Nabisco Holdings and Quaker Oats--which control roughly 80% of the cereal market--promised cuts averaging 16% per box on selected products, subsequent reductions on coupons and decisions not to lower prices on all cereals meant most Americans saved about 9.7%.
Only Post lowered prices on all cereals. Many popular brands, such as Kellogg’s Rice Krispies and Special K and General Mills’ Cheerios, were not affected by last year’s price cuts, leading Gejdenson to comment that it was still cheaper to eat steak and eggs for breakfast.
Post triggered an industry price war in April 1996 when it slashed prices in response to years of rising costs for cereal that exceeded the rate of inflation. That trend had spurred Schumer and Gejdenson to issue their first report on cereal prices three years ago.
Their current report found that for the 330 cereal brands used to calculate the consumer price index, prices fell only 6% between April 1996 and May 1997, based on figures from the Bureau of Labor Statistics. At the same time, cereal manufacturers cut coupons by $210 million.
As a result, consumers realized only $238 million in cereal savings, although the cuts promised by companies could have amounted to $1.2 billion if applied to all national-brand cereals, the report calculated.
Gejdenson conceded that the cereal price cuts amounted to “probably more than the tax cuts people will get” out of the budget bill expected to emerge from Congress this year. Still, he said, cereal makers are a long way from being consumer-friendly.
A representative for General Mills defended the company against the criticisms, saying it has made four price cuts since 1993, including one for Cheerios.
As a result, the company’s cereal prices overall were 17% below the rate of inflation, General Mills spokesman David Dix said.
He added that coupons were reduced industrywide because consumers were not using many of those produced.
On July 3, General Mills announced that it would raise this year’s prices by 2.6% to cover rising costs of ingredients, leading the congressmen to express concern that other manufacturers will follow suit.
Schumer encouraged consumers to send a message to the industry in response to the price hike. “If the public sits by and doesn’t shift its purchasing power, they’ll raise prices,” he said.
The two House members warned companies that they might ask the Federal Trade Commission to pursue an antitrust suit if the cereal pricing situation does not improve.
