General Mills Will Cut Prices : Marketing: The cereal maker drops coupons in favor of reducing prices on some of its most popular brands.
NEW YORK — General Mills said it will reduce prices of some of its top-selling cereal brands, including Cheerios and Wheaties, by 30 cents to 70 cents a package, deciding it’s cheaper to give consumers a lower price directly than through coupons and other promotions.
The cereal price cuts are effective May 2, and General Mills hopes to cut out $175 million of promotional costs. Combined with earlier reductions, the new discounts reduce prices on brands that account for 46% of the Minneapolis-based company’s share of the cereal market. “We feel this is a better way of getting savings to the consumers,†company President Steve Sanger said in an interview.
The company told analysts it expects the lower cereal prices to reduce fiscal fourth quarter earnings by 5 cents to 10 cents a share. The price cuts average about 11% for the affected cereals, and come within months of other market leaders raising their prices.
Sanger said the effect on General Mills’ market share should be neutral, but he said the company’s profitability will rise. “A 50-cent coupon costs General Mills 75 cents or more to make. A 50-cent price discount costs 50 cents,†he said.
Without naming competitors, Sanger criticized the high level of promotions and, in particular, the use of coupons, by others in the cereal market. “That increase in promotional spending has been so damaging and wasteful,†he said. “It really isn’t producing anything.â€
General Mills has a 29% share of the $8.7 billion market, while Kellogg has about 44%. General Mills, which has other food lines and also owns restaurant chains, had 1993 sales of $8.1 billion.
Products affected by the announcement today include Cheerios, Honey Nut Cheerios, Wheaties, Whole Grain Total, Golden Grahams, Lucky Charms and Trix.
Sanger said the number of coupons printed each year has risen to 25 billion, an increase of 6 billion coupons in the past two years, but consumers aren’t cashing in any more of them than they did two years ago.
General Mills got a mixed response from analysts about its actions. Some worried that Kellogg Co., the market leader, will continue to spend heavily on promotions, possibly costing General Mills some of its market share.
But others like the company’s attack on coupons.
“It makes a lot of sense,†said analyst Michael Mauboussin of CS First Boston. “They’re getting at the inefficiencies of the market.â€
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