PUFFING CEREALS

In an effort to boost ready-to-eat cereal sales in the supermarket channel, manufacturers are pouring more dollars into promotions.While cereal was a $7 billion business in supermarkets for the 52-week period ended August 1998, according to Information Resources Inc., Chicago, sales have nevertheless remained flat.For that reason, vendors have put their focus back on promotion, increasing both couponing

In an effort to boost ready-to-eat cereal sales in the supermarket channel, manufacturers are pouring more dollars into promotions.

While cereal was a $7 billion business in supermarkets for the 52-week period ended August 1998, according to Information Resources Inc., Chicago, sales have nevertheless remained flat.

For that reason, vendors have put their focus back on promotion, increasing both couponing and national advertising. For example, Kellogg Co., Battle Creek, Mich., plans to eliminate or change more than 2,000 salaried positions at the company to focus on boosting RTE cereal sales.

"We are investing heavily in innovation to take full advantage of marketplace opportunities to grow our core businesses and categories," said Arnold G. Langbo, chief executive officer at Kellogg.

New strategies include working more closely with supermarkets on promotions. "The trend in the past couple of years is for retail managers to work directly with company representatives. They're meeting face-to-face early on in the planning process and working together to build large promotions," said Kenna Bridges, manager for product publicity at Kellogg.

One example of such a joint effort is Kellogg's partnership with Kmart, Troy, Mich., this fall on a promotion in 15 Big Kmart stores in Texas, featuring both Kmart and the Women's National Basketball Association's Houston Comets on cereal boxes. One Big Kmart store will also hold an autograph session with the Comets player Sheryl Swoops. Kellogg and Albertson's, Boise, Idaho, are working on a fall promotion in some of Albertson's Southwestern stores, in which consumers who purchase two boxes of Kellogg's Frosted Flakes receive a free Tony the Tiger plush doll. In addition, Albertson's stores will compete for a prize by creating cereal displays. The winning store gets a visit from the Tony the Tiger hot air balloon.

Wal-Mart's logo is also showing up on Kellogg's Apple Jacks and Corn Pops boxes in its stores throughout the country. The promotion also featured television character Barney, with his likeness on the box and on stickers inside. Kids were recorded singing the Barney song in Wal-Mart during a special event that was held in-store in September, and their tapes were entered in a contest to appear in a Barney video. Wal-Mart is headquartered in Bentonville, Ark.

Jewel Food Stores, Melrose Park, Ill., recently teamed with General Mills, Minneapolis, to offer shoppers a free loaf of Jewel's private-label Natural Harvest bread with a cereal purchase. The entire back panel of General Mills cereal boxes profiled Jewel's Farm Stand produce, Chef's Kitchen deli, Bake Shop and Pier 14 seafood. SN's phone calls to General Mills were not returned.

Retailers are already feeling the effect of ramped-up promotions

"We seem to be selling a lot more of the traditional cereals in the last year, because of the promotions manufacturers have been running for consumers," said Carl Willoughby, assistant general manager of Ream's Food Stores, Salt Lake City. Willoughby and other operators noted a drop-off in the RTE cereal category when manufacturers initially cut back on coupons. At the same time, consumers had grown accustomed to discounts -- from 50 cents off to $2 or more off per box.

Family Food Stores, Rochester, Ill., is finding success with an offer to triple customers' coupons, which are up to 50 cents off.

"We're carrying a lot more cereals. We have to, because there are so many coupons in the Sunday newspaper, and ads during Saturday morning cartoons," said Gary Simmons, owner/manager of Family Food. Simmons put the 50-cents limit on coupons after several customers brought in manufacturer coupons worth $1 or more each.

Kienow's Food Stores, Milwaukie, Ore., discounts cereals at least $1 on endcaps and extra displays throughout the stores. "Consumers are sort of reluctant to pay $4 or $5 [a box], the price that some of them are nowadays," said Ed Werstlein, vice president of purchasing and merchandising.

While brand cereal sales remain flat, private-label cereals are growing in popularity, retailers say.

"Private label is rebounding from a low about a year ago. Now, the value consumer is back and interested in the value equation," said Glen Bolander, CEO of Grist Mill Co., a private-label manufacturer in Lakeville, Minn.

The Private Label Manufacturers Association in New York rated store-brand cereals as the 11th largest private-label category in supermarkets by dollar volume.

Country Mart, Gardner, Kan., is slowly adding private label, and grocery merchandiser Larry Good believes the store-brand cereal will sell well. "We don't advertise heavily, but private-label corn flakes, for example, are going to be a top mover."

Winn-Dixie Stores, Jacksonville, Fla., regularly features its Kountry Fresh cereals on endcaps. An endcap display at one of its Orlando, Fla., stores compared Kountry Fresh's Rice Krispies -- three 15-ounce boxes for $5 -- to one box of Kellogg's Rice Krispies for $3.18. At the same time, three freestanding aisle displays featured national brand specials, such as Quaker's Cap'n Crunch's Peanut Butter Crunch at two boxes for $5. Sales of bagged cereals -- both private label and national brands -- are booming, because of the price savings over boxed cereals, retailers say.

Ream's Food Stores made room for popular bagged cereals a year ago, enlarging its cereal space about 25%. Cereals are featured in weekly ads for the stores and daily on endcaps, according to Willoughby.

"Where the mainstream market is down, bagged cereals are doing something like 10% growth," said Ron Rash, vice president for private brands at Health Valley Foods, Irwindale, Calif. Health Valley makes private-label natural and organic cereals, primarily for natural-food stores.