Kellogg Follows Post With Price Cut

The cereal wars spread Monday as Kellogg Co., returning fire to rival Post Cereal, announced price cuts averaging 19 percent on popular brands like Frosted Flakes, Raisin Bran and Froot Loops.

Ralcorp Holdings Inc., meantime, announced it is eliminating 100 jobs as part of its efforts to cut costs and survive the skirmishing.

Kellogg is the nation’s leading cereal company, but has lost market share since No. 3 Post, a unit of the Kraft Foods division of Philip Morris Cos., cut prices in April on its Post and Nabisco brands. Ralcorp is No. 6.

At an upbeat press conference in New York featuring Tony the Tiger and colorful blow-ups of cereal boxes, Kellogg’s chairman, Arnold Langbo, announced prices would be reduced on 16 brands that account for two-thirds of the company’s U.S. cereal business.

The lower prices should show up on store shelves in a couple of weeks and include 28 percent on Smacks; 27 percent on Froot Loops and Cocoa Krispies, 22 percent on Frosted Mini-Wheats and 18 percent on Frosted Flakes.

Wall Street had trouble digesting the news, while some shoppers and consumer advocates cheered.

Kellogg’s shares were down $3 at 71.87-1/2 in late trading Monday on the New York Stock Exchange as the company said its decision would reduce earnings in the second quarter. No. 2 General Mills was down $1.37-1/2 at $56. Donaldson Lufkin & Jenrette Securities Corp. downgraded both securities, while Goldman Sachs & Co. downgraded Kellogg. Ralcorp fell 75 cents to $23.75.

But shares of No. 4 Quaker Oats shares were up 50 cents at $37.25 and Philip Morris rose 50 cents to $101.62-1/2.

At a Meijer store in Grand Rapids, Mich., Marge Bartman, 42, was in the cereal aisle when told of the price cuts. Her cart already held a $3.69 box of Froot Loops. She said she pays attention to price more than brand, and usually buys “what’s on sale. I’ll have to watch Kellogg’s prices now.”

“This is a price war that consumers are finally winning,” said Rep. Charles E. Schumer, D-N.Y., who has been a critic of cereal pricing.

Schumer urged consumers to boycott the Kellogg brands that were not reduced, and to boycott General Mills, which has not cut cereal prices.

The price cuts were Kellogg’s attempt to regain the 4 percentage points in market share that it lost after the April 15 cuts that averaged 20 percent on Post and Nabisco brands.

Mark Leckie, president of Post Cereals, said Post will not counter with further price cuts of its own.

Ralcorp, a St. Louis maker of CHEX-branded cereals, said it will cut about 100 positions and $25 million to $30 million in costs at its Ralston Foods cereal and snack unit. The company said recent dramatic changes in cereal prices have hurt overall profits.

General Mills issued a statement saying its own cereal price cuts over two years ago “proved good for consumers and good for business.”

Quaker Oats Co. spokesman Ron Bottrell said the company would have no immediate response to Kellogg. He said Quaker’s bagged cereal line offers products comparable to Kellogg’s boxed brands at price savings of up to 40 percent.

Langbo said Kellogg can afford to cut prices on cereal, even though wheat and corn prices have skyrocketed, because of two years of corporate cost-cutting, including the elimination of 1,200 jobs last year. The Battle Creek, Mich.-based cereal maker held most prices steady for 30 months.