General Mills Inc. says consumers are tired of clipping cereal coupons, so the company is cutting prices on Cheerios, Wheaties and other top brands by 11 percent.
General Mills, which reported disappointing fiscal third-quarter results and has seen its stock slide to a three-year low, also announced Monday that it would slash spending on cereal promotions by more than $175 million.The moves would result in a charge against earnings of 5 to 10 cents per share for its fourth quarter, ending May 29, according to the company. But the changes were not expected to have a material effect on General Mills' 29 percent share of the $8.7 billion U.S. cereal market.
"What consumers are telling us is, `Don't give us more coupons, just give us lower prices,"' said General Mills president Steve Sanger. "They just can't clip anymore."
Furthermore, raising prices and then discounting has become increasingly inefficient for manufacturers and retailers, Sanger said. The 50 cents a consumer saves by clipping a coupon can cost manufacturers as much as 75 cents, he added.
The cereal price cuts will start in early May. General Mills said the average price for a 15 oz. box of Cheerios should drop to about $2.90 from $3.30.
The move could force competitors to reexamine their pricing strategies.
"I'm waiting to see what Kellogg says publicly about this. They're going to have to put their thinking caps on," said Roger Spencer a food industry analyst for PaineWebber Inc. "This isn't everyday low pricing, but it's a step toward it."
Kellogg Co., based in Battle Creek, Mich., could not immediately be reached for comment on the General Mills pricing change.
General Mills said it was scaling back but not eliminating coupons and other promotions.
Sanger said the number of coupons issued by cereal manufacturers has grown by 6 billion over the past four years, while the number actually redeemed has remained unchanged.