Those Falling Flakes

Post Cereal executives probably commissioned exhaustive focus group meetings and marketing surveys before they announced that the company will slash the prices of its cereals by an average of 20%. They could have saved themselves the trouble by just hanging around the cereal aisle in any grocery, where consumers can be seen muttering angrily and shaking their heads over skyrocketing prices for brand-name cereals.

Breakfast cereal was never intended to be a luxury item. But in recent years, this staple of the American diet has become almost that. The cost of those flakes, oats and granola, according to one report, has risen 90% since 1983. No matter how appetizing that box on the breakfast table looks, Americans have, understandably, become quite grumpy about laying out as much as $4 for it. Compounding consumer frustration is the changing pattern of coupon discounts. Overall they have declined.

Now consumers buy less cereal, and when they buy, they increasingly prefer the cheaper, less flashy house brands. Sales of store brands of cereal rose 10.8% last year while total cereal sales fell 3.3%.

Post Cereal may trigger a price war as it strives for a better market share by cutting prices. The consumer cost for some of its major brands, including Raisin Bran, Shredded Wheat and Honey Bunches of Oats, will drop about $1 a box. Kellogg and General Mills, the leaders in the cereal industry, will be watching. So will shoppers.