The Ready-to-Eat Breakfast Cereal Industry in 1994 (B)

Within a week of General Mills' April 1994 announcement that it intended to reduce spending on trade promotions and coupons by $175 million, Kellogg reaffirmed its intention to reduce promotional spending from 1993 levels. However, as in its past statements, Kellogg declined to give specific dollar figures for its reduction in promotional spending.1 Prior to General Mills’ announcement, Quaker had raised the price of its Cap'n Crunch brand by about two percent and stated that it planned to use this increase to fund additional promotional spending. When asked about how Quaker would respond to the announcements by General Mills and Kellogg, company spokesman Ronald Bottrell replied, "I don't think you're going to have any announcement from us regarding pricing immediately. We're going to be watching this with interest to see what the reaction is."2 Philip Morris, which had followed Kellogg's recent price hikes with its own announced increases, stated that it too was "studying the situation."3

Industry observers generally applauded the announcements by General Mills and Kellogg. However, several months after the announcements, some were concerned that other companies might not follow their lead, choosing instead to pursue market share growth aggressively, at the expense of the firms that had scaled back promotions. Analyst Nomi Ghez said, “We are encouraged by the growing realization of both Kellogg and General Mills that couponing and trade promotions have been overdone and are a highly inefficient way of doing business. However, we are not convinced that it will be easy to create the right balance between the spending intentions and the market share aspirations of all the market participants.”4

According to one cereal buyer, the reduction in promotional spending "will have a bigger effect if the other big player and the smaller players follow suit.... All indicators now look like they're not going to. In fact, they might even increase spending."5

Already somewhat...