General Mills Cereal Box Prices Lower, but Less Cereal in Box

According to the Associated Press (General Mills to Raise Cereal Prices), General Mills is set to raise its cereal prices on June 25. However, consumers will not see an actual increase in the price of General Mills cereal boxes. Rather, General Mills cereal boxes will contain less cereal at a lower price, which could confuse customers who may be used to paying a higher price for their cereal, potentially making consumers think that they are actually receiving a better price for General Mills cereal.

Tom Forsythe, a spokesman for General Mills cereal, states that the price increase is caused by cost increases that the company and its competitors have seen in the recent months: "Grain and energy costs have increased. Most of our competitors in the cereal category have already raised prices, some months ago."

Mr. Forsythe stated that General Mills cereal boxes are often bigger than those of their competitors, thus seeming more expensive. Mr. Forsythe further said that the switch in General Mills cereal box size would put the company in line with the competition in regards to cereal box size and price. One question that analysts raised is whether consumers would actually see a decrease in the price per box of General Mills cereals or if retailers would take the price cut for themselves.

General Mills cereal sales have remained constant over the past year. However, the company's profits have declined due to providing an increased number of cereal coupons and discounts. The last time that General Mills raised its cereal prices was in 2005, when it reduced the amount of discounts and coupons for its cereals. The discontinuation of General Mills cereal coupons at that time was costly to the company - sales dropped by as much as 5% for some cereals.

General Mills makes many popular breakfast cereals, including Cheerios, Lucky Charms, Chex, and Wheaties. General Mills cereal coupons are frequently provided in Sunday newspaper coupon sections in an effort to increase sales, with General Mills cereal coupons being provided much more often than the competition.

In comparison, Kellogg's Cereals, maker of Rice Krispies, Froot Loops, Special K, and Apple Jacks, increased its cereal prices by 5% in April. Cereal is not the only product that has experienced a recent price hike. Milk, beef, poultry, and vegetable prices have also been on the rise with the increase in energy prices(Consumer Prices Increase in April).

Link to "General Mills to Raise Cereal Prices"
http://biz.yahoo.com/ap/070605/cereal_prices.html?.v=3