Newspaper article St Louis Post-Dispatch (MO)

Breakfast-Bowl Inflation Cereal Firms Dishing out Higher Prices

Newspaper article St Louis Post-Dispatch (MO)

Breakfast-Bowl Inflation Cereal Firms Dishing out Higher Prices

Article excerpt

With the price of some cereals nudging $5 a box, Kellogg Co.'s plan to raise prices an average of 2.6 percent surprises stock analysts and outrages consumer advocates.

Some analysts wonder whether Kellogg Co. can make the higher prices stick in the highly competitive cereal aisle.

Consumer advocates and economists say ingredient costs haven't gone up enough to justify increases that range from 2.5 percent for Froot Loops to 7 percent for corn flakes.

Joe Stewart, senior vice president of corporate affairs for Kellogg, defended the price increases. He said Kellogg ranks near the bottom in the price per pound of its cereals and in the rate it has increased prices over the last five years.

"When you look at our pricing as it relates to inflation, we are just about on the bull's-eye with inflation," Stewart said. He said Kellogg's prices increased at the rate of 3.79 percent a year from 1989 to 1993, just above the 3.74 percent rate of increase for all food.

Stewart said the cost of grain is the major reason for the increase, the company's fourth round of price increases in the last 13 months. The most recent increase took effect Feb. 5.

An 18-ounce box of corn flakes contains 5.6 cents worth of corn at today's prices, up from 4 cents last year. The 1.6 cents amounts to less than 1 percent of the price of a box of Kellogg's Corn Flakes.

Wheat, another cereal grain, is actually cheaper this year than last. Raw rice, a major ingredient in Rice Krispies, costs about 35 percent more than last year.

But in all cases, grain and other ingredients are a relatively small part of the cost of cereal - usually less than 10 percent, said Ralph Parlett, a farm economist with the U.S. Agriculture Department. "Most of the costs to produce breakfast cereal are for processing and marketing," he said.

"This industry spends 30 percent of its sales on marketing," said John M. McMillin, a food analyst with Prudential Securities. "I'm not sure I can justify" the price increase.

"The price of cereals over the last 10 years has been increasing much faster than the price of other things," said David Schardt, associate nutritionist at the Center for Science in the Public Interest. Cereal prices have risen faster than food prices every year since 1984, government statistics show.

"We think it's outrageous that the companies keep raising prices," he said. But Schardt said cereal is still a relatively cheap breakfast that provides many nutrients with relatively low levels of fat.

"I often hear people complaining about the prices of cereals," said Melinda Hemmelgarn, a registered dietitian and associate nutrition specialist for University of Missouri Extension.

"But when you think about the reasons consumers buy food, taste is number one. Another factor is convenience. Cold cereal is one of the most convenient breakfast foods," Hemmelgarm said. …

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