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Shoppers are willing to pay up to $3.99 for a box of Cheerios or Frosted Flakes, but ask them to pay a few cents more and it could be a problem.
This was one of the findings from the latest study conducted by consumer insights platform Veylinx, which polled consumers about their feelings on the two popular brands of cereal and used proprietary metrics to analyze demand for the “Pricing the Cereal Aisle” report.
A key factor at the heart of shoppers’ pricing threshold are concerns about rising inflation. The poll found that 84% of consumers are worried about the effect that inflation will have on their daily lives, with consumers ages 55 and older expressing the most concern.
When prices rise 20 cents, from $3.29 to $3.49, demand is “virtually unchanged” for Frosted Flakes while the demand for Cheerios falls only 1.5%. A price increase of 50 cents, however, drives down demand by about 13%. There’s another “dramatic” decline in demand when the price reaches $4.99.
Demand falls 15% among people who eat cereal twice per week or more when the price rises from $3.29 to $3.99.
“Relatively small price increases have little effect on demand for these breakfast staples,” Veylinx said in a statement.
This is good news for Cheerios parent company General Mills Inc.
GIS,
which has already raised prices and says shoppers should brace for another price change due to supply chain challenges.
Read: Cheerios parent General Mills expects supply chain disruptions to further impact price
Analysts at B. of A. Securities also anticipate price hikes at Kellogg Co.
K,
parent to Frosted Flakes.
“We expect Kellogg to take additional pricing actions and productivity initiatives in FY22 to combat continued elevated costs,” analysts led by Bryan Spillane wrote.
“In addition, we see opportunity for Kellogg to return cash to shareholders through share repurchases in 2022 or bolt-on M&A opportunities within snacking, wellness or emerging markets after a year of paying down debt.”
Also: Stock buybacks can keep surging next year after a potential record for 2021, analysts say
Still, B. of A. downgraded Kellogg shares to neutral from buy and lowered its price objective to $70 from $76.
“While Kellogg has made good progress reshaping its portfolio for growth over the medium/long term with a balance sheet that could fund M&A, with limited upside to EPS we see fewer levers other than multiple expansion to drive the shares meaningfully higher in 2022,” the note said.
General Mills stock was up nearly 2% in Wednesday trading, and has gained 17% over the past year.
Kellogg shares were up 1.1% on Wednesday and are up nearly 7% for the past year.
The benchmark S&P 500 index
SPX,
has run up 28.2% over the past 12 months.
