Post rebuilds cereal assortment, promos with eye toward leveling the playing field, segment share

10-Aug-2020 - Last updated on 10-Aug-2020 at 17:39 GMT

Source: Getty / shironosov

Related tags Post holdings Cereal coronavirus

With its full assortment of cereals returning to store shelves this month, Post Holdings expects to regain some of the share it lost in recent months in the segment to competitors that were faster to rebuild their assortment and resume promotions after pandemic-inspired pantry loading in March prompted many – including Post – to pull back on both.

Like its competitors, Post Consumer Brands reported substantial cereal sale and volume increases during its third quarter ending June 30, on top of already elevated sales for the first nine months of the year, but its numbers were lower than other leading cereal manufacturers.

For the third quarter, Post reported Aug. 7 that net sales of ready-to-eat cereal in North America climbed 11.4% to $52.8b compared to the same period last year. Volume sales also increased 7.5% during the period compared to the same time last year thanks to increased at-home consumption in reaction to the ongoing COVID-19 pandemic and private label distribution gains. Combined these helped the segment’s profit surge 54.3% to $127.6m during the quarter compared to the same time last year.

This is on top of an already strong year in which net sales for the segment rose 6.4% to $88.7m and segment profit increased 20.3% to $300.6m compared to the first nine months of last year.

Post confronts ‘softness’ in cereal market share

While impressive, the volume sales increase in the cereal segment for the third quarter was notably lower than Kellogg’s, which reported an increase of 16%, PepsiCo Quaker Oats, which was up 23% and General Mills, which was climbed 26% for the same period.

Post CEO Rob Vitale came across as nonplussed by the trend in an analyst call Aug. 7 to discuss the company’s third-quarter sales and earnings.

He acknowledged “some share softness” in the cereal category in June and July, but he said he did not anticipate “it getting more challenging going forward,” but rather he expects “more of a leveling” now that Post has rebuilt its inventory and assortment and begun promotions again.

He explained that “we essentially track the category” from March to May when most major players in cereal category had rationalized SKUs and backed off promotions to ensure that their supply chains and inventory could meet heightened consumer demand at the start of the pandemic.

As some competitors brought their full assortment and promotions back online in recent months, Post continued to hold back – temporarily creating a less even playing field.

“In order to shape demand, we of course pulled back merchandising. Unlike some of our other competitors, we kept that merchandising off really until August. So, August is the first month in which we have full assortment and full merchandising engaged. So, I think it’s merely a timing shift,” Vitale said.

He also noted that the difference in volume is due in part to consumer channel shifting, which he said he doesn’t see as “being a particularly persistent trend.” He explained that Post over-indexes in Mass but in recent months consumers have moved to food retail.

Strong overall results for consumer brands

While the delay to re-engage promotions might temporarily have cost Post market share in the cereal segment, the strategy did help drive up average net pricing, which for the entire Post consumer brands’ segment rose 3.4% in the third quarter compared to the same time last year.

In addition, net sales and volume for the company’s overall consumer brand segment also rose 11.4% and 7.5% respectively during the quarter.

Despite strong growth in Post Consumer Brands, Refrigerated Retail and Weetabix, driven by increased at-home consumption, Post Holding’s overall net sales fell dramatically during the third quarter compared to last year due to anticipated declines in Foodservice and a longer than expected impact from pandemic-related shopping shifts on BellRing Brands.

Overall, for the third quarter, net sales dropped 7.1% to $1.33b compared to $1.43b last year at the same time. Gross profit also fell $25.3m to $436.8m during the quarter over the year ago period. Net earnings, however, were up 122.2% to $36m compared to $16.2m during the third quarter last year.

Looking forward, Vitale told investors that he expects the fourth quarter to be “similar in aggregate to the third quarter, with potentially significant changes in segment composition.”

He also said the company is operating with “growing confidence in our ability to maintain continuity of supply,” which is allowing it to be more offensive with its capital going forward.

Ultimately, he said, Post’s strength and ability to weather the pandemic’s impact is due to its diverse portfolio in which its businesses “naturally hedged each other,” so that despite 2020 being a “challenging year” Vitale said continues to be “most proud of the business.”