In April, General Mills took a bold step to revive its sagging cereal business. The remedy: Reduce prices 11%, while cutting back costly coupons and trade promotions. But the stratagem has run into an unexpected snag: oats contaminated by the wrong insecticide. You can't beef up profits with bare shelves. General Mills has had to impound some 15 million bushels of oats and 50 million boxes of cereal--and close plants for cleanups. It has announced an estimated charge against 1994 earnings of at least $63 million. The company was counting on bringing off its new plan without losing sales. Sorry. Rivals eat up this sort of thing. At Dominick's Finer Foods of Chicago, beside empty General Mills shelves, new signs push the store's knock-off version of Big G's venerable Cheerios.

General Mills hopes that the oats imbroglio will soon be over. But long term, Wall Street analysts are still wary of the new marketing plan, fearing rivals will step up coupons and promotions. And C.J. Lawrence's Timothy Ramey questions to what degree retailers will pass along the new lower prices for General Mills' cereals--especially with the shortages.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE