Despite the weakened economy, which many expected to be a boon for cereal manufacturers, cereal consumption has decreased 2-3% during the three months prior to August 2010. This coupled with a 32% increase in the price of wheat has many cereal makers, including General Mills, worried. The issue has been brought to a head by a series of price cuts, initiated by Ralcorp in an effort to regain market share for their Post brand of cereals, which the other manufacturers have been forced to match. These three issues have already combined to affect sales for the major cereal companies: Kellogg's cereal sales fell 13% during Q2 2010, and sales for General Mills' US Retail segment (cereal accounts for 23% of segment revenue) decreased 2%. Wheat prices have decreased slightly since spiking in early August, but it is uncertain when the industry's price war will end.
A few large retailers, such as Wal-Mart, control large fractions of the United States supermarket industry. This means that General Mills has less control over the prices it can charge for its products.
The company faces intense price competition from private label brands and other competitors. In order to compete effectively, General Mills has to either cut prices or boost promotions in order to maintain market share. Either choice may significantly affect margins.