Ralphs will get reimbursed by Kellogs for the $1 face value of the coupon, but will not get reimbursed for the doubling, i.e., for the second $1. Stores often will put staples like breakfast cereal on sale to draw more traffic to the store (where they then hope you'll also buy other incidentals that have better profit margins). Such sales might even be genuine loss leaders, where the store is losing a little bit of money on the heavily advertised item. If that's the case here, then Ralphs IS losing money. (Whether the loss is "eaten" at the local store or absorbed by corporate headquarters, I don't know....)

As a consumer, it's not my obligation to look after the profit margins of merchants. But having said that, I would have moral qualms about visting the store again and again and again. I don't have any problems with visiting a store once and buying items which they have put on sale as loss leaders, but I would respect the "limit N" limitations that the store prints clearly on the sales flyer, even if the checkers at the store are not enforcing the policy very well.