caseism

Running head: THE READY-TO-EAT BREAKFAST CEREAL INDUSTRY IN 1994 (A) Case Solution & Answer

Running head: The Ready-to-Eat Breakfast Cereal Industry in 1994 (A) CASE SOLUTION

Executive Summary

Growing popularity of the Ready-To-Eat Breakfast is coupled with the rising health awareness among people and the surging demand for the organic cereals. The Ready-To-Eat Breakfast industry is dominated by the major market players of Kellogg, General Mills and Philip Morris. The statistics of 1993 year end showed that the growth of the industry sales had slowed to under two percent whereas the private labels brand had topped 5 percent share of the market by sales and 9 percent by volume for the first time. The increase in price of products by Big Three had widened the gap between private labels and branded products. Furthermore, the Ready-To-Eat Breakfast industry had historically been profitable on only because of the oligopoly situation in the market but also due to the significant barriers to entry for the new entrants. The key success factors of private label was substantial lower prices of the products, better margins to retailers, distribution channels -third-party distributors and the super-centers. The goal of General Mills reduction in trade promotions-was to rebuild brand loyalty, recover lost business, reduce internal cost of coupons and take share back from the private labels. The significant reduction in the trade promotions helped General Mills to offset some of the lost profit returns due to the reduced product’s prices.The increased focus of the advertisers on the launching campaigns which includes mobile coupons, increasing sales and driving retail traffic help companies deepen the brand loyalty, encourage visits to the mobile presence, and promote products on the basis of the behavior of the customers

Introduction

Growing popularity of the “Ready-To-Eat Breakfast”is coupled with an increasing health awareness among people as well as the surging demand for the organic cereals, which are the key factors that are responsible to accelerate the growth of the industry, as a whole. The Ready-To-Eat Breakfast industry is dominated by the major market players of Kellogg, General Mills and Philip Morris, Quaker Oats, Alston and many more. All these market competitors accelerated their efforts to generate high er-returns by serving a wider base of customers. Also, the market competitors are seeking to extend their product’s portfolio through entering the Ready-To-Eat cereal category, as a mean of product diversification, which could help them in seizing larger  market shares. All of the brands offered by the market competitors, have power to satisfy, delight and surprise the customers.

Problem statement

Ready-To-Eat cereal category has historically been the highly profitable as well as a stable industry, which is dominated by the Big Three of Kraft General Foods, General Mills and Kellogg. The statistics of 1993’s end, showed that the growth of the industry sales had slowed to under two percent, whereas the private labelled brand had topped 5 percent share of the market by sales, and 9 percent by volume for the first time. The increase in products’ price by Big Three had widened the gap between the private labels and the branded products.

In the financial year 1994, the private labeled cereals were making significant gains in the market share, and the promotional competition among the producers and sellers of the branded cereals was now heating up in the market. The major market competitors were concerned about how to deal with the threat of the private labels and how to prevent the trends from undermining the industry’s profitability.

Ready-to-Eat Cereals Industry historically been such a profitable business

Historically, the Ready-To-Eat Breakfast industry has been characterized by the limited competition between market rivals and the state of the high concentration. The market share of Kellogg were highest and showed greater persistence with 35.2 volume market share in 1950, and 36.5 volume market share in 1993, followed by General Mills with volume market share of 22.3 in 1950 and 24.3 in 1993.

The Ready-To-Eat Breakfast industry was dominated by only three players, which included:Philip Morris, General Mills and Kellogg, which had created significant barriers for new entrants to enter the market. The profitability of the Ready-To-Eat Breakfast industry was raised by firms through restraining the market competition. Furthermore, the Ready-To-Eat Breakfast industry had historically been profitable not just because of the oligopoly situation in the market but also due to the significant barriers,mitigating the new entrants from entering the market. The Big Three including Philip Morris, General Mills and Kellogg were responsible for;

  1. Continuous introduction of the new and high quality products in the market by either an extension of the existing one or by creation of new and value-added products.
  2. Ownership of the own system of distribution and direct delivery of the products to most grocers and supermarkets.
  3. Encouraging grocers and supermarkets to adopt the shelf space plan that tended to ensure that the products offered by Big Three Brands would have a valued center-aisled positions in proportion to historical volume of sales.

The barriers to enter the Ready-To-Eat Breakfast industry, are as follows:

Brand proliferation strategy

The market leaders have adopted the brand proliferation strategy, using which every foreseeable market niche was being served with a specific brand. With an introduction of new products in the market by incumbents; the new entrants are restricted from entering the market because no market niche are left to exploit. Most importantly, the market share of Ralston, Nabisco and Quakar were low in the market, despite of them having a large number of brands, which in turn hindered the new entrants from entering the market, because of an inability to cover the cost related to the initial capital investment required for the production facilities.

Spending on promotion and advertisement

The increased amount of spending on the promotional activities and advertisements allowed the market competitors to increase their brand awareness, creates differentiation, increase the visibility and the reputation of the brand, fight the competition, enhance their goodwill and increase the sales of their products. Such high level of spending on the promotional activities and advertisements had increased the amount to be spent when introducing a new product in the market, in order to catch the attention of customers, thus positing serious threat to the new entrants, significantly.

Strong relationship with retailers

The Big Three had developed strong relationship with retailers and suppliers and got most desirable shelf space with core consideration over maximizing the chances of high sales generation. The shelf space was allocated on the basis of the historical volume of sales, which in turn made it challenging for the new entrants as they found it difficult to get the prime shelf space.

Additionally, the Big Three had developed strong relationship with retailers by offering discounts to them for special promotion and special treatment, thus making it challenging for the new entrant to build relationship with retailer, to foster the long term growth and success of the new organization.

Capital intensive

To enter into the US based Ready-To-Eat Breakfast industry; the new entrants would require the capital investment in excess of $100 million, in order to achieve the economies of scale required to be valuable and profitable in the market. The capital investment amount was enormous, which created barrier for the new entrants.

Private labels been able to enter the industry successfully

KSF of private label

The sales of the private label grew by 50 percent, i.e. nearly $500 million from 1991 to 1994 or 9.2 percent of all sales of cereals by volume. It was projected that the share of Ready-to-Eat cereal industry of private label cereals would pass 15 percent by the end of the year 2000.The private labels had been able to enter the industry successfully due to many reasons, which are as follows:

Substantial lower prices of the products

One of the primary appeals of the private label cereals was the low prices of the products. The price of the private label cereals was $1.90 per pound at retail or  40 percent lower as compared to the Big Three average of about $3.20 per pound.Whereas, the branded cereal producers had increased their product’s prices, justified with the need to spend more on promotion and advertisement.By doing so, the private labels had successfully attracted a wider base of customers through offering high quality products at lower prices.

Better margins to retailers

Another key success factor of the private label was offering the better margins to retailers, which in turn promoted the willingness of grocers to promote private labels enthusiastically and devotedly. The private labels were offering 15 percent discount to the grocers, which was considerably higher than the discount offered by branded cereals, i.e. 12 percent. By offering good markups and savings for the customers; the private labels had made immensely strong relationship with retailers.

Channel of distribution

The private labels were highly dependent on the third-party distributors and the supercenters to distribute the products in the market. The third-party distributors and wholesalers received 10 percent margin on wholesale price paid by retailers for distributing the products. The supercenters provided more flexible shelf spaces and the orders were directly sent to the warehouses of the distributors, hence resulting in the low cost of distributing the products for the private labels………………

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This

LOOK FOR A FREE CASE STUDY SOLUTION

JUST REGISTER NOW AND GET 50% OFF ON EACH CASE STUDY