...Executive Summary: Ready-to-Eat Breakfast Cereal Industry in 1994 From 1950s to the 1980s, the ready-to-eat (RTE) cereal industry was concentrated with three companies dominating the volume market share: Kellogg, General Mills, and General Foods (acquired by Philip Morris in 1985 – makers of post), with volume market share that hovered around the 30s, 20s, and 10s, respectively. Quaker, Nabisco, and Ralston held single digit volume market share throughout this time. The industry was characterized by stability and above average profitability. Sales were steady at a compound annual volume growth rate of three percent between 1950 and 1993 due to new offerings such as vitamin fortification (during WWII), presweetening (1950s), and interested in granola and natural cereals in 1970s to 1980s. The largest cereal manufacturers were extremely profitable, routinely posting Return on Assets in the 15-30 % range. Some industry observers claimed that the Big Three (Kellogg, General Mills, and Post) had effective unwritten agreements to limit in-pack premiums to one brand at a time for each company, to refrain from trade dealing (offering discounts to retailers for special treatment or special promotions), and withhold from widespread vitamin fortification. These tools, if employed, would temporarily increase a firm’s market share at the expense of its competitors. Because the Big Three avoided these practices for many years, they prevented a cycle of escalating costs that would...
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...Q1. What are General Mills’ motives for this deal? Please estimate the present value of cost savings. There are several motives for General Mills to acquire Pillsbury as discussed below; - Synergistic effect General Mills management might believe that the business of these two companies is supporting each other or basically so-called synergy. The synergistic effect will benefit both General Mills and Diageo. By acquiring Pillsbury, the company will become more powerful in the competitive market. This could be achieved through combining or sharing the resources, capital, and technologies of both firms. This would eventually result in higher and better efficiencies and increase in production capacity for any future expansion. When the combined firm is bigger, they would absolutely have higher bargaining power over the suppliers. The raw materials could be bought at lower rate than before. - Reduction in competitive forces and competition Upon acquiring the Pillsbury, the company will obtain greater market share among the other rivals in the industry. The company will have more flexibility to control over the pricing strategies, thus might be able to increase profitability. In other words, the selling and marketing will be more efficient. - Future growth and expansion The acquisition will allow General Mills to double its size. The brand will be added more than before acquisition. The company can basically gain more shelf space in the supermarket...
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...Harvard Business School 9-795-191 Rev. February 14, 1997 The Ready-to-Eat Breakfast Cereal Industry in 1994 (A) All is not well in the land of Tony the Tiger.1 In early 1994, the ready-to-eat (RTE) breakfast cereal industry had reached a critical turning point in its evolution. In an industry historically characterized by stability and above average profitability, slowing demand growth and a surge in private label sales threatened to undermine the dominant positions of the Big Three: Kellogg, General Mills, and Philip Morris. The 1993 year-end statistics showed that industry sales growth had slowed to under 2%, while private labels had topped 5% market share by sales and 9% by volume for the first time. Price increases by the Big Three had widened the gap between branded and private label products. The competitors had traditionally avoided destructive head-to-head competition, but this mutual restraint appeared to be crumbling. Each of the firms faced major decisions going forward about whether to break with the industry’s lock-step moves and how to deal with the threat of private labels. History of the RTE Breakfast Cereal Industry2 The ready-to-eat breakfast cereal industry got its start in 1894, when Dr. John Kellogg and his brother W.K. Kellogg invented wheat cereal flakes in an attempt to make whole grains appealing to the vegetarian clients of the Seventh-Day Adventist sanitarium Dr. Kellogg ran in Battle Creek, Michigan. 3 W.K. went on to invent the corn flake...
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...Nucor Corporation (A) We are a cyclical business... Basically when you are at the peak of the cycle—times are good, interest rates are low, people are building—our margins increase. When we go to the trough, of course, the margins are squeezed. But over the last 25 years Nucor has never had a losing quarter. Not only a losing quarter, we have never had a losing month or a losing 1 week. —John D. Correnti, President and CEO, Nucor In 1998, Nucor was a Fortune 500 company with 6,900 employees and had sales of $4.3 billion in steel and steel-related products. Its chairman, F. Kenneth Iverson, had headed the company for more than 30 years. During his tenure, the steel industry faced a number of problems, including foreign competition, strained labor relations, and slowed demand for steel (related in part to the substitution of alternative materials). Despite these industry challenges, Nucor’s sales during Iverson’s tenure grew at an annual compound rate of about 17 percent per annum. Selected comparative financial data are shown in Exhibit 1. In different years, both Iverson and Nucor CEO John Correnti were named Steelmaker of the Year by New Steel magazine. History Nucor traced its origins to auto manufacturer Ransom E. Olds, who founded Oldsmobile and, later, Reo Motor Cars. Through a series of transactions, the company Olds founded eventually became the Nuclear Corporation of America, a company involved in the nuclear instrument and electronics business in the 1950’s and...
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...------------------------------------------------- Nucor Corporation with 24 plants/divisions and 8,000 employees, operated in nine states recycling more than 10 million tons of scrap steel annually. Producing carbon and alloy steel in bars, beams, sheet, and plate; steel joists and joist girders; steel deck; cold finished steel; steel fasteners; and metal building systems, the corporation was known as the most modern and efficient, having streamlined organizational structure, incentive-based compensation and rigorous quality systems in the United States. Nucor Corporation entered the 21st century as one of the leading U.S steel producers. At the same time, steel industry was experiencing crisis and steel production capacity was exceeding the market demand. Drop-offs in revenues and price cuttings forced many steel producers declare a bankruptcy. Economic recession of late 1990s in Europe and Asia, September 11, 2001 terrorist...
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...Sara Lee Equity Analysis and Valuation Valued at 1 April 1, 2007 Analysts: Todd L. Ehlers: todd.ehlers@ttu.edu Michael D. Estes: mikestes@sbcglobal.net Daniel W. Taylor: dtaylor1184@yahoo.com Joseph R. Torres: rhyno1112@sbcglobal.net Table of Contents Page Number Executive Summary……………………………………………………………………………………………… 2 Analysis Snapshot............................................................................................ 2 Company and Industry Overview…………………………………………………………………… 3 Accounting Analysis………………………………………………………………………………………. 3 Financial Ratio Analysis…………………………………………………………………………………. 4 Analysts Evaluations……………………………………………………………………………………… 4 Overview of Firm and Industry............................................................................... 5 Industry Overview and Analysis………………………………………………………………………….. 8 Rivalry Among Existing Firms………………………………………………………………………….8 Threat of New Entrants…………………………………………………………………………………. 15 Threat of Substitute Products………………………………………………………………………… 17 Bargaining Power of Buyers…………………………………………………………………………… 18 Bargaining Power of Suppliers……………………………………………………………………….. 20 Characterization of Industry……………………………………………………………………………20 Value Chain Analysis: Key Success Factors…………………………………………………………. 21 Competitive Advantage Analysis…………………………………………………………………………. 23 Cost Leadership……………………………………………………………………………………………. 24 Differentiation……………………………………………………………………………………………….27 Accounting Analysis………………………………………………………………………………………………...
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...ASSIGNMENT – BMME5103 JANUARY SEMESTER 2015 BMME5103 MANAGERIAL ECONOMICS ASSIGNMENT Question 1 a. Explain the production possibilities frontier (PPF). [2 marks] b. Analyse what it means for the PPF to be bowed out from the origin (curved), and what it means for the PPF to be a straight line. [3 marks] c. State the Law of Increasing Opportunity Cost and explain why it holds. [3 marks] [TOTAL: 8 MARKS] Question 2 a. “As the price of oranges rises, the demand for oranges falls, ceteris paribus.” Explain. [3 marks] b. “The price of a bushel of wheat was $3.00 last month, and $2.50 today. The demand curve for wheat must have shifted leftward between last month and today.” Discuss. [4 marks] c. Some goods are bought largely because they have ‘snob appeal.’ For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they would not buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than at higher prices, obviously does not hold for the residents of Beverly Hills. The following rules apply in Beverly Hills: high prices, buy; low prices, don’t buy.” Do you agree? Discuss. [6 marks] [TOTAL: 13 MARKS] 1 ASSIGNMENT – BMME5103 Question 3 The minimum wage in year 1 is $1 higher than the equilibrium wage. In year 2, the minimum wage is increased so that it is $2 above the equilibrium wage. We observe that the same number of people...
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...companies, Nucor enjoyed the second largest market share in 1986, with 16 plants and an annual production capacity of 2.1 million tons of steel. In 1985, Nucor was ranked the most productive steel-maker in the United States and the second most productive in the world, averaging 981 tons per employee, per year. Nucor managed to achieve this success using a low-cost strategy, which proved to be particularly suitable in the highly competitive, commodity-like steel industry. Despite its positive performance, competition in the U.S. steel industry was keen in 1986. At that time, the industry had sustained seven straights years of decreasing domestic demand, falling 22 percent since 1979 — but still demanding 90 million tons annually. Mini-mills accounted for 16 percent of domestic steel capacity, up from seven percent in 1975. Meanwhile, integrated steel-makers, although a major competitive force, were plagued by the complexity of their steel-making process as displayed in Exhibit 3 of the case, their own failure to invest in new...
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...Executive Summery BSRM Steel Limited, a high grade steel manufacturing company has been operating as a sister concern of BSRM Group of Companies, the most successful and highly regarded group in the steel sector of the country. The BSRM Group is known for its long exposures in all sub- sectors of steel industry since 1952 including ship breaking, scrap processing, and billet manufacturing, manufacturing of MS rod as well as in other ancillary operations. Bangladesh Steel Re- rolling Mills Limited (BSRM), the flagship company of BSRM Group was established in 1985 for automated steel re- rolling mill and has been operating successfully. In order to cater to the increased market demand, the group established BSRMS with a production capacity of 375000 M ton, per year in 2002. It is the first ever fully automated steel re- rolling plant in the country and also regarded as the largest plant in terms of capacity in the country. The product has come out under the brand name of “BSRM Xtreme 500W” round bars. Such rods are superior equipment in the construction. The project has been conceptualized by German requirements in construction. The project has been conceptualized by German Consultants “Badische Stahl Engineering (BSE)” and the complete plant & machineries have been supplied by Danieli Group, Italy- one of the three largest suppliers of equipments and plants in metal industry worldwide. It was incorporated on 20 July 2002 under the companies Act 1994 as a private...
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...wage does more harm than good. The list of its negative effects is a long one: it causes unemployment; it prevents unskilled workers from getting the on-the-job training they need; it encourages teenagers to drop out of school; it promotes the hiring of illegal aliens; and it increases welfare dependency. For all of these reasons, the minimum wage should be eliminated. To evaluate the minimum wage, we must first understand why it was originally created and what its historical effects have been. The minimum w age was introduced in 1938 by President Franklin Roosevelt. According to Dr. Burton W. Folsom (1998), a senior fellow in economic education for the Mackinac Center for Public Policy, the driving force behind this new legislation was not the plight of the working poor but the political might of the highly paid textile workers of New England, who were trying to protect their jobs as they faced competition from Southern textile mills. The Southern mills were able to produce cloth of equal quality more cheaply than their counterparts in the North because of the lower cost of living in the South, which allowed Southern factories to pay lower wages to their workers. In response, Northern politicians successfully fought for legislation that would force Southern textile mills to raise wages, against the objections of Southern congressmen and many economists who warned that ”people whose skills and experience were [worth] less than whatever Congress decreed as the minimum wage would...
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...RAND Journal of Economics Vol. 31, No. 3, Autumn 2000 pp. 395–421 Mergers with differentiated products: the case of the ready-to-eat cereal industry Aviv Nevo* Traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes. 1. Introduction Traditional analysis of horizontal mergers is based primarily on industryconcentration measures. The market is defined and pre- and postmerger market shares of the relevant firms are used to compute pre- and postmerger concentration measures, which give rise to presumptions of illegality. Using this approach to evaluate mergers in industries with differentiated, or closely related but not identical, products is problematic. In many cases the product offerings make it difficult to define the relevant product (or geographic) market. Even if the relevant market can easily be defined, the computed concentration index provides a reasonable standard by which to judge...
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...How Lakshmi Mittal Created Arcelor Mittal Steel and became a Billionaire The story of Lakshmi Mittal is such an inspiring story. Though he didn’t make our list of school drop out billionaires; he’s been nicknamed “Carnegie of Calcutta” after the 19th-century American drop out railroad tycoon; Andrew Carnegie. His story is that of a man, who rose from nothingness to join the coveted Forbes list of world’s richest top ten billionaires. He achieved this feat by creating ArcelorMittal; the biggest steel company in the world, worth over £100bn. Let me also bring to your notice that this Indian-born steel tycoon is the wealthiest man in Britain, with an estimated fortune of £30bn. He is also well connected to rich and powerful men such as Nicolas Sarkozy, Bernie Ecclestone, Tony Blair and Bill Clinton. Lakshmi Mittal was born in 1950 in a small town in India called Sadulpur, in Rajasthan. Being the eldest of five children, his parents decided to name him Lakshmi after the Hindu goddess of wealth. At the age of six, his family moved to Calcutta, where his father gained employment in a small British steel company. This gave the family the brevity to set up their own business, but it turned out to be quite challenging and tough. While his father worked night and day to build their new business, Lakshmi Mittal, who happens to be a shy and introverted teenager graduated from a Jesuit college, St Xavier’s. Mittal surprised everyone, including his parents by receiving excellent grades...
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...Social stratification exists in America because the wealth and power belongs to a small portion of the population. Wealthy people possess an enormous amount of power over the political system and are held in high esteem by our society. There is a general feeling that those who are wealthy and powerful are superior to the average person. Social stratification involves not only socio-economic inequality, but the belief system held by people in America. A stratified society exists when there is an unequal distribution of wealth, power and prestige. In American society, political power and wealth are not distributed equally (Johnson, 1996). Paul Krugman is an economist and author of the book, 'The Spiral of Inequality' (1996). Krugman believes corporate greed, the decline of organized labor and changes in the way goods are produced are the causes of the growing social and economic inequality in the United States (Anderson, 2003). There is an unspoken general agreement in America that certain occupations deserve higher wages and more respect. Professions, such as physicians, lawyers, athletes and actors, are held in high esteem, whereas custodians, waitresses and trash collectors are considered professions that are not worthy of respect or praise and require minimal skill or intelligence. America most definitely needs skilled physicians and lawyers, but it also needs custodians, trash collectors and others who perform much needed tasks in order for society to thrive and function...
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...Hotel Casino John R. Mills University of Nevada at Reno Jeffrey Wong University of Nevada, Reno Background The TallTree2 Hotel Casino is a 640-room resort complex featuring a full range of Nevada-style gaming: slot machines, table games (twenty-one, craps, poker, roulette, baccarat, and keno). Besides the hotel and casino, it also has four separate restaurants, two entertainment showrooms, and three gift shops. It is located in the extremely competitive Reno, Nevada, market that includes 25 other hotel casino properties within a 10-mile radius. Given the competitive market, the casino management uses a wide range of marketing promotions to attract customers to the casino facilities where, it is hoped, they will try their luck at the slots or table games. Casinos are designed in such a way that customers must walk through or past the gaming area to get to the restaurants or the hotel registration area. The primary objective of a hotel casino property is to keep a gaming customer in the complex. The casino industry is a unique service industry that has created gaming odds that over a period of time will result in the casino generating revenues from its customers. For example, in northern Nevada, the house normally keeps 2.1% of every dollar that a player puts into a slot machine. Other states and Indian properties can retain up to 12% of each dollar played. For table games the normal return is 12% of drop (money lost by players). To maximize the casino profits, the key is to provide...
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...University of Pennsylvania ScholarlyCommons Master of Science in Organizational Dynamics Theses 1-31-2007 Organizational Dynamics Programs Nucor Corporation: A Study on Evolution Toward Strategic Fit Regina Gordin University of Pennsylvania, regina.gordin@gmail.com Submitted to the Program of Organizational Dynamics In the Graduate Division of the School of Arts and Sciences In Partial Fulfillment of the Requirements for the Degree of Master of Science in Organizational Dynamics at the University of Pennsylvania. Advisor: Everett Keech This paper is posted at ScholarlyCommons. http://repository.upenn.edu/od_theses_msod/1 For more information, please contact repository@pobox.upenn.edu. NUCOR CORPORATION: A STUDY ON EVOLUTION TOWARD STRATEGIC FIT by Regina Gordin Submitted to the Program of Organizational Dynamics In the Graduate Division of the School of Arts and Sciences In Partial Fulfillment of the Requirements for the Degree of Master of Science in Organizational Dynamics at the University of Pennsylvania Philadelphia, Pennsylvania 2006 NUCOR CORPORATION: A STUDY ON EVOLUTION TOWARD STRATEGIC FIT Approved by: ________________________________________________ Program Director ________________________________________________ Advisor ABSTRACT For much of its century long history, Nucor Corporation and its predecessors displayed turbulent financial performance. Several attempts at a strategic realignment proved unsuccessful, and in...
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