...3. Take a closer look at consumer behavior. What are the determinants of their demand for breakfast cereal? Consumer behavior for the RTE cereal industry started to change in the early 90s. Before that, consumers were buying mainly the branded products of the Big Three as evidenced by volume market share of around 85% for decades. This is despite the fact that the branded products are more expensive compared to private labels. There was a perceived higher quality with the higher price of the branded products. This was supported by intensive advertising by the Big Three with an average advertising budget of 12% of revenue. The industry also was the top issuer of coupons for the consumers to buy the product. In addition, they were doing costly trade promotions particularly buy-one-get-one-free offers. Because of the high advertising and promotions spending, this is the justification used by the brands for constantly increasing prices with the process known as “price up and spend back.” This price promotion strategy increased the RTE cereal prices up to 15.6% from 1990 to 1993 which is the period where consumer behavior started changing. The price promotion strategy had the unintended consequence of widening the price gap between the branded cereals and private labels. In addition, it was during this time that the private labels increased in technological competence which led to improvement in quality that rivals branded ones and still able to maintain the lower manufacturing...
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...RTE Cereal Case Study Number of Firms and Market Shares There were six firms in the industry from 1950 to 1990 represented in the case study. In 1990 private label firms entered the market. The industry grew consistently through the 21st century but, the Big Three, consisting of Kellogg, General Mills, and Nabisco, dominated the market. Kellogg has consistently dominated the market shares in the RTE cereal industry with General Mills and Post following close behind. From 1950 to 1993, Kellogg’s average market share was 40.3, General Mills was second with an average market share of 21.7 and third of the Big Three, Post, had an average market share of 17.4. There were not any significant changes in the market shares from 1960 to 1980. However, in 1990 Post dropped to 11.1, 4.5 less than the value in 1980, General Mills reached 24.4, 4.5 more than the value in 1980, and Kellogg, still leading the pack, decreased to 37.5, 3.4 less than the value in 1980. From 1990 to 1993, there were not any significant changes in the market shares for the Big Three. There are three other firms listed in the case study that represented the remainder of the market shares. During the same time frame, Quaker had an average market share value of 6.8. Quaker market shares decreased dramatically from 1950 to 1960 but made a steady increase beginning in 1970. Nabisco’s average market share was 5.0. The market shares for Nabisco decreased in 1970 and continued to decrease giving them the lowest...
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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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...Ievgeniia Sapa_BU_598 Cases summaries The case” Nissan Motor Co., Ltd., 2002” It begins with the praise of Carlos Ghosn, president and CEO of Japanese auto manufacturer Nissan Motor Co., Ltd., his successful work and prosperous contribution to company that had reached amazing results in 2002 comparing with the last three years of almost bankruptcy. Its operating profits and net profit raised 68% and 12,4% and operating margin raised from 4.75% to 7.9% from the previous year. From the case we can follow the development of the company. It was founded in 1933 and it was one of the first Japanese company to manufacture automobiles. It began to increase in 1950s and in 1970s it was the second company after Toyota but after that the company began to lose their market position, staying far behind its rivals Honda and Toyota. In 1987 Nissan tried to double their sales by investing almost $4,5 billion into development of their domestic network and $1,8 billion into manufacturing facilities. By1992 they increased their dept in three times to $32,7 billion. This was decade of losses and declines. Yutaka Kume on the last year of being president began to restructure the company and Nissan had a loss in recurring profit. The next president of the company was Yoshifumi Tsuji and he had another plan of expanses reducing to $2 billion, in three years. After him was Yoshikazu Hanawa with his restructuring plan. In that period Honda took the second market place in Japan. Nissan company kept...
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...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 ruin the RTE industry profitability...
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...The RTE Cereal Industry in 1994 Case Analysis Competitive Strategy Presented by: Raghav Keshav Why has RTE cereal been such a profitable business? The RTE cereal market is a classic oligopoly with the four dominant players controlling 85% of the market. The return on sales earned by the incumbents in this market (18%) is significantly higher compared to rest of the food industry (5%). Efficient markets typically entice new entrants when the returns are attractive. These returns are gradually eroded with increased price competition as a result of the entry. The RTE market has defied this market theory. There are two main reasons for this. One, any market that yields a high rate of return but has no new entrants must have significant barriers to entry. The RTE cereal market has significant entry barriers. Two, barriers to entry does not necessarily mean high profits for all incumbents in an oligopoly. However, in the RTE cereal, it has. This is attributable to the fact that players in the oligopoly have demonstrated profit maximizing behavior and have successfully avoided market share maximization motivated price wars. Barriers to entry are discussed below. Brand Proliferation Strategy: Incumbents have successfully launched a “brand proliferation” strategy using which every foreseeable market niche is already serviced with a specific brand. Collectively, there are about 200 + brands offered by the three leading suppliers. This approach deters new entrants...
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...1572081 The Ready-to-Eat Breakfast Cereal Industry in 1994 (HBS 711462) Q.№1 – Why has the RTE cereal been such a profitable business? What changes have led to the industry crisis of 1994? To begin, historically the RTE cereal industry market shares showed great persistence. There are several reasons of it. Firstly, the industry is been oligopolized by Big Three (Kellogg, General Mills, General Foods) and had restrained competition among themselves by achieving effective unwritten agreement to limit in-pack premiums- free toys or gifts included in the package – to one brand at a time for each company and to refrain from trade dealing-offering discounts to retailers for special treatment or special promotions. Then, the Big Three had prevented entry into the industry by encouraging supermarkets and other retailors to adopt a shelf space plan that ensured that the Big Three’s products received the most valued position. Crisis appeared in 1994, when major firms continually introduced new products that market became fragmented. The two most highly touted product introductions of 1994 were “co-branded” cereal. As a fact, low price was the primary appeal of private label cereals. Also, they perceived to offer better margins to the retailers. Q.№2 – Imagine that your group wants to enter the RTE Cereal industry in 1994. What are the investment items you should consider? How much should these items cost in total? RTE cereal plant was estimated to require a capacity...
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...assignment. Viraj Perera Sara Russell Ingrid Szikla ID: 18877095 ID: 18481183 ID: 13034715 Page 2 of 89 EXECUTIVE SUMMARY This strategic marketing plan specifically addresses Uncle Tobys Ready to Eat (RTE) Breakfast Cereal products in Australia over the time period starting from the second quarter of 2004 and ending fiscal year 2007 (1/10/2004 – 30/6/2008). This plan takes into account and builds on new marketing strategies for Uncle Tobys resulting from the take-over by Burns Philp in the USA. Uncle Tobys is a leading brand of Goodman Fielder, which is a division of Burns Philp Company Ltd. Until 2002, Uncle Tobys had the second greatest share of the RTE market by value with 20.3% in 2001, but has since slipped to third place at 15.9% in 2003 and is now behind Sanitarium (17.2%) and Kellogg’s (55.4%). Contributing factors were issues such as high debt and lack of effective IMC strategy. However, it is anticipated that efficiency gains from the new organisational structure will come into fruition during 2004-05, and Burns Philp’s renewed support to build up leading brands such as Uncle Tobys will provide the frame work and support for achieving revenue growth. Uncle Tobys corporate objectives for the next three years in the RTE cereal market is to increase revenue by 2 - 5% per annum on average, and have a net profit growth of 6% per annum on average. However, these objectives cannot be met using strategies...
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...Rte Cereal Industry The Ready-to-Eat (RTE) Breakfast Cereal Industry in 1994 The Big Three (Kellogg, General Mills, and Phillip Morris) had been enjoying the stable Ready-to-Eat breakfast cereal industry with above average profitability since its start in 1894 until the recent surge of the private label sales and slowing demand. The Big Three had been extremely profitable because they were able to maintain high prices by restraining from direct price competition among themselves, which would have resulted in a lose-lose situation with a decrease in the overall profitability of the industry. The Big Three monopolized 82.5% on average of the concentrated market through 1950 to 1980, as they controlled the whole value chain. The coopetition was formed through unwritten agreements among the Big Three to limit special offers, which would only increase one firm’s market share temporarily at the expense of its competitors. These tactics would initiate a cycle of escalating costs, decreasing industry profitability. To avoid this sequential game, all major players simply followed the price increase of Kellogg, the market leader, who was aware of its power to effectively determine the price levels of the industry by analyzing prior reactions of the competitors. The major manufactures utilized coupons and trade promotions heavily, which resulted in over one fourth of all cereal purchases made with coupons. These price promotions made the hike of RTE cereal prices possible by...
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...(860) 486-2461 email: fmpc@canr1.cag.uconn.edu http://vm.uconn.edu/~wwware/ fmktc.html No. 17 October 1998 Jawboning Cereal: The Campaign to Lower Cereal Prices by Ronald W. Cotterill Food Marketing Policy Center University of Connecticut Food Marketing Policy Center, Department of Agricultural and Resource Economics, University of Connecticut, 1376 Storrs Road, U-21, Storrs, CT 06269-4021 Jawboning Cereal: The Campaign to Lower Cereal Prices by Ronald W. Cotterill Abstract This article introduces the Forum by explaining the sequence of events related to the jawboning campaign and subsequent reductions in cereal prices. It also introduces the main issues on the vigor of competition and pricing that are analyzed in subsequent papers. Jawboning as a public policy strategy is assessed and found useful in certain circumstances such as those in the breakfast cereal industry in the mid 1990’s. The jawboning campaign was effective in advancing price competition in an industry that successfully resisted repeated antitrust efforts to promote competition. The RTE cereal industry is now undergoing major structural changes that are on balance pro competitive. (ECONLIT Cites: L100, L410, L660) Key words: jawboning, nonprice competition, market power, market concentration, antitrust enforcement Jawboning Cereal: The Campaign to Lower Cereal Prices by Ronald W. Cotterill∗ This Agribusiness Forum contains a...
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...Use the Harvard Business Case, “The Ready-to-Eat Breakfast Cereal Industry in 1994” as the basis for answering the following questions: 1) Prior to the entry of private label producers, how would you classify demand (elastic, inelastic, unit elastic) for cereals produced by the Big Three? Support your answer by using details from the case and referencing the factors that influence the elasticity of demand. The RTE cereal market had an oligopoly market structure where the big three companies are dominating the market. Putting this in mind, a consumer will be forced to pay regardless of how high the prices are increased due to the scarcity of substitutions available. This will result in an inelastic demand trait in this particular market. As the case elicits the big three companies became “highly concentrated, restraining competition and by taking specific steps to keep new firms from entering the industry”. The filing of the antitrust suit against the big three companies in the 1972 proves that these companies had monopolized the RTE cereal market. Quoting from the case “The FTC case was based on the fact that the industry was concentrated and highly profitable, and not on specific actions that the firms might have undertaken to achieve.” Restrained unwritten agreements, and limited trade dealings with pressuring retailers on premium shelf spaces all had an impact on the elasticity of demand. 2) How would the entry of new private label producers impact the elasticity...
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...RTE Cereal Industry Barriers to Entry Giovanni Massari 1) Economies of Scale: with regards to Economies of Scale, we have Product-Specific ones with regard to the fact that there is a minimum efficient scale of production in the industry, without which firms wouldn’t survive in the environment; requirements, in this case, are 75 million pounds of cereals per year to be efficient. Other scale economies can be Multi-Product ES (“Economies of Scope”); indeed, different types of cereals can be produced in a very similar way, not requiring different production facilities, but leveraging the existing ones. The same can also be applied to packaging/bagging, which is the main source of Economies of Scale, because the Big Three use the same package within the firm for the various cereals they produce, with little differentiation. Finally, there are scope economies in advertising, since there’s the possibility of leveraging on it for new product introductions (“Brand Extension”), decreasing costs related to it – even though they’re still high, ¼ of the entire food industry’s expenses. 2) Experience Curve advantages: we have that the Big Three encounter Experience Curve advantages whenever trying to develop a brand extension or a new product, because of the cost reduction faced due to knowledge of basic processes needed for production. This, in combination with the existence of proprietary technology (see below, section 7), increases new entrants’ difficulty in entering the market...
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...sealed aluminium laminates. Ready-To-Eat (RTE) snacks and food reached a US $ 5 billion market in the year 2009. Ready to Eat Foods do not require any cooking and can be consumed by just putting the packet in boiling water or in the microwave for a few seconds. That is “Just Heat and Eat”. With the expansion of the retail markets in India the demand and popularity of RTE foods are on a rise. Through our study we wanted to determine the factors which affect the purchase decision of Indian consumers of RTE foods. We also wanted to understand the consumption patterns of the respondents in terms of taste, convenience and availability. The research is based on a sample of youth in the age of 20-30 years either working or studying in various colleges across India and studied their consumption pattern of RTE foods. We studied five major players in this market- MTR, Aashirvaad, Kitchens of India, Haldiram’s and Amul. Key words: Ready-to-eat, packaged meals, brand of RTE food products, India, empirical study 1 Introduction People often associate consumption-related behaviours with the affective state they are experiencing (Garg, Wansink and Inman, 2007). Consumers believe food advertising has emerged as a big business. When we think of taste perception of new food products available in the new emerging markets, we tend to think not only of vegetables or snacks but also packaged ready-to-eat (RTE) food products. The RTE industry is characterized by high concentration, high...
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...Ready To Eat Breakfast Cereal Industry Monday, September 09, 2013 3:09 PM The Big 3 and the industry before the 1990's 1972 Federal trade Commission file a major antitrust suit against the big 3 (Kellogg, General Mills, and General Foods) Argued: Monopolized cereal market and had taken specific steps to deter entry by new firms How? Restrained competition amongst themselves through "unwritten agreements" to limit the in-pack premiums (free toys, gifts, e tc) -Refrain from trade dealing-offering discounts to retailers for special treatment or special promotions -Refrained from widespread fortification of their brands because it was believed to not be in the long run interests of the industry (vitamin fortification) FTC also argued the big three took specific actions to make new entry ventures unprofitable -prevented entry into the RTE cereal industry by encouraging super markets and other retailers to adopt a shelf space plan that ensured the big threes products received the most valued center aisle position Caught off guard with the introduction of natural cereal brands Industry environment in the 1990's Technology Processes utilized in creation of many children's cereals took substantial engineering expertise and production experience to master. -Standard plant was estimated to req. a capacity of 75 million pounds per year to achieve minimum efficient scale -employed 125 people -req. capital in excess of 100 million -a singly plant...
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...Environmental Analysis – Microeconomics Historically, the breakfast cereals industry had become prominent and successful due to its Oligopoly structure of market where there was small number of large players in the industry. Under Oligopoly, there was difficulty for the small players to penetrate the market. This was in fact evidenced by the “antitrust” complaint filed by the FTC which argued that the incumbent firms (the Big Three) had effectively discouraged small firms to enter the industry. How was it done? It was observed that the Big Three used marketing strategies such as but not limited to 1. Trade Dealings - which offers discounts to retailers or special promotion 2. In pack Premiums –where cereal packages include toys and gifts 3. Vitamin-Fortification 4. Distribution of coupon Indirectly these giants also took advantage of the economies of scale which also enhanced their profitability. Profitability is one big factor that makes a business remain and becoming a leader in the industry. The Big Three also made use of their influence in the food stores, supermarkets, etc. by taking display slots in their stores making their product visible to the buyers/consumers. Variations in the product offerings and product innovations/differentiation also played an important role in the success of branded cereal industry as these give the consumer large scale of options of which product to grasp. Cumulatively, above business tactics/activities apparently can only...
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