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The Ready- to- Eat Breakfast Cereal Industry in 1994 (a)

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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 and to found the Kellogg Company, still the number one producer of ready-to-eat cereals in the world a hundred years later. Also in 1894, Henry D. Perky, founder of Perky's Shredded Wheat Company, promoted his cereal at the 1894 World's Fair in Boston with the claim that, "From the most abject physical wreck, I have succeeded, by the use of naturally organized

1 James B. Treece, “The...

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