...COMPETITIVE STRATEGY The Ready to Eat Breakfast Cereal Industry in 1994 Word count: 1000 (excluding questions & exhibit) 1. Why has cereal breakfast been such a profitable business? Cereal breakfast industry has been highly concentrated industry with top four firms accounting for 80% of market share in 1993. Return-On-Sales in this industry (18%) is also significantly higher than compared to those in general food industry (5%). Primary reason for high profitability is * Barrier to entry: Cereals breakfast industry although had no explicit regulatory barriers to entry, still the list mentioned below were acted as high deterrent for new firms to enter the market: * Brand Proliferation: Big-3 had launched a very successful Brand proliferation strategy, by launching products to serve every foreseeable market category. This strategy also resulted in lowering market-share/brand and profit/brand, making it difficult for new entrants to cover the cost of initial capital. * Advertising & Promotion: Advertising/sales ratio in Cereal industry has although reduced from 18% in 1960’s to 10.2% in 1993, still it was higher than most of the other consumer product business. A typical spend of $20 million in the first year of a new brand can be enough to deter a new firm from entering the market. * Retail Channel: With increase in number of brands to offer, prime shelf space in retail channel was of prime importance in success of a product...
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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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...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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...my favorite things to eat is breakfast cereal. I have been a cereal eater since I was a kid and have chosen to do my paper on the breakfast cereal industry. The NAICS code is 311320. The SIC code is 2043 Cereal Breakfast Foods. The SIC gives a description of establishments as primarily engaged in manufacturing cereal breakfast foods and related preparations, except breakfast bars. Cereal breakfast foods include: coffee substitutes made grain, hulled corn, farina, granola (except bars and clusters), hominy grits, infant cereal foods, oatmeal, rolled oats, rice breakfast foods and wheat flakes. History Breakfast cereal is one of the most popular forms of breakfast in the United States. Just about all of us have had and enjoyed a bowl of cereal in the morning. The breakfast cereal industry is very profitable and has been around a long time. In 2007, the market value for the industry was $11.2 billion (Datamonitor, 2007). The breakfast cereal was first invented in 1863 by Dr. James Caleb Jackson who made the granula. The granula was a hard wheat that had to soak overnight before it could be eaten. Later the popular Corn Flakes was invented and today there are many varieties of cereal to choose from. There were a number of individuals who made various forms of cereal as a diet for its patients of the Sanitarium in Battle Creek, Michigan. The cereals that were made however were not for mass market. Not until 1906 was there a patent for cereal, and Corn Flakes were mass...
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...Myrzabekova id: 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...
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...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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...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 seemingly lowering the...
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...Cereal: The Complete Story ® Let’s make today great™ Quick facts on breakfast cereal. Average calories per serving by breakfast type. Cereal compares favorably to many other traditional choices.1 Children who eat cereal regularly tend to have lower BMIs.*** Studies have shown that the consumption of cereal for breakfast is associated with lower BMI in children, a relationship that holds regardless of the amount of sugar in the cereal.2, 3 Fewer than 4 servings in 14 days 4 to 7 servings in 14 days More than 7 servings in 14 days Percent overweight age 4-6 48% 35% 26% Percent overweight age 7-9 50% 38% 16% Good mornings begin here. The latest science on breakfast cereals. Since introducing Kellogg’s Corn Flakes in 1906, Kellogg has invested decades of science and product development into health and nutrition. From being the first food company to employ our own dietitian, to running our own research labs and closely monitoring independent studies on breakfast, cereal, grains and fiber all around the world, we aim to keep abreast of the ongoing scientific advancements in nutrition and food research and take this into account as we strive to enhance existing cereals and develop new cereals. What we learn constantly shapes our future direction. In the past few years, it’s helped us respond to consumer and market demands to lower sugar and sodium, as well as to increase the fiber and maintain the great taste in many of our cereals. We’re always looking for ways...
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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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...CASE QUESTIONS C.P.: The ready-to-eat breakfast cereal industry in 1994 (A) (HBS 9-795-191) ▪ What are the barriers to entry in the RTE cereal industry? ▪ Is the recent decrease in profitability a temporary phenomenon or a permanent change in industry profitability? ▪ Is the recent decrease in profitability a temporary phenomenon or a permanent change in industry profitability? ▪ What should of the large three competitors do? ▪ How should Kellogg compete with the white-label firms? C.P.: HTC Corp in 2012. (HBS 9-712-423) ▪ Evaluate HTC’s performance to date. What are its competitive assets and liabilities? ▪ Is HTC’s competitive position sustainable? What are the main challenges HTC faces? How do they affect HTC’s competitive position? ▪ Peter Chou and Cher Wang led HTC’s transformation from a small player to a top-five producer of smartphones. What strategic actions would move HTC into the top three? Specifically: How can HTC differentiate its products as more handset manufacturers enter the Android market? Should HTC abandon the tablet market? What should be HTC’s OS strategy? C.P. IBERIA AIRLINES, Redesigning their strategy to meet new challenges (IE - DE1-161-I) ▪ Exhibit 1 shows that from1999 to 2004 the profitability of network airlines have been negative. Why is the profitability of European Airlines so low? ▪ However, Ryanair is earning money. How? ▪ During the last years, Iberia has changed. What is the competitive position of Iberia? ▪ What...
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...Introduction: U.S based Kellogg’s is a world leader and the most successful cereal manufacturer in the world. Kellogg’s entered India in 1994 and it took them a good 15 years for stability in the Indian markets facing initial problems and trying to change the Indian consumer’s mentality about the morning breakfast http://www.kelloggs.co.uk/company/history/howitallbegan.aspx About the assignment: (Refer Appendix 1) Growth strategy by Kellogg’s in India: Kellogg’s were successful to create a need for the product which was never a necessity for an Indian household. We will now discuss how the company managed to establish themselves with a dominant market share in the Indian market. 1.) Ansoff Matrix Ansoff Matrix was introduced to address the corporate strategy of the future. It delivers the perspective of growth options on the horizontal level and introduces the possibility of diversification. (Kotler, Berger & Bickhoff, 2010) http://www.ansoffmatrix.com/ Market Development: Market Development is capturing new markets with your existing products or services. (Lester, 2009) In a new market or to a new consumer, it will be a quiet a task to have them to believe in your product on launching (Meldrum, M & McDonald, M., 2007) especially, when a country is so fond of their traditional recipes. With the help of extensive market research Kellogg’s found out that there was no breakfast cereal trend in the Indian market. Hence they launched their flagship product...
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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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...Acquisition Strategy An acquisition strategy consists of a company having the agenda to further its success through acquiring other companies. Through acquisitions companies are oftentimes able to enhance resource strengths to gain a competitive advantage in their respective industries. We are seeing more and more companies with acquisition strategies in recent decades, fast becoming one of the major driving forces in many industries in America. Although acquisition relates more to the management, ownership, and financial arrangements than to corporate strategy, a successful acquisition will result in added or combined resources that lead to substantial competitive capabilities (Gamble 2010, p. 118). There are several reasons for a company to adopt an acquisition strategy: • To fill gaps in its product line • To obtain new technologies as opposed to developing the existing company in order to compete effectively • To expand its geographic coverage • To reduce supply chain costs and become a efficient organization • To lead the industry with a stronger position with combined products and /or resources (Gamble 2010, p. 120) In addition, there are several positive outcomes that an acquiring company might see after acquisition: • Lower costs due to combined personnel and resources • Gained technological knowledge • More or better capabilities...
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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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...CASE 21 PepsiCo’s Diversification Strategy in 2014 John E. Gamble Texas A&M University–Corpus Christi P epsiCo was the world’s largest snack and beverage company, with 2013 net revenues of approximately $66.4 billion. The company’s portfolio of businesses in 2014 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft-drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe, Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complementary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, and Doritos and a Mountain Dew might be part of someone’s lunch. In 2014, PepsiCo’s business lineup included 22 $1 billion global brands. The company’s top managers were focused on sustaining the impressive performance through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. Newly introduced products such as Mountain Dew KickStart, Tostitos Cantina tortilla chips, Quaker Real Medleys, Starbucks Refreshers, and Gatorade Energy Chews accounted for 15 to 20 percent of all new growth in recent years. New product innovations that addressed consumer health and wellness concerns were important contributors to the company’s growth, with...
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