Big cereal companies free essay sample

†¢What are the barriers to entry in the RTE (ready to eat) cereal industry? †¢Market concentration and big players extremely powerful and profitable. †¢Restrained competition by the big three by unwritten agreements to limit in pack premiums; tread dealing (one brand at a time for each company); and vitamin – fortification †¢Economics of scale in production and advertising †¢Slots in the supermarket and negotiation by volume and discounts †¢Three big cereal companies: Kellogg, General Mills and Philip Morris †¢When: 1994 †¢What: for the first time decrease of sales. Before this avoided destructive head to head competition. †¢Used to be a very closed market and even considered monopolistic. †¢Big margins, easy to negotiate and volume for retailers among other things made it difficult for new companies to enter the market. †¢1% of gross sales (80 millions) used for RD. †¢Distribution to centers. Buy space at retailers (could go up to 1 million) when introducing a new brand. We will write a custom essay sample on Big cereal companies or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page †¢Expansion from 96 – 2000 20% by entering superstore centers (Walmart with discounts) †¢Advertising and use of coupons†¦ cereals seen as a luxury item with the high prices according to consumers. †¢New products developed (expansion of brands or new creations). Also co-brand deals †¢Kellogg: 35% of market share, leader. It has cereals, waffles (eggo), toaster pastries (pop-tarts) and granola bars. †¢General Mills had 24.3% of market share (food company). Cereal division was its largest division (30% of revenues) followed by restaurants, packaged food goods like frozen see food. †¢Philip Morris: 60 billion consumer packaged goods company (half from food and half from beer). Acquired Nabisco †¢Quaker Oats: leader with 65% of the hot cereal industry. †¢Ralston: pet food, batteries manufacturing (everyday and energizer), soy protein, operator of ski resorts, polymer products, etc. Produced 50% of the private label cereals. Private Label Thread †¢Grew 50% from 91-96 (9.2% of all cereal sales) †¢Low price (40% less than the big 3) †¢Offered better margins for the retailers †¢90’s change, they used to suffer from poor quality and limited production before. Costs where cheaper because they focused on simpler cereals no RD, packages also cheap. †¢Malt-O-Meal’s competition of private label †¢Is the recent decrease in profitability a temporary phenomenon or a permanent change in industry profitability? †¢It is a permanent change thanks to the market penetration and growth the companies are having. Also it is important to mention that people, according to the text, view cereal not as a luxury item but as something basic. They rather pay less than buy for a more elaborated cereal. †¢How should Kellogg compete with the white-label firms? †¢I believe Kellogg should diversify their products and make a premium line and a more basic with lower prices but with Kellogg quality.