-Price-promotion spiral drove RTE cereal up 15.6% from 1990 to 1993. -The demand for natural cereals surged unexpectedly, where the Big Three introduced brands in this segment. ¨Why have private labels been able to enter this industry successfully? -Low price was the primary appeal of private label cereals, where it averaged $1.90 per pound at retail, 40% less than the Big Three. -Private label did little advertising and made few attempts to differentiate their products. -Private label offered better margins to the retailer, which contributed to a willingness of grocers to promote private labels enthusiastically. -Increased technological competence raises product quality. -Brand loyalty was seen to have been further eroded by failed extensions of popular brands. ¨How do the cost structures of private label and branded cereal manufacturers differ? -Manufacturing cost private labels manufacturing cost per pound was 10-20% lower than branded cereal manufacturers. -Advertising cost private labels engaged in little advertising to promote their products, and they did little to differentiate their products and competed solely on price. -Distribution cost branded manufacturers owned regional distribution centers, and the private labels relied on wholesalers and third-party distributors by giving them 10% margin on the wholesale price paid by the retailer. ¨What are the key core competencies and success factors needed in this industry? -Creativity, food engineering, keeping the right product in the marketplace, process expertise, knowledge of the consumers, technology, product innovation, and quality improvements.
¨How do you see the private label cereal manufacturers with respect to the key success factors in this industry?