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?
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