The Cereal Industry

Topics: Breakfast cereal, Brand, Advertising Pages: 5 (1438 words) Published: February 9, 2011
Executive Summary:
The cereal market is a booming industry. It has been around for over one hundred years and continues to attract millions of customers’ everyday. The market structure of the cereal industry is an Oligopoly. This is because there are four large firms, Kellogg, General Mills, Post, and Quaker Oats, which dominate the industry. There are also a few small firms who are involved in the cereal industry as well. The cereal industry targets all different age groups from young kids to adults. They also target people who try to eat healthy. Their main pricing strategy is price discrimination. They use this by handing out coupons, so that people can get their cereal at a discounted price. Price competition is rarely used in the cereal industry, and when it has been used it has been unsuccessful. Finally, there is a lack on competitors in the industry do to two large barriers to entry. This is accounted for when performing a Porter’s Five Forces analysis within the industry. These barriers are due to the lack of money for proper advertising and the brand image that many of the top cereal companies have already established. Kellogg, General Mills, Post, and Quaker Oats will continue to dominate the cereal industry for many years to come.

Top Cereal Producers

General Mills31%26%25%
Private Labels8%14%14%
Quaker Oats9%6%7%
All Other1%

The purpose of this analysis is to take a closer look at the cereal industry. In order to do so it is necessary within this analysis to identify the market structure of the industry. It is also imperative to recognize the main competitors within the industry in order to calculate the market share of the main companies that dominate the current industry. I will also conduct a Porter’s Five Forces analysis on the cereal industry in order to make known the possible threat of entry, the threat of rivalry, the bargaining power of the consumers, the bargaining power of the suppliers, as well as the threat of substitutes.

I will also touch on the differentiation strategy used by the companies within the industry in order to give a better understanding on how the main competitors diversify their products to meet consumer’s needs. The consumers being looked at are people of all ages whether it be children looking for a character to identify with such as Lucky (from Lucky Charms) or whether it be an adult trying to maintain a healthier diet and choosing the more beneficial cereal to their reformed diet.

This will give us a further understanding on not only the market structure but also how this popular breakfast food has been able to dominate the market with four main competitors due to their ability to dish out millions and millions of dollars on advertising. The smaller companies within the industry are unable to do so for multiple reasons giving the main competitors within the industry an absolute competitive advantage over these smaller scale companies.

Cereal has been apart of the American diet for over one hundred years. It was created by eccentric health reformers and is said to be eaten by approximately 80 million Americans every day. (Roy, Matthew) Throughout world history cereal has been present, but it was not until the 20th century that Americans built cereal into an $8 billion dollar industry. (Roy, Matthew) By 1915, tons of Americans chose cereal as their main food to consume for breakfast. This was in thanks to two people, John Harvey Kellogg and C.W. Post, who launched the breakfast-food industry in the 1980’s. Today, cereal is one of the main breakfast foods chosen by people all across the world. In almost every household you will likely find some brand of cereal within their home. The different brands you will find are Kellogg, General Mills, Post, and Quaker Oats, which are the four main firms in the popular cereal industry.

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