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 •
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 R&D.
Distribution to centers. Buy space at retailers (could go up to 1 million) when introducing a new brand. •
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...
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