Ready To Eat Breakfast Cereal Industry
Monday, September 09, 2013
The Big 3 and the industry before the 1990's
1972 Federal trade Commission file a major antitrust suit against the big 3 (Kellogg, General Mills, and General Foods) Argued: Monopolized cereal market and had taken specific steps to deter entry by new firms How?
Restrained competition amongst themselves through "unwritten agreements" to limit the in-pack premiums (free toys, gifts, e tc) -Refrain from trade dealing-offering discounts to retailers for special treatment or special promotions -Refrained from widespread fortification of their brands because it was believed to not be in the long run interests of the industry (vitamin fortification)
FTC also argued the big three took specific actions to make new entry ventures unprofitable
-prevented entry into the RTE cereal industry by encouraging super markets and other retailers to adopt a shelf space plan that ensured the big threes products received the most valued center aisle position
Caught off guard with the introduction of natural cereal brands
Industry environment in the 1990's
Processes utilized in creation of many children's cereals took substantial engineering expertise and production experience to master.
-Standard plant was estimated to req. a capacity of 75 million pounds per year to achieve minimum efficient scale -employed 125 people
-req. capital in excess of 100 million
-a singly plant could produce many brands of cereal because the main source of scale economies was in bagging -Spent about 1% of gross sales on R&D (slightly higher than the food industry average)
2 PROBLEMS that have persisted over the 100 years of making cereal
1. It was difficult to keep cereal crispy in milk, and in cereals like Raisin Bran, the flakes tended to become soggy in the box because they absorbed the moisture of the fruit
2. NOT easy to combine things with varying water...
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